Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restatement of Previously Issued Financial Statements
As discussed in the “Explanatory Note” above, and in Part IV, Item 15(a) “Exhibits and Financial Statement Schedules - Note 1A to the Consolidated Financial Statements - Restatement” we have restated these consolidated financial statements as of and for the years ended December 31, 2025 and 2024, revised amounts for the quarter ended and as of March 30, 2024, and corrected certain other immaterial items that were previously identified and concluded as immaterial, individually and in the aggregate. As a result, the previously reported financial information as of and for the years ended December 31, 2025 and December 31, 2024 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated to reflect effects of the restatement.
See the section entitled “Restatement of Previously Issued Consolidated Financial Statements,” in Note 1A “Restatement” and Note 18 “Unaudited Quarterly Financial Data” to the Consolidated Financial Statements contained in Part IV, Item 15(a) “Exhibits and Financial Statement Schedules” of this Form 10-K/A for further detail regarding the restatement, including descriptions of the adjustments and the impacts to our consolidated financial statements.
Other than the effects of the restatement, revision, and other immaterial prior period misstatements noted above, this section has not been otherwise modified and does not reflect any information or events occurring after February 26, 2026, the filing date of the Original Form 10-K, or modify or update those disclosures affected by events that occurred at a later date or facts that subsequently became known to us, except to the extent they are otherwise required to be included and discussed herein.
Overview
Ducommun Incorporated (“Ducommun,” “the Company,” “we,” “us” or “our”) is a leading designer and manufacturer of and provider of manufacturing solutions for high-performance products often used in high-cost-of failure applications primarily in the aerospace and defense (“A&D”), industrial, medical, and other industries (collectively, “Industrial”). Ducommun differentiates itself as a full-service solution-based provider, offering innovative, value-added proprietary products and manufacturing solutions to our customers in our primary businesses of electronics, structures and integrated solutions. We operate through two primary business segments: Electronic Systems and Structural Systems, each of which is a reportable segment.
Economic Environment
The Boeing Company
In its 2025 Annual Report on Form 10-K, The Boeing Company (“Boeing”) indicated that in 2025, global air traffic expanded to near historical trend rates on an annual basis. The growth occurred despite a lower than usual contribution from the North America market, which had stagnant demand, particularly in the low-cost space. International demand outpaced domestic demand on an annual basis as the international demand continue to build on the recovery momentum from 2024, including in China, lifting demand for wide-body airplanes. Based on these trends, both single-aisle and wide-body demand remain above current industry supply levels. Overall, Boeing is experiencing strong demand from their airplane customers globally.
Boeing was one of our largest customers in 2025, and the 737 MAX was one of our highest commercial end use market revenue platforms. In early January 2024, the Federal Aviation Administration (“FAA”) initiated an investigation into Boeing’s quality control system, which was followed by the agency 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 was satisfied that Boeing attained full compliance with required quality control procedures. Subsequently, in July 2024, Boeing pleaded guilty to conspiracy fraud charges, which may result in additional external oversight on its manufacturing and quality control processes. More recently, Boeing announced that the FAA cleared Boeing’s plan to raise 737 MAX production from 38 airplanes to 42 airplanes per month.
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 a labor strike, which extended from early August 2025 to mid-November 2025, in the near term, it could have a material adverse impact on our business, results of operations and financial condition. See Risk Factors included in Part I, Item 1A of this Annual Report on Form 10-K/A (“Form 10-K/A”).
Airbus SE
Airbus SE (“Airbus”) is aligned with Boeing’s view on international demand as its Global Services Forecast for Asia-Pacific (including China and India) anticipates that total services demand in the region will grow at a 5.2% compound annual growth rate through 2044, reaching an estimated market value of $138.7 billion. This sustained growth is expected to be underpinned by expanding air traffic and fleet growth. The region is also expected to remain the world’s fastest growing air travel market, with passenger traffic expected to rise by 4.4% annually, well above the global average of 3.6%.
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U.S. Government Tariffs
Since February 2025, the U.S. government has issued several executive orders (“Executive Orders”), under various statutes, imposing tariffs on imports from most countries with whom the U.S. engages in trade. As such, during 2025, the United States reached bilateral trade agreements that recognize tariff-free trade of products within the scope of the World Trade Organization Agreement on Trade in Civil Aircraft with the United Kingdom, Japan, and the European Union. Moreover, the United States applies a diverse range of reciprocal tariffs to imports originating from countries that have not concluded bilateral trade agreements with the United States. On February 20, 2026, the U.S. Supreme Court struck down the sweeping tariffs that the U.S. government had imposed through the Executive Orders issued pursuant to International Emergency Economic Powers Act (“IEEPA”) of 1977. However, the U.S. government subsequently imposed a global tariff of 10% (which could potentially increase to 15%) that went into effect on February 24, 2026, and which would be effective for 150 days unless they are extended by the U.S Congress.
If the imposition of current tariff levels is sustained, our profitability, cash flows and the estimates inherent in our financial statements could be negatively affected to the extent we are either unable to claim duty exemptions or are unable to pass on such incremental tariffs to our customers. The actual financial impacts of tariffs are dependent upon various factors, most notably, the scope of goods covered by tariffs, the value of our imports subject to tariffs, the rate of tariffs applied, the timing and duration of tariffs, the implementation of tariff and non-tariff countermeasures by countries subject to U.S. tariffs, and our ability to mitigate the impacts of tariffs by availing ourselves of applicable exemptions. Changes in any of these factors and actual tariff costs incurred could significantly affect the estimates inherent in our financial statements, including those used in our estimates-at-completion (“EACs”), and estimates supporting the recoverability of our inventories, contract assets, intangible assets, and goodwill, and could have a material effect on our results of operations and cash flows in the periods recognized and paid.
U.S. Government Budget
On October 1, 2025, Congress failed to reach an agreement on funding the federal government, resulting in a shutdown until an agreement is reached. This resulted in the disruption of non-essential government services, with over hundreds of thousands of federal employees being furloughed or working without pay.
On November 12, 2025, the U.S. Government enacted a continuing resolution (“CR”) to keep the government funded through January 30, 2026 while Congress works to enact full year fiscal year 2026 (“FY26”) remaining appropriation bills or an additional CR to fund government departments and agencies after January 30, 2026. In addition, on January 7, 2026, President Trump called for increasing the FY27 U.S. military budget to $1.5 trillion, significantly higher than the $901 billion approved by Congress for FY26. However, such increase in the military budget would require congressional authorization.
On February 3, 2026, President Trump signed into law a funding package to end the brief U.S. Government shutdown. The legislation will ensure full year funding for the federal government through the end of September 2026, with the lone exception of funding for the Department of Homeland Security.
U.S. Taxation Legislation
On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act (“OBBBA”), which, among other things, provides a corporate tax provision change in reinstating the immediate expensing of U.S. research and development expenditures paid or incurred for tax years beginning after December 31, 2024. See Note 14 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
The OBBBA also provides a supplementary $156 billion to the DoW for obligations through 2029.
Executive Order Regarding Modernizing Defense Acquisitions
On April 9, 2025, the U.S. government issued an executive order requiring, among other things, a DoW review of its Major Defense Acquisition Programs to identify those programs that are 15% behind schedule, 15% over budget, unable to meet key performance parameters, or unaligned with the Secretary of Defense’s mission priorities for potential cancellation. Although Ducommun does not, at this time, believe the Executive Order will have a material impact on our business or results of operations, the longer-term ramifications, if any, to Ducommun will depend on a variety of factors including the formulation and implementation of the review criteria in the order, the review timeline, the Secretary of Defense’s mission priorities, and future budget determinations based on the results of such review.
Guaymas Fire - Developments
A neighboring, non-related manufacturing facility also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center in June 2020, and in November 2023, the occupant of the neighboring facility filed suit against us in U.S. District Court for the Central District of California (the “District Court”) seeking unspecified amounts for damages relating to the fire (the “Guaymas Fire Litigation”). Subsequent to our quarter ended September 27, 2025, on October 17, 2025, we entered into a settlement agreement (the “Settlement Agreement”) to resolve the Guaymas Fire Litigation against
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us. The Settlement Agreement provides for, among other things, the final dismissal of the Guaymas Fire Litigation against us with prejudice and a release of claims against us in exchange for us issuing a payment of $150.0 million, $56.0 million of which we expected at that time to be funded by our insurance carriers.
On October 9, 2025, we also settled an ancillary subrogation claim related to the Guaymas fire for $1.4 million.
Subsequent to the fiscal year ended December 31, 2025, on January 7, 2026, we entered into a binding confidential agreement (“Confidential Agreement”) to resolve an additional subrogation claim (“Additional Subrogation Claim”) against us related to the Guaymas fire. The Confidential Agreement provides for, among other things, the final dismissal of the Additional Subrogation Claim and a release of all claims against us, with prejudice, in exchange for us issuing a payment of $4.0 million. We do not believe there are any remaining subrogation or other claims relating to the Guaymas fire at this time other than by an insurer of the plaintiff in the Guaymas Fire Litigation based in Mexico for payments issued to its insured for damages allegedly incurred in the Guaymas fire, which we believe to be time barred.
See Note 1 and Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
Recap for the year ended December 31, 2025:
• Net revenues of $824.8 million (As Restated)
• Net loss of $37.4 million, or 4.5% of net revenues, or $2.50 per share (As Restated)
• Adjusted EBITDA of $136.1 million, or 16.5% of net revenues (As Restated)
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RESULTS OF OPERATIONS
2025 Compared to 2024 (As Restated)
The following table sets forth net revenues, selected financial data, the effective tax (benefit) rate and diluted (loss) earnings per share:
(Dollars in thousands, except per share data)
Years Ended December 31,
of Net Revenues
of Net Revenues
(As Restated)
(As Restated)
(As Restated)
(As Restated)
Net Revenues
Cost of Sales
Gross Profit
Selling, General and Administrative Expenses
Restructuring Charges
Litigation Settlement and Related Costs, Net
Operating (Loss) Income
Interest Expense
Loss on Extinguishment of Debt
Other Income, Net
(Loss) Income Before Taxes
Income Tax (Benefit) Expense
Net (Loss) Income
Effective Tax Rate
Diluted (Loss) Earnings Per Share
nm = not meaningful
Net Revenues by End-Use Market and Operating Segment
Net revenues by end-use market and operating segment during 2025 and 2024, respectively, were as follows:
(Dollars in thousands)
Years Ended December 31,
% of Net Revenues
Change
(As Restated)
(As Restated)
(As Restated)
(As Restated)
Consolidated Ducommun
Military and space
Commercial aerospace
Industrial
Total
Electronic Systems
Military and space
Commercial aerospace
Industrial
Total
Structural Systems
Military and space
Commercial aerospace
Total
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Net revenues for 2025 were $824.8 million compared to $786.4 million for 2024. The year-over-year increase was primarily due to the following:
• $60.0 million higher revenues in our military and space end-use markets due to higher rates on selected missile, classified program, rotary-wing aircraft, fixed-wing aircraft, and radar platforms; partially offset by
• $24.6 million lower revenues in our commercial aerospace end-use markets due to lower revenues from Boeing and in-flight entertainment, and lower rates on rotary-wing aircraft platforms.
In addition, revenues for our industrial end-use markets for 2025 increased $3.0 million compared to 2024 mainly due to restocking and last time buys.
Net Revenues by Major Customers
A significant portion of our net revenues are from our top ten customers as follows:
Years Ended December 31,
Boeing Company (1)
Lockheed Martin Corporation
Northrop Grumman Corporation
RTX Corporation (2)
Top ten customers (3)
(1) The Boeing Company (“Boeing”) completed its acquisition of all of Spirit Aerosystems Holdings, Inc.’s Boeing-related commercial operations, based on Boeing’s announcement on December 8, 2025.
(2) TransDigm Group Inc. (“TransDigm”) completed its acquisition of the Simmonds Precision Products, Inc. business of Goodrich Corporation from RTX Corporation (f/k/a Raytheon Technologies Corporation) (“RTX”), based on TransDigm’s announcement on October 6, 2025.
(3) Includes Boeing, Lockheed Martin Corporation (“Lockheed”), Northrop Grumman Corporation (“Northrop”), and RTX.
The revenues from Boeing, Lockheed, Northrop, and RTX 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. 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 26.9% in 2025 compared to 25.1% in 2024. The increase in gross margin percentage year-over-year was primarily due to lower other manufacturing costs and restructuring charges as a result of the completion of the wind down of our Monrovia performance center, and higher manufacturing volume.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses decreased $0.8 million in 2025 compared to 2024 primarily due to lower professional services fees of $2.3 million, partially offset by higher other SG&A expenses of $1.3 million.
Restructuring Charges
Restructuring charges decreased $5.4 million (including the portion recorded in cost of sales, which decreased $1.2 million) in 2025 compared to 2024 primarily due to the completion of the restructuring plan that was approved and commenced in April 2022. See Note 2 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
Litigation Settlement and Related Costs, Net
Litigation settlement and related costs, net increased $107.3 million in 2025 compared to 2024 primarily due to the litigation settlement with a neighboring, non-related manufacturing facility that also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center in June 2020 (“Guaymas Fire”). In addition, litigation settlement with two ancillary subrogation claims related to the Guaymas Fire. See Note 1 and Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
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Interest Expense
Interest expense decreased in 2025 compared to 2024 primarily due to lower interest rates along with a lower outstanding debt balance during the year, prior to the payments related to the litigation settlements during the three months ended December 31, 2025. See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
Income Tax (Benefit) Expense
We recorded an income tax benefit of $9.9 million (an effective tax rate of 20.9%) in 2025, compared to an income tax expense of $5.2 million (an effective tax rate of 19.5%) in 2024. The change to income tax benefit from income tax expense for 2025 compared to 2024 was primarily due to a pre-tax loss, driven by litigation settlement and related costs, net of insurance recovery, in 2025 compared to a pre-tax income in 2024.
The pre-tax loss in 2025 resulted in the recognition of deferred tax assets for the benefits of the net operating loss carryforwards to be recognized in future years. Based on our expectation of future taxable income, we expect to realize the deferred tax assets and, thus, did not record valuation allowances against them.
Our unrecognized tax benefits were $5.0 million and $4.5 million in 2025 and 2024, respectively. 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, 2025 and 2024 were not significant. If recognized, $2.8 million would affect the effective income tax rate.
We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2021 and by state taxing authorities for tax years after 2020. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.
On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act (“OBBBA”). Amongst other things, the OBBBA provides for several corporate tax provision changes including restoring the full expensing of qualified property placed in service after January 19, 2025, reinstating the immediate expensing of U.S. research and development expenditures paid or incurred for tax years beginning after December 31, 2024, and changes in the computations of U.S. taxation on international earnings for tax years beginning after December 31, 2025. We completed the initial assessment of the OBBBA corporate tax provisions as they relate to our financial statements for the year ended December 31, 2025. The enactment of the OBBBA did not have a material impact to our effective tax rate for the year ended December 31, 2025. However, the OBBBA decreased our cash tax liability for 2025. We will continue to evaluate the full impact of the OBBBA corporate tax provision changes as additional guidance becomes available.
Net (Loss) Income and (Loss) Earnings per Diluted Share
Net loss and loss per share for 2025 were $37.4 million, or $2.50 per share, respectively, compared to net income and earnings per diluted share for 2024 of $21.7 million, or $1.44 per diluted share, respectively. The decrease in net income in 2025 compared to 2024 was primarily due to higher litigation settlement and related costs, net of $107.3 million, partially offset by higher gross profit of $24.4 million, lower income tax expense of $15.1 million, and lower restructuring charges of $5.4 million (including the portion recorded in cost of sales, which decreased $1.2 million).
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Business Segment Performance
We report our financial performance based upon the two reportable operating segments: Electronic Systems and Structural Systems. The results of operations differ between our reportable operating segments due to differences in competitors, customers, extent of proprietary deliverables and performance. The following table summarizes our business segment performance for 2025 and 2024:
(Dollars in thousands)
Years Ended December 31,
of Net Revenues
of Net Revenues
Change
(As Restated)
(As Restated)
(As Restated)
(As Restated)
Net Revenues
Electronic Systems
Structural Systems
Total Net Revenues
Segment Operating Income
Electronic Systems
Structural Systems
Corporate General and Administrative Expenses (1)
Total Operating (Loss) Income
Adjusted EBITDA
Electronic Systems
Operating Income
Depreciation and Amortization
Stock-Based Compensation Expense
Restructuring Charges
Structural Systems
Operating Income
Depreciation and Amortization
Stock-Based Compensation Expense
Restructuring Charges
Inventory Purchase Accounting Adjustments
Corporate General and Administrative Expenses (1)
Operating Loss
Depreciation and Amortization
Stock-Based Compensation Expense
Other Debt Refinancing Costs
Professional Fees Related to Unsolicited Non-Binding Acquisition Offer
Litigation Settlement and Related Costs, Net
Adjusted EBITDA
Capital Expenditures
Electronic Systems
Structural Systems
Corporate Administration
Total Capital Expenditures
(1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
Electronic Systems
Electronic Systems’ net revenues in 2025 compared to 2024 increased $31.3 million, primarily due to the following:
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• $43.7 million higher revenues in our military and space end-use markets due to higher rates on selected missile, classified program, fixed-wing aircraft, and radar platforms, partially offset by lower rates on selected electronic warfare platforms; partially offset by
• $15.3 million lower revenues in our commercial aerospace end-use markets due to lower rates on large aircraft platforms and lower revenues from in-flight entertainment.
In addition, revenues for our industrial end-use markets for 2025 increased $3.0 million compared to 2024 mainly due to restocking and last time buys.
Electronic Systems segment operating income in 2025 compared to 2024 increased $8.5 million primarily due to higher manufacturing volume and favorable product mix.
Structural Systems
Structural Systems’ net revenues in 2025 compared to 2024 increased $7.1 million, primarily due to the following:
• $16.3 million higher revenues in military and space end-use markets due to higher rates on selected rotary-wing aircraft, missile, and ground vehicles platforms, partially offset by lower rates on selected fixed-wing aircraft platforms; partially offset by
• $9.2 million lower revenues in commercial aerospace end-use markets due to lower revenues from Boeing and lower rates on rotary-wing aircraft platforms, partially offset by growth in Airbus.
Structural Systems segment operating income in 2025 compared to 2024 increased $21.5 million primarily due to lower other manufacturing costs and restructuring charges as a result of the completion of the wind down of our Monrovia performance center and higher manufacturing volume, partially offset by unfavorable product mix.
In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. The loss of production from the Guaymas performance center was absorbed by our other existing performance centers, however, we have reestablished our operations and are in the process of certification with various customers and ramping up our manufacturing capabilities in a different leased facility in Guaymas. We have insurance coverage up to a capped amount, less our deductible. The insurance claim for damages to our operating assets and business interruption was deemed final and closed by our insurance company during the three months ended July 1, 2023.
See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for additional information.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses in 2025 compared to 2024 increased $107.9 million primarily due to higher litigation settlement and related costs, net of $107.3 million, higher other CG&A expenses of $2.2 million, and higher stock-based compensation expense of $1.3 million, partially offset by lower professional services fees of $2.9 million.
A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center (as discussed above), and, in November 2023, the occupant of the neighboring facility filed suit against us in U.S. District Court for the Central District of California seeking unspecified amounts for damages relating to the fire. Subsequent to our quarter ended September 27, 2025, on October 17, 2025, we entered into a settlement agreement (the “Settlement Agreement”) to resolve the previously disclosed Guaymas fire litigation against us (the “Guaymas Fire Litigation”). The Settlement Agreement provides for, among other things, the final dismissal of the Guaymas Fire Litigation against us with and a release of us in exchange for us issuing a payment of $150.0 million, $56.0 million of which we expected at that time to be funded by our insurance carriers. During the three months ended December 31, 2025, the insurance carriers made payments totaling $56.0 million directly to the and we made a payment of $94.0 million to the . Also subsequent to our quarter ended September 27, 2025, on October 9, 2025, we settled an ancillary subrogation claim (“Ancillary Subrogation Claim”) related to the fire for $1.4 million. During the three months ended December 31, 2025, we made a $1.4 million payment to the of the Ancillary Subrogation Claim. Further, subsequent to the fiscal year ended December 31, 2025, on January 7, 2026, we entered into a binding confidential agreement to an additional ancillary subrogation claim related to the fire for $4.0 million. We do not believe there are any remaining subrogation or other relating to the Guaymas fire at this time other than by an insurer of the in the Guaymas Fire based in Mexico for payments issued to its insured for incurred in the Guaymas fire, which we believe to be time . See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for additional information.
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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 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 $136.1 million and $115.7 million for the years ended December 31, 2025 and December 31, 2024, respectively.
When viewed with our financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information that clarifies and enhances the understanding of the factors and trends affecting our past performance and future prospects. We define this measure, explain how it is calculated and provide a reconciliation of this measure to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Form 10-K/A, are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as a measurement of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.
We use Adjusted EBITDA as a non-GAAP operating performance measure internally as a complementary financial measure to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:
• It does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
• It does not reflect changes in, or cash requirements for, our working capital needs;
• It does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
• It is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
• It does not reflect the impact on earnings or charges resulting from matters unrelated to our ongoing operations; and
• Other companies in our industry may calculate Adjusted EBITDA differently from us, limiting its usefulness as a comparative measure.
As a result of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our consolidated financial statements contained in this Form 10-K/A.
Even with the limitations above, we believe that Adjusted EBITDA is useful to an investor in evaluating our results of operations as this measure:
• Is widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
• Helps investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and
• Is used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.
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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 (benefit) 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;
• Litigation settlement and related costs, net, may be useful to our investors in evaluating 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 of property and other assets 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; and
• Purchase accounting inventory step-ups may be useful to our investors as they do not necessarily reflect the current or on-going cash charges related to our core operating performance.
Reconciliations of net income to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of net revenues were as follows:
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(Dollars in thousands)
Years Ended December 31,
(As Restated)
(As Restated)
Net (loss) income
Interest expense
Income tax (benefit) expense
Depreciation
Amortization
Stock-based compensation expense (1)(2)
Restructuring charges (3)
Litigation settlement and related costs, net
Loss on extinguishment of debt
Other debt refinancing costs
Gain on sale of property and other assets
Professional fees related to unsolicited non-binding acquisition offer
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 (4)
Adjusted EBITDA
Net (loss) income as a % of net revenues
Adjusted EBITDA as a % of net revenues
(1) 2025, 2024, and 2023 included $1.7 million, $5.4 million, and $2.7 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
(2) 2025, 2024, and 2023 each included $0.5 million of stock-based compensation expense recorded as cost of sales.
(3) 2025, 2024, and 2023 included zero, $1.2 million, and $0.3 million, respectively, of restructuring charges that were recorded as cost of sales.
(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.
Backlog
We define backlog as customer placed purchase orders (“POs”) and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount 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/A. 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.
The increase in backlog was primarily in the military and space and commercial aerospace end-use markets. $844.0 million of total backlog is expected to be delivered over the next 12 months. The following table summarizes our backlog for 2025 and 2024:
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(Dollars in thousands)
December 31,
Change
Consolidated Ducommun
Military and space
Commercial aerospace
Industrial
Total
Electronic Systems
Military and space
Commercial aerospace
Industrial
Total
Structural Systems
Military and space
Commercial aerospace
Total
2024 (As Restated) Compared to 2023
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Form 10-K filed with the SEC on February 27, 2025 for a comparison of our results of operations for the 2024 fiscal year to the 2023 fiscal year. The impacts to the discussion therein as a result of the Error include an increase to SG&A expenses by $10.0 million and a decrease to net income by $9.8 million for the year ended December 31, 2024. Accordingly, our SG&A expenses increased by $28.9 million in 2024 compared to 2023 and our net income increased by $5.7 million in 2024 compared to 2023.
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,
Total debt, including short-term portion
Weighted-average interest rate on debt
Term Loans interest rate
Cash and cash equivalents
Unused Revolving Credit Facility
Credit Facilities
On November 24, 2025, we completed a refinancing of our existing debt by entering into a new senior secured term loan (“2025 Term Loan”) and a new revolving credit facility (“2025 Revolving Credit Facility”). The 2025 Term Loan is a $200.0 million senior secured loan that matures in November 2030. The 2025 Revolving Credit Facility is a $450.0 million senior secured revolving credit facility that matures on November 24, 2030. The 2025 Term Loan replaced the 2022 Term Loan (“2022 Term Loan”) which was a $250.0 million senior secured loan. The 2025 Revolving Credit Facility replaced the 2022 Revolving Credit Facility (“2022 Revolving Credit Facility”) which was a $200.0 million senior secured revolving credit facility. The 2025 Term Loan and 2025 Revolving Credit Facility, collectively are the new credit facilities (“2025 Credit Facilities”). The 2022 Term Loan and 2022 Revolving Credit Facility, collectively were the 2022 credit facilities that were entered into in July 2022 and would have matured in July 2027 (“2022 Credit Facilities”). The terms of the 2025 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 2025 Revolving Credit Facility do not require us to make installment payments. However, the
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undrawn portion of the commitment of the 2025 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.250%, based upon the consolidated total net adjusted leverage ratio. As of December 31, 2025, we were in compliance with all covenants required under the 2025 Credit Facilities. See Note 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
In conjunction with the closing of the 2025 Credit Facilities, we utilized the entire $200.0 million of proceeds from the 2025 Term Loan combined with drawing down on the 2025 Revolving Credit Facility to pay off our entire debt balance outstanding of $320.0 million under the 2022 Credit Facilities.
We made the mandatory quarterly amortization payments under our term loans of $9.4 million and $7.8 million during 2025 and 2024, respectively.
As of December 31, 2025, we had $344.8 million of unused borrowing capacity under the 2025 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit.
Restructuring
In April 2022, management approved and commenced a restructuring plan that was intended to position us for stronger performance. The restructuring plan mainly reduced headcount and consolidated 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. While we have completed the restructuring plan and recorded all incurred expenses as of December 31, 2025, we will be making payments related to such plan during 2026. See Note 2 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
Derivatives
In November 2021, we entered into U.S. dollar-one month London Interbank Offered Rate (“LIBOR”) forward interest rate swaps designated as cash flow hedges, all with an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of each calendar month, commencing on February 1, 2024 through January 1, 2031. See Note 1, Note 3, and Note 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
In July 2022, as a result of completing a refinancing of our existing debt, we were required to complete an amendment of the Forward Interest Rate Swaps (“Amended Forward Interest Rate Swaps”). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and were amended to be based on one month Term Secured Overnight Financing Rate (“SOFR”) as borrowings using LIBOR were no longer available under the 2022 Credit Facilities. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR. See Note 1, Note 3, and Note 9 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
Capital Expenditures
We expect to spend a total of $20.0 million to $24.0 million for capital expenditures in 2026, financed by cash generated from operations, principally to support new contract awards in Electronic Systems and Structural Systems. As part of our strategic plan to become a supplier of higher-level assemblies and win new contract awards, additional up-front investment in tooling will be required for newer programs which have higher engineering content and higher levels of complexity in assemblies.
Transaction Activity
We believe the ongoing aerospace and defense subcontractor consolidation makes acquisitions an increasingly important component of our future growth. We will continue to make prudent acquisitions and capital expenditures for manufacturing equipment and facilities to support long-term contracts for commercial and military aircraft and defense programs.
Properties
We monitor our asset base, including the market dynamics of the properties we own, and we may sell such properties (see discussion below on the sale of our Berryville, Arkansas facility) and/or enter into sale-leaseback transactions. Such transactions would provide cash for various capital deployment options.
Short Term Liquidity
We continue to depend on operating cash flow and the availability of our 2025 Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet our obligations during the next twelve months from the date of issuance of these financial statements.
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Cash Flow Summary
2025 Compared to 2024 (As Restated)
Net cash used in operating activities during 2025 was $33.4 million, compared to net cash provided by operating activities of $34.2 million during 2024. The lower net cash provided by operating activities during 2025 was primarily due to higher contract assets as a result of higher revenues, lower net income as a result of the litigation settlement and related costs, net, and higher accounts receivable, partially offset by higher contract liabilities and lower inventories. See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information on the litigation settlement and related costs, net.
Net cash used in investing activities during 2025 was $13.1 million compared to $13.9 million during 2024. The lower net cash used in investing activities during 2025 was primarily due to proceeds from the sale of our Berryville, Arkansas facility. See Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information.
Net cash provided by financing activities during 2025 was $54.7 million compared to net cash used in financing activities of $26.0 million during 2024. The lower net cash used in financing activities during 2025 was primarily due to higher net borrowings on our revolving credit facility to pay litigation settlement and related costs. See Note 15 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for further information on the litigation settlement and related costs, net.
2024 (As Restated) Compared to 2023
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Form 10-K filed with the SEC on February 27, 2025 for our cash flow summary for the 2024 fiscal year to the 2023 fiscal year. The only change to the discussion therein as a result of the Restatement is that the Restatement had the effect of increasing stock-based compensation expenses by $9.1 million and decreasing net income by $9.8 million for the year ended December 31, 2024.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of operating and finance leases not recorded as a result of the practical expedients utilized, right of offset of industrial revenue bonds and associated failed sales-leasebacks on property and equipment, and indemnities, none of which we believe may have a material current or future effect on our financial condition, liquidity, capital resources, or results of operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those accounting policies and estimates that can have a significant impact on the presentation of our financial condition and results of operations and that require the use of subjective estimates based upon past experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing our financial statements that management believes are the most dependent on the application of estimates and assumptions. See Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for additional accounting policies.
Revenue Recognition
Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. In some instances, this requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.
We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.
The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. In addition, at times, in order to achieve economies of scale and based on our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or met the series
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guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
We manufacture most products to customer specifications, and the products cannot be easily modified for another customer. As such, these products are deemed to have no alternative use once we have allocated the raw materials to a customer order. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method.
The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to measure progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer.
For contracts with performance obligations being satisfied at a point in time, revenue is recognized when control of the goods or services transfers to our customer. For contracts with shipping terms at origin, we made the accounting policy election that allows us to account for shipping and handling activities as a fulfillment cost instead of being an additional promised service. A portion of the transaction price is not allocated to the shipping service; however, the cost of shipping and handling are accrued when the related revenue is recognized.
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. These assumptions include among others, actual gross profits on the same or similar products manufactured previously; labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; overhead cost rates; and the performance of subcontractors. As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. In any given reporting period, we have a large number of active contracts, which we have defined as a customer purchase order, and changes in estimates may occur on a significant number of these contracts. Given the significant number of contracts that we may have at any given point in time, the varied nature of products produced under such contracts, and the different assumptions, facts and circumstances associated with each individual contract, and the fact that such changes at the contract level are typically not material, we disclose cumulative catch-up adjustments on a net basis. See Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for the net impact of these adjustments to our consolidated financial statements for 2025 and 2024.
Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we recognized revenue, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the consolidated balance sheets.
Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of sales using the over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts.
Goodwill
Goodwill is evaluated for impairment on an annual basis on the first day of the fourth fiscal quarter. If certain factors occur, including significant under performance of our business relative to expected operating results, significant adverse economic and
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industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, a decision to divest individual businesses within a reporting unit, or a decision to group individual businesses differently, we may be required to perform an interim impairment test prior to the fourth quarter.
We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. The qualitative approach for potential impairment analysis is performed by evaluating a number of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount. 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. Fair value is estimated by management using a combination of the income approach (which is based on a discounted cash flow model) and the market approach. Management’s cash flow projections include significant judgments and assumptions, including the amount and timing of expected cash flows, long-term growth rates, and discount rates. The cash flows used in the discounted cash flow model are based on our best estimate of future revenues, gross margins, and adjusted after-tax earnings. If any of these assumptions are incorrect, it will impact the estimated fair value of a reporting unit. The market approach also requires management judgment in selecting comparable companies, business acquisitions and the transaction values observed and its related control premiums.
In the fourth quarter of 2025, 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. We performed a qualitative goodwill impairment analysis as of the first day of the fourth fiscal quarter of 2025 for both Electronic Systems and Structural Systems. This assessment indicated it was not more likely than not that the fair value of both Electronic Systems and Structural Systems exceeded their respective carrying values and thus, goodwill was not deemed to be impaired.
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. 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. The fair value of stock awards is determined based on the closing price of the Company’s common stock on the grant date. The fair value of stock awards with a market condition is calculated using a Monte Carlo simulation model. The fair value of stock options is determined using the Black-Scholes-Merton (“Black-Scholes”) valuation model, which requires assumptions and judgments regarding stock price volatility, risk-free interest rates, and expected options terms. Management’s estimates could differ from actual results.
The expense is measured at the grant date, based on the calculated fair value of the share-based award, and is recognized over the requisite service period. The requisite service period could be shorter than the performance period for retirement eligible employees, including no further service period if retirement eligibility is met on grant date, subject to terms and conditions in the award agreements. The fair value of the component of stock awards that is subject to the achievement of a performance objective is assessed over the performance period of the awards, with the estimated total award value and related expense recognition adjusted upward or downward based on the estimated probable outcome of the performance conditions established for the awards.
Inventories
Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are allocated to a customer order. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle performance center expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until control of the goods transfers to our customer. Our ending inventory consists of raw materials, work-in-process, and finished goods.
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Income Taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized, using enacted tax rates, for the expected future tax consequences of temporary differences between the book and tax bases of recorded assets and liabilities, operating losses, and tax credit carryforwards. Deferred tax assets are evaluated quarterly and are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax positions taken or expected to be taken in a tax return are recognized when it is more-likely-than-not, based on technical merits, to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement, including resolution of related appeals and/or litigation process, if any.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements included in Part IV, Item 15(a) of this Form 10-K/A for a description of recent accounting pronouncements.
