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What changed in DUCOMMUN INC /DE/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of DUCOMMUN INC /DE/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+249 added−255 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-22)

Top changes in DUCOMMUN INC /DE/'s 2024 10-K

249 paragraphs added · 255 removed · 206 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

49 edited+14 added−10 removed39 unchanged
Biggest changeWhile there continues to be uncertainty, Boeing is continuing to work with airlines and government officials on delivery timing and expect to deliver most of the aircraft in inventory by the end of 2024. The combination of these factors has, in turn, created a significant challenge for some of our customers and the entire commercial aerospace manufacturing and services sector.
Biggest changeThe combination of these factors has, in turn, created a significant challenge for some of our customers and the entire commercial aerospace manufacturing and services sector. Airline financial performance, which also plays a role in the demand for new capacity, has been adversely impacted by the aforementioned issues.
For further information, see Note 15 in the accompanying notes to consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K. In addition, see Risk Factors contained within Part I, Item 1A of this Form 10-K for certain risks related to environmental matters. HUMAN CAPITAL Our employees are critical to our success.
For further information, see Note 16 in the accompanying notes to consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K. In addition, see Risk Factors contained within Part I, Item 1A of this Form 10-K for certain risks related to environmental matters. HUMAN CAPITAL Our employees are critical to our success.
These regulations govern public and private response actions to hazardous or regulated substances that could be or have been released into the environment, or endanger human health, and they require us to obtain and maintain licenses and permits in connection with our operations.
These regulations govern public and private response actions to hazardous or regulated substances that could be or have been released into the environment, or endanger human health and safety, and they require us to obtain and maintain licenses and permits in connection with our operations.
Further, one of our largest customers, The Boeing Company (“Boeing”), was notified by the Federal Aviation Administration (“FAA”) in early January 2024 it has initiated an investigation into Boeing’s quality control system.
Further, one of our largest customers, The Boeing Company (“Boeing”), was notified by the Federal Aviation Administration (“FAA”) in early January 2024 it initiated an investigation into Boeing’s quality control system.
Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at its facilities located in Adelanto (a.k.a., El Mirage) and Monrovia, California. Based on currently available information, we have accrued $1.5 million at December 31, 2023 for our estimated liabilities related to these sites.
Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at its facilities located in Adelanto (a.k.a., El Mirage) and Monrovia, California. Based on currently available information, we have accrued $1.5 million at December 31, 2024 for our estimated liabilities related to these sites.
For additional information on revenues from major customers, see Note 16 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K. RESEARCH AND DEVELOPMENT We perform concurrent engineering with our customers and product development activities under our self-funded programs, as well as under contracts with others.
For additional information on revenues from major customers, see Note 17 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K. RESEARCH AND DEVELOPMENT We perform concurrent engineering with our customers and product development activities under our self-funded programs, as well as under contracts with others.
We have supplemented our organic growth by identifying, acquiring and integrating acquisition opportunities that result in broader, more sophisticated product and service offerings while diversifying and expanding our customer base and markets. For example, on April 25, 2023, we acquired 100% of the outstanding equity interests of BLR Aerospace L.L.C.
We have supplemented our organic growth by identifying, acquiring and integrating acquisition opportunities that result in broader, more sophisticated product and service offerings while diversifying and expanding our customer base and markets. For example, in April 2023, we acquired 100% of the outstanding equity interests of BLR Aerospace L.L.C.
Net revenues by major customer for 2023 and 2022 were as follows: Net revenues from our customers, except the U.S. Government, are diversified over a number of different military and space, commercial aerospace, industrial, medical and other products.
Net revenues by major customer for 2024 and 2023 were as follows: Net revenues from our customers, except the U.S. Government, are diversified over a number of different military and space, commercial aerospace, industrial, medical and other products.
Concurrent engineering and product development activities are performed for commercial, military and space applications. RAW MATERIALS AND COMPONENTS Raw materials and components used in the manufacturing of our products include aluminum, titanium, steel and carbon fibers, as well as a wide variety of electronic interconnect and circuit card assemblies and components.
Concurrent engineering and product development activities are performed for commercial, military and space applications. 8 Table of Contents RAW MATERIALS AND COMPONENTS Raw materials and components used in the manufacturing of our products include aluminum, titanium, steel and carbon fibers, as well as a wide variety of electronic interconnect and circuit card assemblies and components.
We may also be required to investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. Additionally, this extensive regulatory framework imposes significant compliance burdens and risks on us.
We may also be required to investigate and remediate the effects of a release or the possible disposal of materials at sites associated with our past and present operations. Additionally, this extensive regulatory framework imposes significant compliance burdens and risks on us.
Components, assemblies, and 4 Table of Contents lightning diversion products are provided principally for domestic and foreign commercial and military fixed-wing aircraft, military and commercial rotary-wing aircraft and space programs. Further, we provide select industrial high-reliability applications for the industrial, medical, and other end-use markets. We build custom, high-performance electronics and electromechanical systems.
Components, assemblies, and lightning diversion products are provided principally for domestic and foreign commercial and military fixed-wing aircraft, military and commercial rotary-wing aircraft and space programs. Further, we provide select industrial high-reliability applications for the industrial, medical, and other end-use markets. We build custom, high-performance electronics and electromechanical systems.
This was followed by the FAA announcing actions to increase its oversight of Boeing as well as not approving production rate increases or additional production lines for the 737 MAX until it is 5 Table of Contents satisfied that Boeing is in full compliance with required quality control procedures.
This notification was followed by the FAA announcing actions to increase its oversight of Boeing as well as not approving production rate increases or additional production lines for the 737 MAX until it is satisfied that Boeing is in full compliance with required quality control procedures.
Boeing’s commercial market outlook forecast projects a three and a half percent growth rate in the global fleet over a 20 year period. Based on long-term global economic growth projections of two and six tenths percent average annual gross domestic product (“GDP”) growth, Boeing projects demand for 42,595 new airplanes over the next 20 years.
Boeing’s commercial market outlook forecast projects a three and two tenths percent growth rate in the global fleet over a 20 year period. Based on long-term global economic growth projections of two and six tenths percent average in annual gross domestic product (“GDP”) growth, Boeing projects demand for 43,975 new airplanes over the next 20 years.
In addition, in 2018, we implemented an Employee Stock Purchase Plan (“ESPP”) to provide employees the opportunity to share in the ownership of our company and benefit from our performance through the purchase of our company’s stock.
In addition, we have an Employee Stock Purchase Plan (“ESPP”) to provide employees the opportunity to share in the ownership of our company and benefit from our performance through the purchase of our company’s stock.
Net revenues related to military and space, commercial aerospace, and Industrial end-use markets in 2023 and 2022 were as follows: Many of our contracts are firm fixed price contracts subject to termination at the convenience of the customer (as well as for default).
Net revenues related to military and space, commercial aerospace, and Industrial end-use markets in 2024 and 2023 were as follows: 7 Table of Contents Many of our contracts are firm fixed price contracts subject to termination at the convenience of the customer (as well as for default).
These raw materials are generally available from a number of suppliers and are generally in adequate supply. However, from time to time, and due to the lingering effects from the COVID-19 pandemic, we have experienced increases in lead times and limited availability of various items including aluminum, titanium and certain other raw materials and/or components.
These raw materials are generally available from a number of suppliers and are generally in adequate supply. However, from time to time, and due to the lingering supply chain issues, we have experienced increases in lead times and limited availability of various items including aluminum, titanium and certain other raw materials and/or components.
Backlog was $993.6 million at December 31, 2023, compared to $960.8 million at December 31, 2022. The increase in backlog was primarily in the military and space end-use markets, partially offset by a decrease in the commercial aerospace end-use markets and the industrial end-use markets.
Backlog was $1,060.8 million at December 31, 2024, compared to $993.6 million at December 31, 2023. The increase in backlog was primarily in the military and space end-use markets, partially offset by a decrease in the commercial aerospace end-use markets and the industrial end-use markets.
In The Boeing Company’s (“Boeing”) 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), they indicated that in 2023, global air traffic largely recovered to 2019 levels with domestic travel continuing to be the most robust and the single-aisle market following closely.
In The Boeing Company’s (“Boeing”) 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), they indicated that in 2024, global air traffic continued to expand beyond 2019 levels with domestic travel continuing to be the most robust and the single-aisle market following closely.
We anticipate that capital expenditures will continue to be required for the foreseeable future to upgrade and maintain our environmental compliance efforts, however, we currently do not expect such expenditures to be material in 2024 and the near term.
We anticipate that capital expenditures will continue to be required for the 9 Table of Contents foreseeable future to upgrade and maintain our environmental compliance efforts, however, we currently do not expect such expenditures to be material in 2025 and the near term.
We promote a culture of honesty, respect, trust, and teamwork through our Code of Business Conduct. Also, we have been engaged in a number of social matters and issues, both within the Company in our management of human capital, and externally with our community based initiatives.
We promote a culture of honesty, respect, trust, and teamwork through our Code of Business Conduct. Also, we have been engaged in a number of social matters and issues, both within the Company in our management of human capital, and externally with our community based initiatives. Employee Safety and Health The safety of our workforce remains our highest priority.
AEROSPACE AND DEFENSE END-USE MARKETS OVERVIEW Our largest end-use markets are the aerospace and defense markets and our revenues from these markets represented 94% of our total net revenues in 2023.
AEROSPACE AND DEFENSE END-USE MARKETS OVERVIEW Our largest end-use markets are the aerospace and defense markets and our revenues from these markets represented 96% of our total net revenues in 2024.
Due to the effects from the lingering COVID-19 pandemic or regulatory compliance requirements, while both major large aircraft manufacturers, Boeing and Airbus SE (“Airbus”), have announced improved build rates, it will take longer to reach pre-COVID-19 pandemic levels.
Due to the effects from the supply chain issues or regulatory compliance requirements, while both major large aircraft manufacturers, Boeing and Airbus SE (“Airbus”), expect improved build rates, it will take longer to reach pre-COVID-19 pandemic levels.
We strive to provide equal opportunities for qualified members of underrepresented communities and women for advancement within our company and award merit-based scholarships to the children and grandchildren of our employees so that they may develop the skills that will support their entry into the workforce.
We strive to provide equal opportunities for advancement to all our employees within our company based on individual merit and award merit-based scholarships to the children and grandchildren of our employees so that they may develop the skills that will support their entry into the workforce.
As a result, we have significant revenues from certain customers. Boeing and RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”) were our largest customers, with Boeing generating 8.2% and RTX generating 16.8% of our 2023 net revenues. Revenues from our top 7 Table of Contents 10 customers, including Boeing and RTX, were 59% of total net revenues during 2023.
As a result, we have significant revenues from certain customers. Boeing and RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”) were our largest customers, with Boeing generating 8.2% and RTX generating 18.5% of our 2024 net revenues. Revenues from our top 10 customers, including Boeing and RTX, were 60% of total net revenues during 2024.
Revenue based on remaining performance obligations is subject to delivery delays or program cancellations, which are beyond our control. Remaining performance obligations were $963.5 8 Table of Contents million at December 31, 2023. We anticipate recognizing an estimated 70% or $674.0 million of our remaining performance obligations during 2024.
Revenue based on remaining performance obligations is subject to delivery delays or program cancellations, which are beyond our control. Remaining performance obligations were $1,012.6 million at December 31, 2024. We anticipate recognizing an estimated 70% or $709.0 million of our remaining performance obligations during 2025.
In 2023, we continued to invest in infrastructure to improve internal safety protocols related to key processes and refined our health and safety software tools to track and engage our performance centers to further reduce our lost time and total recordable incident rates. Diversity and Inclusion Diversity and inclusion has been and will continue to be important to our success.
In 2024, we continued to invest in infrastructure to improve internal safety protocols related to key processes and refined our health and safety software tools to track and engage our performance centers to further reduce our lost time and total recordable incident rates.
Structural Systems designs, engineers and manufactures various sizes of 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.
Electronic Systems’ product offerings primarily range from prototype development to complex assemblies as discussed in more detail below. Structural Systems designs, engineers and manufactures various sizes of 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.
We currently compete with Tier One, Tier Two, and Tier Three suppliers. Our business growth strategy is to differentiate ourselves from competitors by providing more complex assemblies to our customers as a higher value added supplier.
Our business growth strategy is to differentiate ourselves from competitors by providing more complex assemblies to our customers as a higher value added supplier.
International travel has mostly recovered and the wide-body market continues to be paced by the international travel recovery. The transition in the international commercial market from recovery to normal market conditions is progressing slowly as China international travel remains below 2019 levels. Overall, Boeing is experiencing strong demand from its airline customers globally.
International travel also surpassed pre-pandemic levels during 2024 and the wide-body market continues to improve with international travel recovery. The transition in the international commercial market from recovery to normal market conditions is continuing to progress as China international travel remains below 2019 levels. Overall, Boeing is experiencing strong demand from its airline customers globally.
We believe that broadening the diversity of our pool of potential qualified applicants at the intern level will support our efforts at a diverse workforce reflective of the population and help us continue to develop a more diverse leadership team as our interns continue in their careers. 9 Table of Contents Talent Acquisition, Retention, and Development We attract, develop, and retain employee talent by offering competitive compensation packages and fostering a culture of care about their well-being.
We believe that broadening the diversity of our pool of potential qualified applicants at the intern level will support our efforts at a diverse workforce reflective of the population and help us continue to develop a more diverse leadership team as our interns continue in their careers.
AVAILABLE INFORMATION General information about us can be obtained from our website address at www.ducommun.com . Our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, if any, are available free of charge on our website as soon as reasonably practicable after they are filed with or furnished to the SEC.
Our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, if any, are available free of charge on our website as soon as reasonably practicable after they are filed with or furnished to the SEC. Information included on our website is not incorporated by reference in this Form 10-K.
Information included on our website is not incorporated by reference in this Form 10-K. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including our company.
The 10 Table of Contents SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including our company.
In addition, we endeavor to be a proactive corporate citizen by being responsive and supportive of the needs of our employees to attract qualified talent.
Talent Acquisition, Retention, and Development We attract, develop, and retain employee talent by offering competitive compensation packages and fostering a culture of care about their well-being. In addition, we endeavor to be a proactive corporate citizen by being responsive and supportive of the needs of our employees to attract qualified talent.
Deliveries of new aircraft by airframe manufacturers are dependent on the demand and financial capacity of its customers, primarily airlines and leasing companies, to purchase the aircraft. Thus, revenues from commercial aircraft could be affected as a result of changes in new aircraft orders, or the cancellation or deferral by airlines of purchases of ordered aircraft.
Thus, revenues from commercial aircraft could be affected as a result of changes in new aircraft orders, or the cancellation or deferral by airlines of purchases of ordered aircraft.
We believe our business in these markets in the long-term, is stable and we are well positioned in these markets even though the residual effects of the COVID-19 pandemic and the resulting inflation, rising or high interest rates, and supply chain issues has had and will continue to have an impact on our business. 6 Table of Contents SALES AND MARKETING Our commercial revenues are substantially dependent on airframe manufacturers’ production rates of new aircraft.
We believe our business in these markets in the long-term, is stable and we are well positioned in these markets even though the elevated inflation rate, high interest rates, and supply chain issues has had and will continue to have an impact on our business.
A significant portion of our revenues is earned from subcontracts with the Primes. Tier One suppliers manufacture aircraft sections and purchase assemblies. Tier Two suppliers provide more complex, value-added parts and may also assume more design risk, manufacturing risk, supply chain risk and project management risk than Tier Three suppliers. Tier Three suppliers principally provide components or detailed parts.
Tier Two suppliers provide more complex, value-added parts and may also assume more design risk, manufacturing risk, supply chain risk and project management risk than Tier Three suppliers. 5 Table of Contents Tier Three suppliers principally provide components or detailed parts. We currently compete with Tier One, Tier Two, and Tier Three suppliers.
INDUSTRIAL END-USE MARKETS OVERVIEW Our industrial, medical and other (collectively, “Industrial”) end-use markets are diverse and are impacted by the customers’ needs for increasing electronic content and a desire to outsource. Factors expected to impact these markets include capital and industrial goods spending and general economic conditions. Our products are used in heavy industrial manufacturing systems and certain medical applications.
Factors expected to impact these markets include capital and industrial goods spending and general economic conditions. Our products are used in heavy industrial manufacturing systems and certain medical applications. Revenues from the Industrial end-use markets were 4% of our total net revenues during 2024.
The global economy is expecting an easing of inflation and interest rates, with regional economic and geopolitical difficulties adding uncertainty to the outlook and the financial viability of some airlines and regions.
Thus, the overall outlook continues to stabilize as we face uncertainties in the environment in the near-to medium-term as airlines are facing persistently high and volatile costs. The global economy is expecting a continued easing of inflation and interest rates, with regional economic and geopolitical difficulties adding uncertainty to the outlook and the financial viability of some airlines and regions.
Workforce Demographics As of December 31, 2023, we had a highly skilled workforce of 2,265 employees, of which 368 are subject to collective bargaining agreements expiring in April 2025 and June 2024.
Workforce Demographics As of December 31, 2024, we had a highly skilled workforce of 2,180 employees, of which 268 are subject to a collective bargaining agreement expiring in April 2025. Historically, we have been successful in negotiating renewals to expiring agreements without material disruption of operating activities, and believe our relations with our employees are good.
For example, California recently passed two wide-reaching bills that will impose significant and mandatory climate-related reporting requirements for large public and private companies doing business in the state. The bills will ultimately require annual disclosure of audited Scope 1, 2, and 3 greenhouse gas (“GHG”) emissions and biennial disclosure related to certain climate risks beginning in January 2026.
For example, in 2023, California passed two wide-reaching bills that are likely to impose significant and mandatory climate-related reporting requirements for large public and private companies doing business in the state.
ENVIRONMENTAL MATTERS Our business, operations and facilities are subject to numerous stringent federal, state and local environmental laws and regulations issued by government agencies, including the Environmental Protection Agency (“EPA”). Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transport and disposal of hazardous and non-hazardous materials, pollutants and contaminants.
Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transport and disposal of hazardous and non-hazardous materials, pollutants and contaminants.
To this end, we continue to focus on protecting the health and safety of our employees and maintaining a safe work environment, including during the COVID-19 pandemic where we followed the COVID-19 safety guidelines provided by state and local governments and the Centers for Disease Control and Prevention at all of our facilities.
To this end, we continue to focus on protecting the health and safety of our employees and maintaining a safe work environment.
We utilized the 2022 Revolving Credit Facility (as defined below) to complete the acquisition. The acquisition of BLR adds to our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities, and was included in our Structural Systems segment.
The acquisition of BLR added to our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities, and was included in our Structural Systems segment. 4 Table of Contents PRODUCTS AND SERVICES Business Segment Information We operate through two primary strategic businesses, Electronic Systems and Structural Systems, each of which is a reportable segment.
The residual effects of the COVID-19 pandemic and the resulting inflation, rising or high interest rates, supply chain issues, geopolitical developments, and other events have contributed and/or continues to contribute to a general slowdown in the global economy and most significantly, the adverse impact on demand for civil air travel.
Revenues from the commercial aerospace end-use market represented 42% of our total net revenues for 2024. The elevated inflation rate, high interest rates, supply chain issues, geopolitical developments, and other events have contributed and/or continues to contribute to a general slowdown in the global economy.
For additional information related to our revenues from customers whose principal sales are to the U.S. Government and our direct sales to the U.S. Government, see “Risk Factors” contained within Part I, Item 1A of this Annual Report on Form 10-K (“Form 10-K”).
Government, see “Risk Factors” contained within Part I, Item 1A of this Annual Report on Form 10-K (“Form 10-K”). INDUSTRIAL END-USE MARKETS OVERVIEW Our industrial, medical and other (collectively, “Industrial”) end-use markets are diverse and are impacted by the customers’ needs for increasing electronic content and a desire to outsource.
Airline financial performance, which also plays a role in the demand for new capacity, has been adversely impacted by the COVID-19 pandemic and aforementioned issues. According to the International Air Transport Association (“IATA”), it is estimating industry-wide profits of $23.3 billion for 2023, an increase from its forecast of $4.6 billion a year ago.
According to the International Air Transport Association (“IATA”), it is estimating industry-wide profits of $31.5 billion for 2024, an increase from its forecast of $25.7 billion a year ago. For 2025, IATA is forecasting $36.6 billion in profits for the industry globally.
PRODUCTS AND SERVICES Business Segment Information We operate through two primary strategic businesses, Electronic Systems and Structural Systems, each of which is a reportable segment. The results of operations among our operating segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance.
The results of operations among our operating segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. 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.
Historically, we have been successful in negotiating renewals to expiring agreements without material disruption of operating activities, and believe our relations with our employees are good. See Risk Factors contained within Part I, Item 1A of this Form 10-K for additional information regarding certain risks related to our employees.
See Risk Factors contained within Part I, Item 1A of this Form 10-K for additional information regarding certain risks related to our employees. AVAILABLE INFORMATION General information about us can be obtained from our website address at www.ducommun.com .
Revenues from the military and space end-use market in 2023 represented 53% of our total net revenues during 2023. The U.S. government is currently operating under a continuing resolution (“CR”) to keep the government funded while the Congress works to enact full year fiscal year 2024 (“FY24”) appropriation bills.
Revenues from the military and space end-use market in 2024 represented 54% of our total net revenues during 2024. On December 21, 2024, the U.S.
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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 as discussed in more detail below.
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We utilized the 2022 Revolving Credit Facility (as defined below) to complete the acquisition.
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Revenues from the commercial aerospace end-use market represented 41% of our total net revenues for 2023.
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A significant portion of our revenues is earned from subcontracts with the Primes. Tier One suppliers manufacture aircraft sections and purchase assemblies.
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For 2024, IATA is forecasting $25.7 billion in profits for the industry globally. Thus, the overall outlook continues to stabilize as we face uncertainties in the environment in the near-to medium-term as airlines are facing persistently high and volatile cost of fuel and tight labor conditions.
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In July 2024, Boeing also pled guilty to conspiracy fraud charges, which may result in additional external oversight on its manufacturing and quality control process.
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Under the Fiscal Responsibility Act of 2023, which imposes limits on discretionary spending for defense and non-defense programs in exchange for the lifting of the debt ceiling in June 2023, if Congress fails to enact all appropriation bills by April 30, 2024, then the budget caps will be reduced and corresponding automatic reductions to agency budget accounts will be enforced through sequestration.
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Further, in September 2024, the International Association of Machinists and Aerospace Workers District 751 voted to initiate a labor strike affecting more than 30,000 Boeing manufacturing employees primarily located in Washington state, and the manufacturing employees, after rejecting the contract offer in October, voted to approve the revised contract offer in November 2024.
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Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on our results of operations, financial position, and/or cash flows.
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Government enacted a continuing resolution (“CR”) to keep the government funded through March 14, 2025 while the Congress works to enact full year fiscal year 2025 (“FY25”) appropriation bills or an additional CR to fund government departments and agencies after March 14, 2025.
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Revenues from the Industrial end-use markets were 6% of our total net revenues during 2023.
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We, and a number of our customers rely on the U.S. 6 Table of Contents Government in various aspects of our defense and commercial businesses. In the event of a shutdown, requirements to furlough employees in the U.S. Department of Defense (“U.S.
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Employee Safety and Health The safety of our workforce remains our highest priority as evidenced by our response to the COVID-19 pandemic over the last four years.
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DoD”) or other government agencies could result in payment delays, impair our ability to perform work on existing contracts or otherwise impact our operations, negatively impact future orders, and/or cause other disruptions or delays. The U.S. Government could experience a disruption to its operations and/or payments in 2025 as a result of the U.S.
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We implemented the use of employee health and safety key performance indicators (“KPIs”) that were regularly communicated to our employees by senior management to improve safety outcomes.
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Treasury exhausting extraordinary measures after reaching its debt limit. In addition, U.S. Government discretionary spending in FY24 and FY25, including defense spending, was capped by the Fiscal Responsibility Act of 2023 (“FRA23”). If a CR for FY25 is in place on April 30, 2025, it would trigger a sequester under the FRA23.
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As part of our continuing improvement in this area, we implemented diversity and inclusion initiatives in 2019 to help accelerate the process of developing diverse, and qualified talent and applicant pools. To that end, we are seeing an increase in the number of women and individuals from underrepresented communities being promoted on merit into leadership roles.
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These potential disruptions, and any other broader macroeconomic impacts, could affect our current programs and contracts and have a material effect on our financial position, results of operations and/or cash flows. For additional information related to our revenues from customers whose principal sales are to the U.S. Government and our direct sales to the U.S.
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However, the Monrovia, California performance center that employs 97 of our collective bargaining employees that are covered by an agreement expiring in June 2024 will be ceasing production and the facility will close by the middle of 2024. See Note 3 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further discussion.
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SALES AND MARKETING Our commercial revenues are substantially dependent on airframe manufacturers’ production rates of new aircraft. Deliveries of new aircraft by airframe manufacturers are dependent on the demand and financial capacity of its customers, primarily airlines and leasing companies, to purchase the aircraft.
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ENVIRONMENTAL MATTERS Our business, operations and facilities are subject to numerous stringent federal, state and local environmental laws and regulations issued by government agencies, including but not limited to the Environmental Protection Agency (“EPA”) and similar state agencies.
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The bills were subsequently amended in 2024 and will ultimately likely require annual disclosure of audited Scope 1 and 2 greenhouse gas (“GHG”) emissions and biennial disclosure related to certain climate risks, beginning in January 2026 and subject to final regulations expected to be promulgated by the California Air Resources Board around or near July 2025.
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Human Capital Management We promote fairness and equal opportunities through our employment practices and processes and continue to drive a merit-based culture throughout our company. These priorities are demonstrated by fostering employees’ well-being and encouraging the sharing of ideas and unique perspectives, promoting innovation, creativity, collaboration and supporting the development, growth and advancement of individual contributions.
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We file electronically with the SEC required reports on Form 8-K, Form 10-Q, and Form 10-K; proxy materials; ownership reports for insiders as required by Section 16 of the Securities Exchange Act of 1934, as amended, registration statements on Forms S-3 and S-8, as necessary; and other forms or reports as required.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

68 edited+12 added−26 removed111 unchanged
Biggest changeProduct liability claims in excess of insurance could adversely affect our financial results and financial condition. We face potential liability for property damage, personal injury, or death as a result of the failure of products designed or manufactured by us.
Biggest changeWe face potential liability for property damage, personal injury, or death as a result of the failure of products designed or manufactured by us. Although we currently maintain product liability insurance (including aircraft product liability insurance), any material product liability not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flows.
The terms of the 2022 Term Loan require us to make installment payments of 0.625% of the initial outstanding principal balance on a quarterly basis during years one and two, 1.250% during years three and four, and 1.875% during year five, on the last business day of each calendar quarter.
The terms of the 2022 Term Loan require us to make installment payments of 0.625% of the initial outstanding principal balance on a quarterly basis during years one and two, 1.250% during years three and four, and 1.875% during year five, on the last business day of each calendar quarter.
Management has identified a material weakness in our internal control over financial reporting which could, if not remediated, adversely impact the reliability of our financial reports, cause us to submit our financial reports in an untimely fashion, result in material misstatements in our financial statements and cause current and potential stockholders to lose confidence in our financial reporting, which in turn could adversely affect the trading price of our stock.
Management has identified a material weakness in the past in our internal control over financial reporting which could, if not remediated, adversely impact the reliability of our financial reports, cause us to submit our financial reports in an untimely fashion, result in material misstatements in our financial statements and cause current and potential stockholders to lose confidence in our financial reporting, which in turn could adversely affect the trading price of our stock.
Goodwill is tested for impairment on an annual basis as of the first day of our fourth quarter or more frequently if events or circumstances occur which could indicate potential impairment. In assessing the recoverability of goodwill, management is required to make certain critical estimates and assumptions.
Goodwill is tested for impairment on an annual basis as of the first day of our fiscal fourth quarter or more frequently if events or circumstances occur which could indicate potential impairment. In assessing the recoverability of goodwill, management is required to make certain critical estimates and assumptions.
See discussion of a fire in June 2020 which severely damaged our Guaymas, Mexico performance center in Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
See discussion of a fire in June 2020 which severely damaged our Guaymas, Mexico performance center in Note 16 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The SEC recently adopted a rule, “Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure,” that enhances and standardizes disclosures regarding cybersecurity risk management and governance, as well as material cybersecurity incidents.
The SEC adopted a rule, “Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure,” that enhances and standardizes disclosures regarding cybersecurity risk management and governance, as well as material cybersecurity incidents.
Specifically, we did not verify that amendments to purchase orders and gross margin percentage assumptions used in the Company’s revenue recognition analysis were properly reviewed at a sufficient level of precision. The material weakness resulted in immaterial adjustments to net revenues and contract assets as of and for the quarterly and annual periods ending December 31, 2023.
Specifically, we did not verify that amendments to purchase orders and gross margin percentage assumptions used in our revenue recognition analysis were properly reviewed at a sufficient level of precision. The material weakness resulted in immaterial adjustments to net revenues and contract assets as of and for the quarterly and annual periods ending December 31, 2023.
See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
See Note 16 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
If we are unable to successfully compete for new business, our net revenues growth and operating margins may decline. Some of our major customers have completed extensive cost containment efforts and we expect continued pricing pressures in 2024 and beyond. Competitive pricing pressures may have an adverse effect on our financial condition and operating results.
If we are unable to successfully compete for new business, our net revenues growth and operating margins may decline. Some of our major customers have completed extensive cost containment efforts and we expect continued pricing pressures in 2025 and beyond. Competitive pricing pressures may have an adverse effect on our financial condition and operating results.
On April 25, 2023, we acquired 100% of the outstanding equity interests of BLR for an initial purchase price of $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.
In April 2023, we acquired 100% of the outstanding equity interests of BLR for an initial purchase price of $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.
Our level of debt could: • limit our ability to obtain additional financing to fund capital expenditures, investments or acquisitions or other general corporate requirements; • require a portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions or other general corporate purposes; • increase our vulnerability to adverse changes in general economic, industry and competitive conditions; • place us at a disadvantage compared to other, less leveraged competitors; • expose us to the risk of increased borrowing costs and rising or high interest rates as a portion of our current borrowings under our 2022 Credit Facilities bear interest at variable rates (our interest rate swaps, with an aggregate total notional amount of $150.0 million and seven year tenor, became effective on January 1, 2024), which could further adversely impact our cash flows; • limit our flexibility to plan for and react to changes in our business and the industry in which we compete; • restrict us from making strategic acquisitions; • expose us to risk of unfavorable changes in the global credit markets; and • make it more difficult for us to satisfy our obligations with respect to the 2022 Credit Facilities and our other debt.
Our level of debt could: • limit our ability to obtain additional financing to fund capital expenditures, investments or acquisitions or other general corporate requirements; • require a portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions or other general corporate purposes; • increase our vulnerability to adverse changes in general economic, industry and competitive conditions; • place us at a disadvantage compared to other, less leveraged competitors; • expose us to the risk of increased borrowing costs and rising or high interest rates as a portion of our current borrowings under our 2022 Credit Facilities bear interest at variable rates (however, we have interest rate swaps that became effective on January 1, 2024, with an aggregate total notional amount of $150.0 million with a seven year tenor), which could further adversely impact our cash flows; • limit our flexibility to plan for and react to changes in our business and the industry in which we compete; • restrict us from making strategic acquisitions; • expose us to risk of unfavorable changes in the global credit markets; and 11 Table of Contents • make it more difficult for us to satisfy our obligations with respect to the 2022 Credit Facilities and our other debt.
(“Viasat”) comprise a significant portion of our commercial aerospace end-use market in 2023. A significant portion of our net sales in our military and space end-use markets are made under subcontracts with original equipment manufacturers (“OEMs”), under their prime contracts with the U. S. Government.
(“Viasat”) comprise a significant portion of our commercial aerospace end-use market in 2024. A significant portion of our net sales in our military and space end-use markets are made under subcontracts with original equipment manufacturers (“OEMs”), under their prime contracts with the U. S. Government.
In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements.
In addition, if we are unable to successfully remediate a material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements.
Under this new rule, public companies are now required to make annual disclosures describing their processes for identifying and managing material cybersecurity risks, management’s role in assessing and managing such risks, and the Board of Directors’ oversight of cybersecurity risks.
Under this rule, public companies are required to make annual disclosures describing their processes for identifying and managing material cybersecurity risks, management’s role in assessing and managing such risks, and the Board of Directors’ oversight of cybersecurity risks.
Government business, suspension or debarment could have a material adverse effect on our financial results. In addition, the U.S. Government may revise its procurement practices or adopt new contract rules and regulations at any time, including increased usage of fixed-price contracts, procurement reform, and compliance with cybersecurity requirements.
Government agencies. Given our dependence on U.S. Government business, suspension or debarment could have a material adverse effect on our financial results. In addition, the U.S. Government may revise its procurement practices or adopt new contract rules and regulations at any time, including increased usage of fixed-price contracts, procurement reform, and compliance with cybersecurity requirements.
We currently generate the majority of our revenues from customers in the aerospace and defense industry. Our business depends, in part, on the level of new military and commercial aircraft orders. As a result, we have significant sales to certain 12 Table of Contents customers. Sales to The Boeing Company (“Boeing”), Spirit AeroSystems Holdings, Inc. (“Spirit”), and Viasat, Inc.
We currently generate the majority of our revenues from customers in the aerospace and defense industry. Our business depends, in part, on the level of new military and commercial aircraft orders. As a result, we have significant sales to certain customers. Sales to The Boeing Company (“Boeing”), Spirit AeroSystems Holdings, Inc. (“Spirit”), and Viasat, Inc.
If we do not continue to compete effectively and win contracts, our future business, financial condition, results of operations and our ability to meet our financial obligations may be materially compromised. Our products and processes are subject to risk of obsolescence as a result of changes in technology and evolving industry and regulatory standards.
If we do not continue to compete effectively and win contracts, our 16 Table of Contents future business, financial condition, results of operations and our ability to meet our financial obligations may be materially compromised. Our products and processes are subject to risk of obsolescence as a result of changes in technology and evolving industry and regulatory standards.
Even if such expenditures are made, there can be no assurance that we will be able to comply. We have been directed to investigate and take corrective action for groundwater 17 Table of Contents contamination at certain sites and our ultimate liability for such matters will depend upon a number of factors.
Even if such expenditures are made, there can be no assurance that we will be able to comply. We have been directed to investigate and take corrective action for groundwater contamination at certain sites and our ultimate liability for such matters will depend upon a number of factors.
At December 31, 2023, we were in compliance with the leverage covenant under the 2022 Credit Facilities. However, there is no assurance that we will continue to be in compliance with the leverage covenant in future periods.
At December 31, 2024, we were in compliance with the leverage covenant under the 2022 Credit Facilities. However, there is no assurance that we will continue to be in compliance with the leverage covenant in future periods.
In addition, our international operations subject us to numerous U.S. and foreign laws and regulations, including, without limitation, regulations relating to import-export control, technology transfer restrictions, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act.
In addition, our international operations subject us to numerous U.S. and foreign laws and regulations, including, without limitation, regulations relating to import-export control, technology transfer restrictions, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act and other similar antibribery laws, and the anti-boycott provisions of the U.S. Export Administration Act.
Revenue growth with our other commercial customers, including Airbus SE (“Airbus”), and continued solid demand from defense OEMs (also known as prime contractors) have helped to mitigate a significant portion of this risk for the time being.
Revenue growth with our other commercial customers, 13 Table of Contents including Airbus SE (“Airbus”), and continued solid demand from defense OEMs (also known as prime contractors) have helped to mitigate a significant portion of this risk for the time being.
In addition, changes in intellectual property laws or their interpretation may impact our ability to protect and assert our intellectual property rights, increase costs and uncertainties in the prosecution of patent applications and enforcement or defense of issued patents, and diminish the value of our intellectual property.
In addition, 21 Table of Contents changes in intellectual property laws or their interpretation may impact our ability to protect and assert our intellectual property rights, increase costs and uncertainties in the prosecution of patent applications and enforcement or defense of issued patents, and diminish the value of our intellectual property.
In addition, shifts in government spending priorities have caused and may continue to cause additional uncertainty in the placement of orders. Our revenues from our top ten customers, which represented 59% of our total 2023 net revenues, were diversified over a number of different aerospace and defense products.
In addition, shifts in government spending priorities have caused and may continue to cause additional uncertainty in the placement of orders. Our revenues from our top ten customers, which represented 60% of our total 2024 net revenues, were diversified over a number of different aerospace and defense products.
We may not have the ability to renew facilities leases on terms favorable to us and relocation of operations presents risks due to business interruption. Certain of our manufacturing facilities and offices are leased and have lease terms that expire between 2024 and 2032.
We may not have the ability to renew facilities leases on terms favorable to us and relocation of operations presents risks due to business interruption. Certain of our manufacturing facilities and offices are leased and have lease terms that expire between 2025 and 2034.
In addition, 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. At December 31, 2023, we had a total of $266.0 million of outstanding long-term debt under the 2022 Credit Facilities.
In addition, 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. At December 31, 2024, we had a total of $243.2 million of outstanding long-term debt under the 2022 Credit Facilities.
If we seek to enforce our intellectual property rights, we may be subject to claims that those rights are invalid or unenforceable, and 21 Table of Contents others may seek counterclaims against us, which could have a negative impact on our business.
If we seek to enforce our intellectual property rights, we may be subject to claims that those rights are invalid or unenforceable, and others may seek counterclaims against us, which could have a negative impact on our business.
Our California performance centers generated $185.9 million in net revenues during 2023. Even if covered by insurance, any significant damage or destruction of our facilities due to storms, earthquakes, fires or other natural disasters could result in our inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to us.
Our California performance centers generated $184.0 million in net revenues during 2024. Even if covered by insurance, any significant damage or destruction of our facilities due to storms, earthquakes, fires or other natural disasters could result in our inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to us.
We had significant sales to General Dynamics Corporation (“GD”), Northrop Grumman Corporation (“Northrop”), and RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”) in 2023 in our defense technologies end-use market. Our customers may experience delays in the launch and certification of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their products, or other difficulties in their business.
We had significant sales to Lockheed Martin Corporation (“Lockheed”), Northrop Grumman Corporation (“Northrop”), and RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”) in 2024 in our defense technologies end-use market. Our customers may experience delays in the launch and certification of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their products, or other difficulties in their business.
See “Goodwill and Other Intangible Assets” in Note 7 of our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. 18 Table of Contents We expect to face increased costs and resources to comply with the new SEC cybersecurity rule.
See “Goodwill and Other Intangible Assets” in Note 8 of our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. We expect to face increased costs and resources needed to comply with the SEC cybersecurity rule and cybersecurity threats.
Due to these 19 Table of Contents inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud.
Due to these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud.
At December 31, 2023, the outstanding balance on the 2022 Credit Facilities was $266.0 million with an average interest rate of 7.53%. Should interest rates increase significantly, our debt service cost on the variable portion of our debt will increase.
At December 31, 2024, the outstanding balance on the 2022 Credit Facilities was $243.2 million with an average interest rate of 7.25%. Should interest rates increase significantly, our debt service cost on the variable portion of our debt will increase.
Many of our customers have the in-house capability to fulfill their manufacturing requirements. Our larger competitors may be able to compete more effectively for very large-scale contracts than we can by providing different or greater capabilities or benefits such as technical qualifications, past performance on large-scale contracts, geographic presence, price and availability of key professional personnel.
Our larger competitors may be able to compete more effectively for very large-scale contracts than we can by providing different or greater capabilities or benefits such as technical qualifications, past performance on large-scale contracts, geographic presence, price and availability of key professional personnel.
Our goodwill and other intangible assets as of December 31, 2023 were $410.9 million, or 37% of total assets. If our goodwill and/or other assets are impaired, it could have an adverse effect on our results of operations and financial condition.
Our goodwill and other intangible assets as of December 31, 2024 were $394.2 million, or 35% of total assets. If our goodwill and/or other assets are impaired, it could have an adverse effect on our results of operations and financial condition.
If any audit or review were to uncover inaccurate costs or improper activities, we could be subject to penalties and sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from conducting future business with the U.S. Government.
If any audit or review were to uncover inaccurate costs or improper activities, we could be subject to penalties and sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from conducting future business with the U.S. Government. Any such outcome could have a material adverse effect on our financial results.
We have concluded that there is a material weakness in our internal control over financial reporting as we did not design and maintain effective controls over the accuracy of contract terms and the reasonableness of gross margin assumptions used to recognize revenue.
In our 2023 Form 10-K, we concluded there was a material weakness in our internal control over financial reporting as of December 31, 2023, as we did not design and maintain effective controls over the accuracy of contract terms and the reasonableness of gross margin assumptions used to recognize revenue.
The loss of members of our senior management group, or key engineering and technical personnel, could negatively impact our ability to grow and remain competitive in the future and could have a material adverse effect on our financial results. Labor disruptions by our employees could adversely affect our business. As of December 31, 2023, we employed 2,265 people.
The loss of members of our senior management group, or key engineering and technical personnel, could negatively impact our ability to grow and remain competitive in the future and could have a material adverse effect on our financial results. 20 Table of Contents Labor disruptions by our employees could adversely affect our business.
Thus, management has determined that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2023.
Thus, management determined that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2023. This material weakness was remediated as of December 31, 2024.
These restrictions also limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general. A breach of any covenant in the 2022 Credit Facilities could result in a default under the 2022 Credit Facilities. A default, if not waived, could result in acceleration of the debt outstanding under the agreement.
These restrictions also limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general. 12 Table of Contents A breach of any covenant in the 2022 Credit Facilities could result in a default under the 2022 Credit Facilities.
Unanticipated changes in our tax provision or exposure to additional income tax liabilities could affect our profitability. Significant judgment is required in determining our provision for income taxes. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain.
Significant judgment is required in determining our provision for income taxes. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain.
The total long-term debt was primarily the result of our acquisitions, including Lightning Diversion Systems, LLC (“LDS”) in September 2017, Certified Thermoplastics Co., LLC (“CTP”) in April 2018, Nobles Worldwide, Inc. (“Nobles”) in October 2019, and BLR Aerospace, L.L.C.
The total long-term debt was primarily the result of our acquisitions, including Lightning Diversion Systems, LLC (“LDS”) in September 2017, Certified Thermoplastics Co., LLC (“CTP”) in April 2018, Nobles Worldwide, Inc. (“Nobles”) in October 2019, and BLR Aerospace, L.L.C. (“BLR”) in April 2023. Our ability to obtain additional financing or complete a debt refinancing in the future may be limited.
The level of trading activity may vary daily and typically represents only a small percentage of outstanding shares. As a result, a stockholder who sells a significant amount of shares in a short period of time could negatively affect our share price. Our amount of debt may require us to raise additional capital to fund acquisitions.
As a result, a stockholder who sells a significant amount of shares in a short period of time could negatively affect our share price. Our amount of debt may require us to raise additional capital to fund acquisitions.
Government contracts and subcontracts, suspension or debarment from U.S. Government contracting and various other fines and penalties . Noncompliance found by any one agency could result in fines, penalties, debarment or suspension from receiving additional contracts with all U.S. Government agencies. Given our dependence on U.S.
Noncompliance could expose us to liability for penalties, including termination of our contracts and subcontracts, disqualification from bidding on future U.S. Government contracts and subcontracts, suspension or debarment from U.S. Government contracting and various other fines and penalties . Noncompliance found by any one agency could result in fines, penalties, debarment or suspension from receiving additional contracts with all U.S.
Acquisitions entail certain risks, including: • difficulty in integrating the operations and personnel of the acquired company within our existing operations or in maintaining uniform standards; • loss of key employees or customers of the acquired company; • the failure to achieve anticipated synergies; • unrecorded liabilities of acquired companies that we fail to discover during our due diligence investigations or that are not subject to indemnification or reimbursement by the seller; and • management and other personnel having their time and resources diverted to evaluate, negotiate and integrate acquisitions.
Acquisitions entail certain risks, including: • difficulty in integrating the operations and personnel of the acquired company within our existing operations or in maintaining uniform standards; • loss of key employees or customers of the acquired company; • the failure to achieve anticipated synergies; • unrecorded liabilities of acquired companies that we fail to discover during our due diligence investigations or that are not subject to indemnification or reimbursement by the seller; and • management and other personnel having their time and resources diverted to evaluate, negotiate and integrate acquisitions. 15 Table of Contents We may not be successful in achieving expected operating efficiencies and sustaining or improving operating expense reductions, and may experience business disruptions associated with restructuring, performance center consolidations, realignment, cost reduction, and other strategic initiatives.
We generally make sales under purchase orders and contracts that are subject to cancellation, modification or rescheduling. Changes in the economic environment and the financial condition of the industries we serve could result in customer cancellation of contractual orders or requests for rescheduling.
Changes in the economic environment and the financial condition of the industries we serve could result in customer cancellation of contractual orders or requests for rescheduling.
Consolidation among our suppliers may result in fewer sources of supply and increased cost to us. 14 Table of Contents Our growth strategy includes evaluating selected acquisitions, which entails certain risks to our business and financial performance.
Consolidation among our competitors may result in larger competitors with greater resources and market share, which could adversely affect our ability to compete successfully. Consolidation among our suppliers may result in fewer sources of supply and increased cost to us. Our growth strategy includes evaluating selected acquisitions, which entails certain risks to our business and financial performance.
As a result, we are subject to the risks of conducting and operating our business internationally, including: • political instability; • economic and geopolitical developments and conditions; • pandemics and disasters, natural or otherwise; • compliance with a variety of international laws, as well as U.S. laws affecting the activities of U.S. companies conducting business abroad, including, but not limited to, the Foreign Corrupt Practices Act; • imposition of taxes, export control approvals or licenses, tariffs, embargoes and other trade restrictions; • difficulties repatriating funds or restrictions on cash transfers; and • potential for new tariffs imposed on imports by the U.S. administration. 15 Table of Contents While the impact of these factors is difficult to predict, we believe any one or more of these factors could have a material adverse effect on our financial results.
As a result, we are subject to the risks of conducting and operating our business internationally, including: • political instability that may result in price fluctuations of raw materials; • economic and geopolitical developments and conditions; • pandemics and disasters, natural or otherwise; • compliance with a variety of international laws, as well as U.S. laws affecting the activities of U.S. companies conducting business abroad, including, but not limited to, the Foreign Corrupt Practices Act; • imposition of taxes, export control approvals or licenses, tariffs, embargoes and other trade restrictions; • difficulties repatriating funds or restrictions on cash transfers; and • potential for new tariffs imposed on imports by the U.S. administration that may affect our ability to import raw materials into the U.S. and finished goods from our leased manufacturing facility in Mexico and increase the cost of such imports.
Contracts with some of our customers, including Federal government contracts, contain provisions which give our customers a variety of rights that are unfavorable to us and the OEMs to whom we provide products and services, including the ability to terminate a contract at any time for convenience.
Any significant delay in, or impairment of, our ability to sell products outside of the United States could have a material adverse effect on our business, financial condition and results of operations. 14 Table of Contents Contracts with some of our customers, including Federal government contracts, contain provisions which give our customers a variety of rights that are unfavorable to us and the OEMs to whom we provide products and services, including the ability to terminate a contract at any time for convenience.
We could also be subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks.
Like other public companies, our computer systems and those of our third party vendors and service providers are regularly subject to, and will continue to be the target of systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks.
A default could permit our lenders to foreclose on any of our assets securing such debt. Even if new financing were available at that time, it may not be on terms or amounts that are acceptable to us or terms as favorable as our current agreements.
Even if new financing were available at that time, it may not be on terms or amounts that are acceptable to us or terms as favorable as our current agreements. If our debt is in default for any reason, our business, results of operations and financial condition could be materially and adversely affected.
We enter into contracts providing for a firm, fixed-price for the sale of a majority of our products, regardless of the production costs incurred by us. In many cases, we make multi-year firm, fixed-price commitments to our customers, without assurance that our anticipated production costs will be achieved.
In many cases, we make multi-year firm, fixed-price commitments to our customers, without assurance that our anticipated production costs will be achieved.
Government for payment, defining reimbursable costs, establishing ethical standards for the procurement process, controlling the import and export of defense articles and services, and cybersecurity requirements, such as Cybersecurity Maturity Model Certification (“CMMC”). Noncompliance could expose us to liability for penalties, including termination of our contracts and subcontracts, disqualification from bidding on future U.S.
Government contracts, disclosure of cost and pricing data, civil penalties for violations of false claims to the U.S. Government for payment, defining reimbursable costs, establishing ethical standards for the procurement process, controlling the import and export of defense articles and services, and cybersecurity requirements, such as Cybersecurity Maturity Model Certification (“CMMC”).
Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process and an allowance for profit on the contract or adjustment for loss if completion of performance would have resulted in a loss.
Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process and an allowance for profit on the contract or adjustment for loss if completion of performance would have resulted in a loss. 17 Table of Contents Our operations are subject to numerous extensive, complex, costly and evolving laws, regulations and restrictions, including cybersecurity requirements, and failure to comply with these laws, regulations and restrictions could subject us to penalties and sanctions that could harm our business.
Government are subject to numerous laws, regulations and certifications, which affect how we do business with our customers and may impose added costs to our business. As a result, our contracts and operations are subject to numerous extensive, complex, costly and evolving laws, regulations and restrictions, principally by the U.S. Government or their agencies.
Prime contracts with our major customers that have contracts with various agencies of the U.S. Government are subject to numerous laws, regulations and certifications, which affect how we do business with our customers and may impose added costs to our business.
The aerospace and defense industry is experiencing significant consolidation, including our customers, competitors and suppliers. Consolidation among our customers may result in delays in the awarding of new contracts and losses of existing business. Consolidation among our competitors may result in larger competitors with greater resources and market share, which could adversely affect our ability to compete successfully.
The aerospace and defense industry has and continues to experience significant consolidation, including our customers, competitors and suppliers. Consolidation among our customers may result in delays in the awarding of new contracts and losses of existing business.
We could also suffer an adverse impact on our reputation and a diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations. See Note 13 and Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
We could also suffer an adverse impact on our reputation and a diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations.
We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and impose certain risks and costs on our business.
Government contract laws and regulations affect how we do business with our customers and impose certain risks and costs on our business.
See Note 1 and Note 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further discussion. 11 Table of Contents While we expect to meet all of our financial obligations, we cannot ensure that our business will generate sufficient cash flow from operations in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs.
While we expect to meet all of our financial obligations, we cannot ensure that our business will generate sufficient cash flow from operations in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We require a considerable amount of cash to fund our anticipated voluntary principal prepayments on our Credit Facilities.
Any inability to generate sufficient cash flow could have a material adverse effect on our financial condition or results of operations.
Any inability to generate sufficient cash flow could have a material adverse effect on our financial condition or results of operations. See Note 1, Note 4, and Note 10 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further discussion.
Additionally, our competitors that have greater direct purchasing power, may have product cost advantages which could have a material adverse effect on our financial results. GENERAL RISKS Pandemics and other disease outbreaks such as COVID-19 and similar health threats that may arise in the future may have a material adverse effect on our business, results of operations, and financial condition.
Additionally, our competitors that have greater direct purchasing power, may have product cost advantages which could have a material adverse effect on our financial results. GENERAL RISKS Cybersecurity attacks, internal system or service failures may adversely impact our business and operations.
For instance, the U.S. government is currently operating under a continuing resolution (“CR”) to keep the government funded while the Congress works to enact full year fiscal year 2024 (“FY24”) appropriation bills.
For instance, on December 21, 2024, the U.S. government enacted a continuing resolution (“CR”) to keep the government funded through March 14, 2025 while the Congress works to enact full year fiscal year 2025 (“FY25”) appropriation bills or an additional CR to fund government departments and agencies after March 14, 2025.
Any such outcome could have a material adverse effect on our financial results. 16 Table of Contents We are subject to a number of procurement laws and regulations. Our business and our reputation could be adversely affected if we fail to comply with these laws.
We are subject to a number of procurement laws and regulations. Our business and our reputation could be adversely affected if we fail to comply with these laws. We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. Government contracts.
We expect to face increased costs to comply with this new SEC cybersecurity rule, including increased costs for cybersecurity training, staffing, and management. In addition, the requirement to report cybersecurity incidents within such a short timeframe could mean there may not be sufficient time to halt a breach before having to report it, potentially giving the hackers an advantage.
In addition, the requirement to report cybersecurity incidents within such a short timeframe could mean there may not be sufficient time to halt a breach before having to report it, potentially giving the hackers an advantage. 19 Table of Contents Unanticipated changes in our tax provision or exposure to additional income tax liabilities could affect our profitability.
Customer pricing pressures could reduce the demand and/or price for our products and services. The markets we serve are highly competitive and price sensitive. We compete worldwide with a number of domestic and international companies that have substantially greater manufacturing, purchasing, marketing and financial resources than we do.
We compete worldwide with a number of domestic and international companies that have substantially greater manufacturing, purchasing, marketing and financial resources than we do. Many of our customers have the in-house capability to fulfill their manufacturing requirements.
If our debt is in default for any reason, our business, results of operations and financial condition could be materially and adversely affected. The typical trading volume of our common stock may affect an investor’s ability to sell significant stock holdings in the future without negatively impacting stock price.
The typical trading volume of our common stock may affect an investor’s ability to sell significant stock holdings in the future without negatively impacting stock price. The level of trading activity may vary daily and typically represents only a small percentage of outstanding shares.
These laws, regulations and restrictions govern items including, but not limited to, the formation, administration and performance of U.S. Government contracts, disclosure of cost and pricing data, civil penalties for violations of false claims to the U.S.
As a result, our contracts and operations are subject to numerous extensive, complex, costly and evolving laws, regulations and restrictions, principally by the U.S. Government or their agencies. These laws, regulations and restrictions govern items including, but not limited to, the formation, administration and performance of U.S.
Further, as noted earlier, in early January 2024, the FAA initiated an investigation into Boeing’s quality control system.
Boeing was one of our largest customers in 2024, and the 737 MAX was one of our highest commercial end use market revenue platforms. In early January 2024, the FAA initiated an investigation into Boeing’s quality control system.
See Note 3 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. Although we have not experienced any material labor-related work stoppage and consider our relations with our employees to be good, labor stoppages may occur in the future.
As of December 31, 2024, we employed 2,180 people. One of our performance centers is party to a collective bargaining agreement, covering 268 full time hourly employees, which will expire in April 2025. Although we have not experienced any material labor-related work stoppage and consider our relations with our employees to be good, labor stoppages may occur in the future.
Although we currently maintain product liability insurance (including aircraft product liability insurance), any material product liability not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flows. We use estimates when bidding on fixed-price contracts. Changes in our estimates could adversely affect our financial results.
We use estimates when bidding on fixed-price contracts. Changes in our estimates could adversely affect our financial results. We enter into contracts providing for a firm, fixed-price for the sale of a majority of our products, regardless of the production costs incurred by us.
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(“BLR”) on April 25, 2023. 10 Table of Contents Our ability to obtain additional financing or complete a debt refinancing in the future may be limited.
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A default, if not waived, could result in acceleration of the debt outstanding under the agreement. A default could permit our lenders to foreclose on any of our assets securing such debt.
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We require a considerable amount of cash to fund our anticipated voluntary principal prepayments on our Credit Facilities.
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In addition, in July 2024, Boeing also pleaded guilty to conspiracy fraud charges, which may result in additional external oversight on its manufacturing quality control process.
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Boeing was one of our largest customers in 2023, and the 737 MAX was one of our highest commercial end use market revenue platforms. While Boeing has received approval from all the major civil aviation regulators around the world for its 737 MAX to return to service, our production rates are still below pre-COVID-19 pandemic levels.
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Further, in September 2024, the International Association of Machinists and Aerospace Workers District 751 voted to initiate a labor strike affecting more than 30,000 Boeing manufacturing employees primarily located in Washington state, and the manufacturing employees, after rejecting the contract offer in October, voted to approve the revised contract offer in November 2024.
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However, the residual effects of the COVID-19 pandemic along with inflationary forces, supply chain issues, and rising or high interest rates continues to dampen civil air travel demand in various segments and markets, and if traveler demand does not return in the near future, it may make it difficult to continue to offset a significant portion of this risk.
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However, the industry remains vulnerable to various developments including fuel spikes, inflationary forces, supply chain issues, and elevated high interest rates. We generally make sales under purchase orders and contracts that are subject to cancellation, modification or rescheduling.
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Under the Fiscal Responsibility Act of 2023, which imposes limits on discretionary spending for defense and non-defense programs in exchange for the lifting of the debt ceiling in June 2023, if Congress fails to enact all appropriation bills by April 30, 2024, then the budget caps will be reduced and corresponding automatic reductions to agency budget accounts will be enforced through sequestration which could have a 13 Table of Contents material effect on our results of operations, financial position, and/or cash flows.
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We, and a number of our customers rely on the U.S. government in various aspects of our defense and commercial businesses. In the event of a shutdown, requirements to furlough employees in the U.S.
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Further, there continues to be uncertainty with respect to future program-level appropriations for the U.S. DoD and other government agencies for fiscal year 2025 and beyond. Accordingly, long-term uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. Government discretionary spending levels will continue to be subject to pressure.
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DoD or other government agencies could result in payment delays, impair our ability to perform work on existing contracts or otherwise impact our operations, negatively impact future orders, and/or cause other disruptions or delays. The U.S. government could experience a disruption to its operations and/or payments in 2025 as a result of the U.S.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur assessment of risks associated with the use of third party providers on a limited basis is part of our current overall cybersecurity risk management approach. As the threats and attacks are becoming more sophisticated, we will modify and enhance our cybersecurity program as needed.
Biggest changeFurther, we perform periodic simulations and tabletop exercises with the IT security team and will continue to expand its participants as appropriate. Our assessment of risks associated with the use of third party providers is on a limited basis and is part of our current overall cybersecurity risk management approach.
Our cybersecurity risk management program leverages the National Institute of Standards and Technology (“NIST”) Framework which augmented with Cybersecurity Maturity Model Certification (“CMMC”) components to meet our particular needs. We regularly assess the threat landscape and take a holistic view of the cybersecurity risks, with a layered cybersecurity strategy based on protection, detection, and mitigation.
Our cybersecurity risk management program leverages the National Institute of Standards and Technology (“NIST”) Framework which is augmented with Cybersecurity Maturity Model Certification (“CMMC”) components to meet our particular needs. We regularly assess the threat landscape and take a holistic view of the cybersecurity risks, with a layered cybersecurity strategy based on protection, detection, and mitigation.
The Innovations Committee is a subset of the full Board of Directors which receive regular updates on our cybersecurity program. Our CISO has over 17 years of experience leading cybersecurity oversight for several companies and is updated on cyber events related to the monitoring, prevention, detection, mitigation, and remediation efforts from our IT security team.
The Innovations Committee is a subset of the full Board of Directors which receive regular updates on our cybersecurity program. Our CISO has over 18 years of experience leading cybersecurity oversight for several companies and is updated on cyber events related to the monitoring, prevention, detection, mitigation, and remediation efforts from our IT security team.
Cybersecurity threats, including as a result of any previous cybersecurity incidents have not materially affected or are not reasonably likely to materiality affect us, including our business strategy, results of operations or financial condition.
To date, we do not believe risks from cybersecurity threats, including as a result of any previous cybersecurity incidents have materially affected us or are reasonably likely to materiality affect us, including our business strategy, results of operations or financial condition.
As a defense contractor, we must also comply with extensive regulations, including requirements imposed by the Defense Federal Acquisition Regulation Supplement (“DFARS”) related to adequately safeguarding controlled unclassified information (“CUI”). The Department of Defense (“DoD”) will require defense contractors to comply with its CMMC program in the future.
As the threats and attacks are becoming more sophisticated, we will modify and enhance our cybersecurity program as needed. As a defense contractor, we must also comply with extensive regulations, including requirements imposed by the Defense Federal Acquisition Regulation Supplement (“DFARS”) related to adequately safeguarding controlled unclassified information (“CUI”).
We are incorporating the requirements of the CMMC program into our overall cybersecurity program and anticipate we will be in position to meet such requirements when it becomes effective.
The Department of Defense (“DoD”) will require defense contractors to comply with its CMMC program in the near future. We are incorporating the requirements of the CMMC program into our overall cybersecurity program and anticipate we will be in position to meet such requirements by the time it becomes fully rolled out in 2028.
The IT 22 Table of Contents security team have broad cybersecurity expertise or industry certifications and are knowledgeable in the use of cybersecurity tools and software. In addition, third-party cybersecurity services are used to augment our in-house capabilities, as needed.
The IT security team have broad cybersecurity expertise or industry certifications and are knowledgeable in the use of cybersecurity tools and software.
We continue to expand investments in IT security, including additional end-user security awareness training, using layered defenses, identifying and protecting critical systems, strengthening monitoring and alerting, and engaging experts as needed. We also use an industry standard risk quantification model to identify, measure, and prioritize cybersecurity risks.
In addition, third-party cybersecurity services are used to augment our in-house capabilities, as needed. 22 Table of Contents We continue to expand investments in IT security, including additional end-user security awareness training, using layered defenses, identifying and protecting critical systems, strengthening monitoring and alerting, and engaging experts as needed.
In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventive measures. For more information regarding the risks we face from cybersecurity threats, please see Risk Factors included in Part I, Item 1A of this Form 10-K.
In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventive measures.
This in turn, helps us develop and implement effective security controls and technology defenses. In addition, all employees are required to complete various cybersecurity trainings on a regular basis. Further, we perform periodic simulations and tabletop exercises with the IT security team and will continue to expand its participants as appropriate.
We also use an industry standard risk quantification model to identify, measure, and prioritize cybersecurity risks. This in turn, helps us develop and implement effective security controls and technology defenses. In addition, all employees are required to complete various cybersecurity awareness trainings on a regular basis.
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For more information regarding the risks we face from cybersecurity threats, please see “Cybersecurity attacks, internal system or service failures may adversely impact our business and operations” in Risk Factors included in Part I, Item 1A of this Form 10-K.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our headquarters are located in Santa Ana, California. As of December 31, 2023, we owned or leased facilities and land for corporate functions and manufacturing at locations throughout the United States and a manufacturing location outside the United States. We believe our existing facilities are suitable and adequate for our present purposes.
Biggest changeITEM 2. PROPERTIES Our headquarters are located in Costa Mesa, California. As of December 31, 2024, we owned or leased facilities and land for corporate functions and manufacturing at locations throughout the United States and a manufacturing location outside the United States. We believe our existing facilities are suitable and adequate for our present purposes.
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Each of our reportable segments uses each of these facilities. ITEM 3. LEGAL PROCEEDINGS See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for a description of our legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 23 Table of Contents PART II
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Each of our reportable segments uses each of these facilities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph is not necessarily indicative of future price performance: ITEM 6. [Reserved] 24 Table of Contents
Biggest changeThe graph is not necessarily indicative of future price performance: (1) Includes AAR Corp, AeroVironment, Inc., Astronics Corporation, Barnes Group Inc., CIRCOR International, Inc., HEICO Corporation, Hexcel Corporation, Kaman Corporation, Kratos Defense & Security Solutions, Inc., Mercury Systems, Inc., RBC Bearings Incorporated, and Triumph Group, Inc. ITEM 6. [Reserved] 24 Table of Contents
Issuer Purchases of Equity Securities None. Performance Graph The following graph compares the yearly percentage change in our cumulative total shareholder return with the cumulative total return of the Russell 2000 Index and the median of our 2024 Proxy Statement peers (“Median of Peers”) over a five year period, assuming the reinvestment of any dividends.
Issuer Purchases of Equity Securities None. Performance Graph The following graph compares the yearly percentage change in our cumulative total shareholder return with the cumulative total return of the Russell 2000 Index and the median of our 2025 Proxy Statement peers (1) (“Median of Peers”) over a five-year period, assuming the reinvestment of any dividends.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the New York Stock Exchange under the symbol DCO. As of December 31, 2023, we had 134 holders of record of our common stock.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the New York Stock Exchange under the symbol DCO. As of December 31, 2024, we had 127 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table summarizes our business segment performance for 2023 and 2022: % (Dollars in thousands) Years Ended December 31, % of Net Revenues % of Net Revenues Change 2023 2022 2023 2022 Net Revenues Electronic Systems (2.4) % $ 430,136 $ 440,638 56.8 % 61.8 % Structural Systems 20.2 % 326,856 271,899 43.2 % 38.2 % Total Net Revenues 6.2 % $ 756,992 $ 712,537 100.0 % 100.0 % Segment Operating Income Electronic Systems $ 42,086 $ 49,876 9.8 % 11.3 % Structural Systems 23,460 17,225 7.2 % 6.3 % 65,546 67,101 Corporate General and Administrative Expenses (1) (36,629) (27,313) (4.8) % (3.8) % Total Operating Income $ 28,917 $ 39,788 3.8 % 5.6 % Adjusted EBITDA Electronic Systems Operating Income $ 42,086 $ 49,876 Other Income 222 — Depreciation and Amortization 14,276 13,974 Stock-Based Compensation Expense 462 186 Restructuring Charges 6,412 3,786 63,458 67,822 14.8 % 15.4 % Structural Systems Operating Income 23,460 17,225 Depreciation and Amortization 18,060 17,212 Stock-Based Compensation Expense 387 163 Restructuring Charges 8,334 2,900 Inventory Purchase Accounting Adjustments 5,531 1,381 Guaymas Fire Related Expenses 3,896 4,466 Other Fire Related Expenses 477 — 60,145 43,347 18.4 % 15.9 % Corporate General and Administrative Expenses (1) Operating Loss (36,629) (27,313) Depreciation and Amortization 235 235 Stock-Based Compensation Expense 14,196 10,395 Restructuring Charges 109 — Other Debt Refinancing Costs — 224 (22,089) (16,459) Adjusted EBITDA $ 101,514 $ 94,710 13.4 % 13.3 % Capital Expenditures Electronic Systems $ 6,007 $ 10,717 Structural Systems 13,127 8,834 Corporate Administration — — Total Capital Expenditures $ 19,134 $ 19,551 (1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments. 31 Table of Contents Electronic Systems Electronic Systems’ net revenues in 2023 compared to 2022 decreased $10.5 million primarily due to the following: • $20.7 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 higher build rates on other military and space platforms; partially offset by • $10.6 million higher revenues in our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms, partially offset by lower build rates on regional and business aircraft platforms.
Biggest changeThe following table summarizes our business segment performance for 2024 and 2023: % (Dollars in thousands) Years Ended December 31, % of Net Revenues % of Net Revenues Change 2024 2023 2024 2023 Net Revenues Electronic Systems 0.3 % $ 431,363 $ 430,136 54.8 % 56.8 % Structural Systems 8.7 % 355,188 326,856 45.2 % 43.2 % Total Net Revenues 3.9 % $ 786,551 $ 756,992 100.0 % 100.0 % Segment Operating Income Electronic Systems $ 73,666 $ 42,086 17.1 % 9.8 % Structural Systems 24,964 23,460 7.0 % 7.2 % 98,630 65,546 Corporate General and Administrative Expenses (1) (46,419) (36,629) (5.9) % (4.8) % Total Operating Income $ 52,211 $ 28,917 6.6 % 3.8 % Adjusted EBITDA Electronic Systems Operating Income $ 73,666 $ 42,086 Other Income — 222 Depreciation and Amortization 14,455 14,276 Stock-Based Compensation Expense 351 462 Restructuring Charges 177 6,412 88,649 63,458 20.6 % 14.8 % Structural Systems Operating Income 24,964 23,460 Depreciation and Amortization 18,696 18,060 Stock-Based Compensation Expense 375 387 Restructuring Charges 7,479 8,334 Inventory Purchase Accounting Adjustments 2,269 5,531 Guaymas Fire Related Expenses — 3,896 Other Fire Related Expenses — 477 53,783 60,145 15.1 % 18.4 % Corporate General and Administrative Expenses (1) Operating Loss (46,419) (36,629) Depreciation and Amortization 287 235 Stock-Based Compensation Expense 17,110 14,196 Restructuring Charges — 109 Professional Fees Related to Unsolicited Non-Binding Acquisition Offer 3,145 — (25,877) (22,089) Adjusted EBITDA $ 116,555 $ 101,514 14.8 % 13.4 % Capital Expenditures Electronic Systems $ 4,908 $ 6,007 Structural Systems 6,281 13,127 Corporate Administration 3,220 — Total Capital Expenditures $ 14,409 $ 19,134 (1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
Other Intangible Assets We amortize acquired other intangible assets with finite lives over the estimated economic lives of the assets, ranging from 2 years to 23 years, generally using the straight-line method. The value of other intangibles acquired through business combinations has been estimated using present value techniques which involve estimates of future cash flows.
Other Intangible Assets We amortize acquired other intangible assets with finite lives over the estimated economic lives of the assets, ranging from 2 to 23 years, generally using the straight-line method. The value of other intangibles acquired through business combinations has been estimated using present value techniques which involve estimates of future cash flows.
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 determine 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.
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.
This was followed by the FAA announcing actions to increase its oversight of Boeing as well as not approving production rate increases or additional production lines for the 737 MAX until it is satisfied that Boeing is in full compliance with required quality control procedures.
This notification was followed by the FAA announcing actions to increase its oversight of Boeing as well as not approving production rate increases or additional production lines for the 737 MAX until it is satisfied that Boeing is in full compliance with required quality control procedures.
The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. 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.
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.
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.
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 in Guaymas.
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 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
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, Note 4 , and Note 10 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
The Amended Forward Interest Rate Swaps weighted average fixed rate was 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 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
The Amended Forward Interest Rate Swaps weighted average fixed rate was 1.7% as a result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR. See Note 1, Note 4, and Note 10 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
The market approach also requires management judgment in selecting comparable companies, business acquisitions and the transaction values observed and its related control premiums. In the fourth quarter of 2023, the carrying amount of goodwill at the date of the most recent annual impairment evaluation for Electronic Systems and Structural Systems was $117.4 million and $127.2 million, respectively.
The market approach also requires management judgment in selecting comparable companies, business acquisitions and the transaction values observed and its related control premiums. In the fourth quarter of 2024, the carrying amount of goodwill at the date of the most recent annual impairment evaluation for Electronic Systems and Structural Systems was $117.4 million and $127.2 million, respectively.
See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for additional information.
See Note 16 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for additional information.
See Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for the net impact of these adjustments to our consolidated financial statements for 2023 and 2022. Payments under long-term contracts may be received before or after revenue is recognized.
See Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for the net impact of these adjustments to our consolidated financial statements for 2024 and 2023. Payments under long-term contracts may be received before or after revenue is recognized.
(“Spirit”), and Viasat, Inc. (“Viasat”). The revenues from Boeing, GD, Northrop, RTX, Spirit, and Viasat are diversified over a number of commercial, military and space programs and some of which were generated by both operating segments. Gross Profit Gross profit consists of net revenues less cost of sales.
(“Spirit”), and Viasat, Inc. (“Viasat”). The revenues from Boeing, Lockheed, Northrop, RTX, Spirit, and Viasat are diversified over a number of commercial, military and space programs and some of which were generated by both operating segments. Gross Profit Gross profit consists of net revenues less cost of sales.
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.
In April 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 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. On May 18, 2023, we completed a public offering of our common stock resulting in net proceeds of $85.1 million.
See Note 2 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. In May 2023, we completed a public offering of our common stock resulting in net proceeds of $85.1 million.
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 meet the series guidance.
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.
We expect to spend a total of $23.0 million to $25.0 million for capital expenditures in 2024, financed by cash generated from operations, principally to support both growth in existing programs as well as new contract awards in Electronic Systems and Structural Systems.
We expect to spend a total of $23.0 million to $25.0 million for capital expenditures in 2025, financed by cash generated from operations, principally to support both growth in existing programs as well as new contract awards in Electronic Systems and Structural Systems.
(4) 2022 and 2021 included inventory purchase accounting adjustments of inventory that was stepped up as part of our purchase price allocation from our acquisition of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”) in December 2021 and is a part of our Structural Systems operating segment.
(5) 2022 included inventory purchase accounting adjustments of inventory that was stepped up as part of our purchase price allocation from our acquisition of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”) in December 2021 and is a part of our Structural Systems operating segment.
The increase in backlog was primarily in the military and space end-use markets; partially offset by a decrease in the commercial aerospace end-use markets and industrial end-use markets. $656.0 million of total backlog is expected to be delivered over the next 12 months.
The increase in backlog was primarily in the military and space end-use markets; partially offset by a decrease in the commercial aerospace end-use markets and industrial end-use markets. $751.0 million of total backlog is expected to be delivered over the next 12 months.
We evaluate other intangible assets for recoverability considering undiscounted cash flows when significant changes in conditions occur, and recognize impairment losses, if any, based upon the estimated fair value of the assets. Accounting for Stock-Based Compensation We measure and recognize compensation expense for share-based payment transactions to our employees and non-employees at their estimated fair value.
We evaluate other intangible assets for recoverability considering undiscounted cash flows when significant changes in conditions occur, and recognize impairment losses, if any, based upon the estimated fair value of the assets. 37 Table of Contents Accounting for Stock-Based Compensation We measure and recognize compensation expense for share-based payment transactions to our employees and non-employees at their estimated fair value.
The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized 37 Table of Contents 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.
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.
The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items. 25 Table of Contents 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.
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.
See Note 2, Note 9, and Note 10 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
See Note 2, Note 10, and Note 11 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
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.
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 34 Table of Contents was drawn on and utilized to complete the acquisition of BLR.
We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2019 and by state taxing authorities for tax years after 2018.
We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2020 and by state taxing authorities for tax years after 2019.
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 December 31, 2023 and 2022 were not significant. If recognized, $2.6 million would affect the effective income 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 December 31, 2024 and 2023 were not significant. If recognized, $2.5 million would affect the effective income tax rate.
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 consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K.
The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount may or may not be greater than the remaining performance obligations amount disclosed in Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K.
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. 35 Table of Contents We manufacture most products to customer specifications and the product cannot be easily modified to satisfy another customer’s order.
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.
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.
We review the value of the production cost of contracts on a 36 Table of Contents 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 result of statute of limitations set to expire in 2024, we expect decreases to our unrecognized tax benefits of $0.8 million in the next twelve months. We file U.S. Federal and state income tax returns.
As a result of statute of limitations set to expire in 2025, we expect decreases to our unrecognized tax benefits of $0.5 million in the next twelve months. We file U.S. Federal and state income tax returns.
See Note 13 and Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for additional information. On April 29, 2023, a fire damaged a relatively small portion of one of our performance centers in our Structural Systems reporting segment.
See Note 14 and Note 16 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for additional information. In April 2023, a fire damaged a relatively small portion of one of our performance centers in our Structural Systems reporting segment.
The decrease in the effective tax rate for 2023 compared to 2022 was primarily due to lower pre-tax income for 2023 compared to 2022, which caused the research and development tax credits to have a higher income tax benefit impact on the effective tax rate.
The increase in the effective tax rate for 2024 compared to 2023 was primarily due to higher pre-tax income for 2024 compared to 2023, which caused the research and development tax credits to have a lower income tax benefit impact on the effective tax rate.
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 expense 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; 26 Table of Contents • Insurance recoveries related to business interruption may be useful to our investors in evaluating our core operating performance; • 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; • Loss on extinguishment of debt may be useful to our investors for determining current cash flow; • Other debt refinancing costs may be useful to our investors in evaluating our core operating performance; • Gain on sale-leaseback may be useful to our investors in evaluating our core operating performance; and • Success bonus related to completion of sale-leaseback transaction may be useful to our investors in evaluating our core operating performance.
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; 31 Table of Contents • 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 expense 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; • Professional fees related to unsolicited non-binding acquisition offer 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; • 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; • Loss on extinguishment of debt may be useful to our investors for determining current cash flow; and • Other debt refinancing costs may be useful to our investors in evaluating our core operating performance.
We recognize revenue under Accounting Standards Codification 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.
We recognize revenue under ASC 606, “Revenue from 35 Table of Contents 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.
(3) 2023 included inventory purchase accounting adjustments of inventory that was stepped up as part of our purchase price allocation from our acquisition of BLR Aerospace, LLC (“BLR”) on April 25, 2023 and is a part of our Structural Systems operating segment.
(4) 2023 included inventory purchase accounting adjustments of inventory that was stepped up as part of our purchase price allocation from our acquisition of BLR Aerospace, LLC (“BLR”) in April 2023 and is a part of our Structural Systems operating segment.
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. 34 Table of Contents Cash Flow Summary 2023 Compared to 2022 Net cash provided by operating activities during 2023 was $31.1 million, compared to $32.7 million during 2022.
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 2024 Compared to 2023 Net cash provided by operating activities during 2024 was $34.2 million, compared to $31.1 million during 2023.
The more significant inputs used in the technology intangible asset valuation included (i) future 36 Table of Contents revenues, (ii) the technology decay rate, (iii) the royalty rate, and (iv) the discount rate.
The more significant inputs used in the technology intangible asset valuation included (i) future revenues, (ii) the technology decay rate, (iii) the royalty rate, and (iv) the discount rate.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K filed with the SEC on February 16, 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K filed with the SEC on February 22, 2024.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K filed with the SEC on February 16, 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K filed with the SEC on February 22, 2024.
Restructuring Charges Restructuring charges increased $8.2 million (the portion recorded in cost of sales decreased $0.2 million) in 2023 compared to 2022 primarily due to the restructuring plan that was approved and commenced in April 2022 that is expected to better position us for stronger performance.
Restructuring Charges Restructuring charges decreased $7.2 million (including the portion recorded in cost of sales which increased $0.9 million) in 2024 compared to 2023 primarily due to the winding down of the restructuring plan that was approved and commenced in April 2022 that is expected to better position us for stronger performance.
For the year ended December 31, 2023, we recorded an increase to income taxes payable of $9.7 million and a decrease to net deferred tax liabilities of a similar amount. We are monitoring legislation for any further changes to Section 174 and the potential impact to our financial statements in 2024.
For the year ended December 31, 2024, we recorded an increase to income taxes payable of $8.1 million and an increase to net deferred tax assets of a similar amount. We are monitoring legislation for any further changes to Section 174 and the potential impact to our financial statements in 2025.
Net Revenues by Major Customers A significant portion of our net revenues are from our top ten customers as follows: Years Ended December 31, 2023 2022 Boeing Company 8.2 % 6.7 % General Dynamics Corporation 3.8 % 5.7 % Northrop Grumman Corporation 5.5 % 5.7 % RTX Corporation 16.8 % 21.6 % Spirit AeroSystems Holdings, Inc. 6.4 % 5.7 % Viasat, Inc. 5.5 % 5.4 % Top ten customers (1) 58.7 % 61.4 % (1) Includes The Boeing Company (“Boeing”), General Dynamics Corporation (“GD”), Northrop Grumman Corporation (“Northrop”), RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”), Spirit AeroSystems Holdings, Inc.
Net Revenues by Major Customers A significant portion of our net revenues are from our top ten customers as follows: Years Ended December 31, 2024 2023 Boeing Company 8.2 % 8.2 % Lockheed Martin Corporation 5.3 % 4.0 % Northrop Grumman Corporation 6.4 % 5.5 % RTX Corporation 18.5 % 16.8 % Spirit AeroSystems Holdings, Inc. 5.7 % 6.4 % Viasat, Inc. 3.0 % 5.5 % Top ten customers (1) 59.7 % 58.7 % (1) Includes The Boeing Company (“Boeing”), Lockheed Martin Corporation (“Lockheed”), Northrop Grumman Corporation (“Northrop”), RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”), Spirit AeroSystems Holdings, Inc.
The decrease in net income in 2023 compared to 2022 was primarily due to higher SG&A expenses of $21.4 million, higher interest expense of $9.2 million, higher restructuring charges of $8.2 million (the portion recorded in cost of sales decreased $0.2 million), partially offset by higher gross profit of $18.9 million, lower income tax expense of $4.1 million, and higher other income, net of $2.8 million. 30 Table of Contents Business Segment Performance We report our financial performance based upon the two reportable operating segments: Electronic Systems and Structural Systems.
The increase in net income in 2024 compared to 2023 was primarily due to higher gross profit of $34.1 million, lower restructuring charges of $7.2 million (including the portion recorded in cost of sales which increased $0.9 million), and lower interest expense of $5.5 million, partially offset by higher SG&A expenses of $18.9 million, lower other income, net of $8.2 million, and higher income tax expense of $5.0 million. 28 Table of Contents Business Segment Performance We report our financial performance based upon the two reportable operating segments: Electronic Systems and Structural Systems.
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) December 31, 2023 2022 Total debt, including short-term portion $ 266.0 $ 248.4 Weighted-average interest rate on debt 7.53 % 4.36 % Term Loans interest rate 6.93 % 4.24 % Cash and cash equivalents $ 42.9 $ 46.2 Unused Revolving Credit Facility $ 176.0 $ 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”).
LIQUIDITY AND CAPITAL RESOURCES Available Liquidity Total debt, the weighted-average interest rate, cash and cash equivalents and available credit facilities were as follows: 33 Table of Contents (Dollars in millions) December 31, 2024 2023 Total debt, including short-term portion $ 243.2 $ 266.0 Weighted-average interest rate on debt 7.25 % 7.53 % Term Loans interest rate 7.02 % 6.93 % Cash and cash equivalents $ 37.1 $ 42.9 Unused Revolving Credit Facility $ 191.0 $ 176.0 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 higher income tax benefit on the effective tax rate was partially offset by higher income tax expense related to non-deductible book compensation expenses. 29 Table of Contents Our unrecognized tax benefits were $4.5 million and $4.9 million in 2023 and 2022, respectively.
The lower income tax benefit on the effective tax rate was partially offset by lower 27 Table of Contents income tax expense related to non-deductible book compensation expenses. Our unrecognized tax benefits were each $4.5 million in 2024 and 2023.
Further, the undrawn portion of the commitment of the 2022 Revolving Credit Facility is subject to a commitment 33 Table of Contents 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.
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.
The qualitative approach for potential impairment analysis is performed 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.
If the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative assessment. The quantitative approach for potential impairment analysis is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill.
Further, one of our largest customers, The Boeing Company (“Boeing”), was notified by the Federal Aviation Administration (“FAA”) in early January 2024 it has initiated an investigation into Boeing’s quality control system.
In addition, Boeing, one of our largest customers, was notified by the Federal Aviation Administration (“FAA”) in early January 2024 that the FAA had initiated an investigation into Boeing’s quality control system.
However, the 2022 Revolving Credit Facility does not require any principal installment payments. As of December 31, 2023, we were in compliance with all covenants required under the 2022 Credit Facilities. See Note 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
As of December 31, 2024, we were in compliance with all covenants required under the 2022 Credit Facilities. See Note 10 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information.
The lower net cash provided by operating activities during 2023 was primarily due to lower accounts payable mainly due to timing of payments, higher inventories mainly due to longer lead times and to support revenue growth, and lower net income, partially offset by lower contract assets and higher contract liabilities.
The higher net cash provided by operating activities during 2024 was primarily due to higher net income, higher accounts payable mainly due to timing of payments, and lower inventories due to higher revenues, partially offset by higher contract assets due to higher revenues and lower contract liabilities due to lower net progress payments.
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) Years Ended December 31, 2023 2022 2021 Net income $ 15,928 $ 28,789 $ 135,536 Interest expense 20,773 11,571 11,187 Income tax expense 451 4,533 34,948 Depreciation 15,473 14,535 14,051 Amortization 17,098 16,886 14,338 Stock-based compensation expense (1) 15,045 10,744 11,212 Restructuring charges (2) 14,855 6,686 — Guaymas fire related expenses 3,896 4,466 2,486 Other fire related expenses 477 — — Insurance recoveries related to loss on operating assets (5,724) — — Insurance recoveries related to business interruption (2,289) (5,400) — Inventory purchase accounting adjustments (3)(4) 5,531 1,381 106 Loss on extinguishment of debt — 295 — Other debt refinancing costs — 224 — Gain on sale-leaseback — — (132,522) Success bonus related to completion of sale-leaseback transaction (5) — — 1,451 Adjusted EBITDA $ 101,514 $ 94,710 $ 92,793 % of net revenues 13.4 % 13.3 % 14.4 % (1) 2023 and 2022 included $2.7 million and $1.2 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
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) Years Ended December 31, 2024 2023 2022 Net income $ 31,495 $ 15,928 $ 28,789 Interest expense 15,304 20,773 11,571 Income tax expense 5,412 451 4,533 Depreciation 16,328 15,473 14,535 Amortization 17,110 17,098 16,886 Stock-based compensation expense (1)(2) 17,836 15,045 10,744 Restructuring charges (3) 7,656 14,855 6,686 Professional fees related to unsolicited non-binding acquisition offer 3,145 — — Guaymas fire related expenses — 3,896 4,466 Other fire related expenses — 477 — Insurance recoveries related to loss on operating assets — (5,724) — Insurance recoveries related to business interruption — (2,289) (5,400) Inventory purchase accounting adjustments (4)(5) 2,269 5,531 1,381 Loss on extinguishment of debt — — 295 Other debt refinancing costs — — 224 Adjusted EBITDA $ 116,555 $ 101,514 $ 94,710 Net income as a % of net revenues 4.0 % 2.1 % 4.0 % Adjusted EBITDA as a % of net revenues 14.8 % 13.4 % 13.3 % (1) 2024, 2023, and 2022 included $3.7 million, $2.7 million, and $1.2 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
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 32 Table of Contents orders and tends to be concentrated in several programs to a greater extent than our net revenues.
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 some of our programs.
Net Income and Earnings per Diluted Share Net income and earnings per diluted share for 2023 were $15.9 million, or $1.14 per diluted share, compared to net income and earnings per diluted share for 2022 of $28.8 million, or $2.33 per diluted share.
Net Income and Earnings per Diluted Share Net income and earnings per diluted share for 2024 were $31.5 million, or $2.10 per diluted share, compared to net income and earnings per diluted share for 2023 of $15.9 million, or $1.14 per diluted share.
Selling, General and Administrative (“SG&A”) Expenses SG&A expenses increased $21.4 million in 2023 compared to 2022 primarily due to BLR SG&A expenses of $10.7 million which did not exist in the prior year period, higher compensation and benefits costs of $4.2 million, higher stock-based compensation expense of $3.9 million, and higher professional services fees of $1.6 million, a portion of which was related to the BLR acquisition.
Selling, General and Administrative (“SG&A”) Expenses SG&A expenses increased $18.9 million in 2024 compared to 2023 primarily due to BLR SG&A expenses of $4.7 million which did not exist for the full year in the prior year period, higher professional services fees of $6.3 million, of which $3.1 million was related to the unsolicited non-binding offer to acquire all the common stock outstanding of Ducommun Incorporated, higher compensation and benefits costs of $3.2 million, and higher stock-based compensation expense of $2.8 million.
The higher net cash provided by financing activities during 2023 was primarily due to $85.1 million net proceeds from the issuance of common stock in a public offering and $23.8 million net borrowings under the revolving credit facility for the acquisition of BLR, partially offset by the voluntary $30.0 million pay down on term loans in the prior year 2022. 2022 Compared to 2021 See Item 7.
The higher net cash used in financing activities during 2024 was primarily due to in the prior year, $85.1 million net proceeds from the issuance of common stock in a public offering and $23.8 million net borrowings under the revolving credit facility for the acquisition of BLR that did not reoccur in the current year, and $15.0 million higher net repayments on the revolving credit facility in the current year. 2023 Compared to 2022 See Item 7.
(2) 2023 and 2022 included $0.3 million and $0.5 million, respectively, of restructuring charges that were recorded as cost of sales.
(2) 2024, 2023, and 2022 included $0.5 million, $0.5 million, and $0.2 million, respectively, of stock-based compensation expense recorded as cost of sales. 32 Table of Contents (3) 2024, 2023, and 2022 included $1.2 million, $0.3 million, and $0.5 million, respectively, of restructuring charges that were recorded as cost of sales.
We have insurance coverage and up to a capped amount, expect the damaged 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 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.
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 margin increased to 21.6% in 2023 compared to 20.3% in 2022 primarily due to favorable manufacturing volume, partially offset by unfavorable product mix and higher other manufacturing costs.
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 margin increased to 25.1% in 2024 compared to 21.6% in 2023.
Recap for the year ended December 31, 2023: • Net revenues of $757.0 million • Net income of $15.9 million, or $1.14 per diluted share • Adjusted EBITDA of $101.5 million Non-GAAP Financial Measures Adjusted earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, Guaymas fire related expenses, other fire related expenses, insurance recoveries related to loss on operating assets, insurance recoveries related to business interruption, inventory purchase accounting adjustments, loss on extinguishment of debt, other debt refinancing costs, gain on sale-leaseback, and success bonus related to the completion of sale-leaseback transaction (“Adjusted EBITDA”) was $101.5 million and $94.7 million for the years ended December 31, 2023 and December 31, 2022, respectively.
Non-GAAP Financial Measures Adjusted earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, professional fees related to unsolicited non-binding acquisition offer, Guaymas fire related expenses, other fire related 30 Table of Contents expenses, insurance recoveries related to loss on operating assets, insurance recoveries related to business interruption, inventory purchase accounting adjustments, loss on extinguishment of debt, and other debt refinancing costs (“Adjusted EBITDA”) was $116.6 million and $101.5 million for the years ended December 31, 2024 and December 31, 2023, respectively.
Corporate General and Administrative (“CG&A”) Expenses CG&A expenses in 2023 compared to 2022 increased $9.3 million primarily due to higher stock-based compensation expense of $3.9 million, higher compensation and benefits costs of $3.4 million, and higher professional services fees of $1.5 million, mainly due to the BLR acquisition.
Corporate General and Administrative (“CG&A”) Expenses CG&A expenses in 2024 compared to 2023 increased $9.8 million primarily due to higher professional services fees of $4.6 million, of which $3.1 million was related to the unsolicited non-binding offer to acquire all the common stock outstanding of Ducommun Incorporated, higher stock-based compensation expense of $2.8 million, and higher compensation and benefits costs of $0.8 million.
The year-over-year increase was primarily due to the following: • $61.8 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 28 Table of Contents • $16.9 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 aircraft platforms, a portion of which was related to BLR, and other military and space platforms.
The year-over-year increase was primarily due to the following: • $23.8 million higher revenues in our commercial aerospace end-use markets due to growth in Airbus, higher rates on rotary-wing aircraft and growth in business jet platforms, partially offset by lower revenues from in-flight entertainment; and 26 Table of Contents • $16.1 million higher revenues in our military and space end-use markets due to higher rates on selected missile, electronic warfare, radar, and naval and submarine platforms, partially offset by lower rates on selected fixed-wing aircraft platforms.
Structural Systems Structural Systems’ net revenues in 2023 compared to 2022 increased $55.0 million primarily due to the following: • $51.1 million higher revenues in commercial aerospace end-use markets due to higher build rates on large aircraft platforms, other commercial aerospace platforms, regional and business aircraft platforms, and commercial rotary-wing aircraft platforms; and • $3.8 million higher revenues in military and space end-use markets due to higher build rates on military rotary-wing platforms, a portion of which was related to BLR, and other military and space platforms, partially offset by lower build rates on various missile platforms and military fixed-wing aircraft platforms.
Structural Systems Structural Systems’ net revenues in 2024 compared to 2023 increased $28.3 million primarily due to the following: • $26.2 million higher revenues in commercial aerospace end-use markets due to growth in Airbus, higher rates on rotary-wing aircraft, and business jet platforms; and • $2.1 million higher revenues in military and space end-use markets due to higher rates on selected rotary-wing aircraft and ground vehicles platforms, partially offset by lower rates on selected missile platforms.
See Note 3 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. Interest Expense Interest expense increased in 2023 compared to 2022 primarily due to higher interest rates and a higher outstanding debt balance, mainly due to the acquisition of BLR on April 25, 2023.
See Note 3 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. Interest Expense Interest expense decreased in 2024 compared to 2023 primarily due to the interest rate swaps that became effective as of January 1, 2024, along with a lower debt balance.
The Structural Systems operating income in 2023 compared to 2022 increased $6.2 million primarily due to favorable manufacturing volume and favorable product mix, partially offset by higher restructuring charges, higher inventory purchase accounting adjustments, and unfavorable other manufacturing costs. In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment.
The Structural Systems operating income in 2024 compared to 2023 increased $1.5 million primarily due to favorable manufacturing volume, lower Guaymas fire related expenses, lower inventory purchase accounting adjustments, partially offset by higher other manufacturing costs and unfavorable product mix.
Of these charges, we estimate $4.5 million to $6.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $0.5 million to $1.0 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.
As of December 31, 2024, we estimate the remaining amount of charges related to this initiative to be $1.0 million to $1.5 million in total pre-tax restructuring charges through 2025 for facility consolidation related expenses. On an annualized basis, we anticipate these restructuring actions will result in total cost savings of $11.0 million to $13.0 million.
For 2024, while both major large aircraft manufacturers, Boeing and Airbus SE, have announced either similar or increases in build rates compared to 2023, the ramp up is slower than expected and below pre-pandemic levels.
The transition in the international commercial market from recovery to normal market conditions is continuing to progress as China international travel remain below 2019 levels. For 2025, while both major large aircraft manufacturers, Boeing and Airbus SE, expect increases in build rates compared to 2024, the ramp up to date has been slower than initially expected and below pre-pandemic levels.
(5) 2021 included $1.3 million of success bonus related to the completion of the sale-leaseback transaction that was recorded as part of cost of sales. 27 Table of Contents RESULTS OF OPERATIONS 2023 Compared to 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) Years Ended December 31, 2023 % of Net Revenues 2022 % of Net Revenues Net Revenues $ 756,992 100.0 % $ 712,537 100.0 % Cost of Sales 593,805 78.4 % 568,240 79.7 % Gross Profit 163,187 21.6 % 144,297 20.3 % Selling, General and Administrative Expenses 119,728 15.8 % 98,351 13.8 % Restructuring Charges 14,542 1.9 % 6,158 0.9 % Operating Income 28,917 3.9 % 39,788 5.6 % Interest Expense (20,773) (2.7) % (11,571) (1.6) % Loss on Extinguishment of Debt — — % (295) — % Other Income, Net 8,235 1.1 % 5,400 0.8 % Income Before Taxes 16,379 2.3 % 33,322 4.8 % Income Tax Expense 451 nm 4,533 nm Net Income $ 15,928 2.1 % $ 28,789 4.0 % Effective Tax Rate 2.8 % nm 13.6 % nm Diluted Earnings Per Share $ 1.14 nm $ 2.33 nm nm = not meaningful Net Revenues by End-Use Market and Operating Segment Net revenues by end-use market and operating segment during 2023 and 2022, respectively, were as follows: (Dollars in thousands) Years Ended December 31, % of Net Revenues Change 2023 2022 2023 2022 Consolidated Ducommun Military and space $ (16,882) $ 403,819 $ 420,701 53.3 % 59.1 % Commercial aerospace 61,782 309,291 247,509 40.9 % 34.7 % Industrial (445) 43,882 44,327 5.8 % 6.2 % Total $ 44,455 $ 756,992 $ 712,537 100.0 % 100.0 % Electronic Systems Military and space $ (20,696) $ 293,485 $ 314,181 68.2 % 71.3 % Commercial aerospace 10,639 92,769 82,130 21.6 % 18.6 % Industrial (445) 43,882 44,327 10.2 % 10.1 % Total $ (10,502) $ 430,136 $ 440,638 100.0 % 100.0 % Structural Systems Military and space $ 3,814 $ 110,334 $ 106,520 33.8 % 39.2 % Commercial aerospace 51,143 216,522 165,379 66.2 % 60.8 % Total $ 54,957 $ 326,856 $ 271,899 100.0 % 100.0 % Net revenues for 2023 were $757.0 million compared to $712.5 million for 2022.
Recap for the year ended December 31, 2024: • Net revenues of $786.6 million • Net income of $31.5 million, or 4.0% of net revenues, or $2.10 per diluted share • Adjusted EBITDA of $116.6 million, or 14.8% of net revenues 25 Table of Contents RESULTS OF OPERATIONS 2024 Compared to 2023 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) Years Ended December 31, 2024 % of Net Revenues 2023 % of Net Revenues Net Revenues $ 786,551 100.0 % $ 756,992 100.0 % Cost of Sales 589,286 74.9 % 593,805 78.4 % Gross Profit 197,265 25.1 % 163,187 21.6 % Selling, General and Administrative Expenses 138,610 17.7 % 119,728 15.8 % Restructuring Charges 6,444 0.8 % 14,542 2.0 % Operating Income 52,211 6.6 % 28,917 3.8 % Interest Expense (15,304) (1.8) % (20,773) (2.7) % Other Income, Net — — % 8,235 1.1 % Income Before Taxes 36,907 4.8 % 16,379 2.2 % Income Tax Expense 5,412 nm 451 nm Net Income $ 31,495 4.0 % $ 15,928 2.1 % Effective Tax Rate 14.7 % nm 2.8 % nm Diluted Earnings Per Share $ 2.10 nm $ 1.14 nm nm = not meaningful Net Revenues by End-Use Market and Operating Segment Net revenues by end-use market and operating segment during 2024 and 2023, respectively, were as follows: (Dollars in thousands) Years Ended December 31, % of Net Revenues Change 2024 2023 2024 2023 Consolidated Ducommun Military and space $ 16,126 $ 419,945 $ 403,819 53.4 % 53.3 % Commercial aerospace 23,823 333,114 309,291 42.3 % 40.9 % Industrial (10,390) 33,492 43,882 4.3 % 5.8 % Total $ 29,559 $ 786,551 $ 756,992 100.0 % 100.0 % Electronic Systems Military and space $ 14,011 $ 307,496 $ 293,485 71.3 % 68.2 % Commercial aerospace (2,394) 90,375 92,769 20.9 % 21.6 % Industrial (10,390) 33,492 43,882 7.8 % 10.2 % Total $ 1,227 $ 431,363 $ 430,136 100.0 % 100.0 % Structural Systems Military and space $ 2,115 $ 112,449 $ 110,334 31.7 % 33.8 % Commercial aerospace 26,217 242,739 216,522 68.3 % 66.2 % Total $ 28,332 $ 355,188 $ 326,856 100.0 % 100.0 % Net revenues for 2024 were $786.6 million compared to $757.0 million for 2023.
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.
Contract estimates, known as “estimates at completion,” are based on various assumptions to project the outcome of future events that can span multiple months or years.
In its 2023 Annual Report on Form 10-K, Boeing indicated that in 2023, global air traffic largely recovered to 2019 levels with domestic travel continuing to be the most robust and international travel has mostly recovered.
In its 2024 Annual Report on Form 10-K, The Boeing Company (“Boeing”) indicated that in 2024, global air traffic continue to expand beyond 2019 levels with domestic travel continuing to be the most robust and the single-aisle market following closely. International travel also surpassed pre-pandemic levels during 2024 and the wide-body market continues to improve with the international travel recovery.
Net cash used in investing activities during 2023 was $133.5 million compared to $19.2 million during 2022. The higher net cash used in investing activities during 2023 was primarily due to payments for the acquisition of BLR. Net cash provided by financing activities during 2023 was $99.0 million compared to net cash used of $43.5 million during 2022.
Net cash used in financing activities during 2024 was $26.0 million compared to net cash provided by of $99.0 million during 2023.
The following table summarizes our backlog for 2023 and 2022: (Dollars in thousands) December 31, Change 2023 2022 Consolidated Ducommun Military and space $ 69,789 $ 527,143 $ 457,354 Commercial aerospace (20,598) 429,494 450,092 Industrial (16,443) 36,931 53,374 Total $ 32,748 $ 993,568 $ 960,820 Electronic Systems Military and space $ 36,099 $ 397,681 $ 361,582 Commercial aerospace (37,596) 87,994 125,590 Industrial (16,443) 36,931 53,374 Total $ (17,940) $ 522,606 $ 540,546 Structural Systems Military and space $ 33,690 $ 129,462 $ 95,772 Commercial aerospace 16,998 341,500 324,502 Total $ 50,688 $ 470,962 $ 420,274 2022 Compared to 2021 See Item 7.
The following table summarizes our backlog for 2024 and 2023: (Dollars in thousands) December 31, Change 2024 2023 Consolidated Ducommun Military and space $ 97,642 $ 624,785 $ 527,143 Commercial aerospace (13,589) 415,905 429,494 Industrial (16,802) 20,129 36,931 Total $ 67,251 $ 1,060,819 $ 993,568 Electronic Systems Military and space $ 61,865 $ 459,546 $ 397,681 Commercial aerospace (11,703) 76,291 87,994 Industrial (16,802) 20,129 36,931 Total $ 33,360 $ 555,966 $ 522,606 Structural Systems Military and space $ 35,777 $ 165,239 $ 129,462 Commercial aerospace (1,886) 339,614 341,500 Total $ 33,891 $ 504,853 $ 470,962 2023 Compared to 2022 See Item 7.
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 December 31, 2023, we estimate the remaining amount of charges related to this initiative to be $5.0 million to $7.0 million in total pre-tax restructuring charges through 2023.
In April 2022, management approved and commenced a restructuring plan that will position us for stronger performance. The restructuring plan mainly reduces 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 December 31, 2023, we had $176.0 million of unused borrowing capacity under the 2022 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit. In April 2022, management approved and commenced a restructuring plan that will position us for stronger performance. The restructuring plan mainly reduces headcount and consolidate facilities.
We made the mandatory quarterly amortization payments under our term loans of $7.8 million and $6.3 million during 2024 and 2023, respectively. As of December 31, 2024, we had $191.0 million of unused borrowing capacity under the 2022 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit.
Se e Note 2 and Note 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K for further information. Income Tax Expense We recorded an income tax expense of $0.5 million (an effective tax rate of 2.8%) in 2023, compared to $4.5 million (an effective tax rate of 13.6%) in 2022.
Income Tax Expense We recorded an income tax expense of $5.4 million (an effective tax rate of 14.7%) in 2024, compared to $0.5 million (an effective tax rate of 2.8%) in 2023.
Removed
COVID-19 Pandemic Impact on Our Business The COVID-19 pandemic had a significant impact on our overall business during the prior year ended December 31, 2022.
Added
In July 2024, Boeing also pleaded guilty to conspiracy fraud charges, which may result in additional external oversight on its manufacturing and quality control process.
Removed
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.
Added
Further, in September 2024, the International Association of Machinists and Aerospace Workers District 751 voted to initiate a labor strike affecting more than 30,000 Boeing manufacturing employees primarily located in Washington state, and the manufacturing employees, after rejecting the contract offer in October, voted to approve the revised contract offer in November 2024.
Removed
The residual effects of the COVID-19 pandemic and the resulting inflation, rising or high interest rates, supply chain issues, geopolitical developments, and other events have contributed and/or continue to contribute to a general slowdown in the global economy and most significantly, the commercial aerospace end-use market.
Added
Since Boeing is one of our largest customers, if Boeing is unable to meet the full compliance of the FAA’s required quality control procedures, and/or recover from the impact of the labor strike in the near term, it could have a material adverse impact on our business, results of operations and financial condition.
Removed
While the full extent and impact of the COVID-19 pandemic cannot be reasonably estimated with certainty, in the prior year, the COVID-19 pandemic 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 along with compliance with regulatory compliance, could have a material adverse impact on our business, results of operations and financial condition for 2024 and beyond.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 10% increase or decrease in the interest rate would have an immaterial impact on our financial condition and results of operations.
Biggest changeA hypothetical 10% increase or decrease in the interest rate would have an immaterial impact on our financial condition and results of operations. 38 Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our main market risk exposure relates to changes in interest rates on our outstanding long-term debt. At December 31, 2023, we had borrowings of $266.0 million under our 2022 Credit Facilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our main market risk exposure relates to changes in interest rates on our outstanding long-term debt. At December 31, 2024, we had borrowings of $243.2 million under our 2022 Credit Facilities.

Other DCO 10-K year-over-year comparisons