LOS ANGELES Ducommun Inc. expects to post pretax program-related charges of $14.1 million for the fourth quarter, partially offset by reduced accrued compensation expenses of $5.3 million, due in part to overaggressive bidding on two aircraft programs.
The Carson, Calif.-based contractor, which is scheduled to release its fourth-quarter and full-year results Feb. 27, said in a statement that the charges are expected to decrease its fourth-quarter net income by $5.3 million.
The charges are for work at the companys Ducommun AeroStructures business segment, whose specialties include fabrication of titanium, composites and metal bond assemblies, related to Brazil-based Embraer SAs Legacy 450/500 business jets and the wing tip of Chicago-based Boeings 777 twin-aisle airliner.
"To expand our content on such platforms, we bid somewhat aggressively and, unfortunately, did not meet our planned productivity improvements at the required pace," chairman and chief executive officer Anthony J. Reardon said in a statement.
Charges for the Embraer program consist of $5.7 million for asset impairmentprincipally tooling and development costsa $1.9-million inventory write-off and a $3.9-million contract loss reserve. The Boeing 777-related charges include $1.3 million for asset impairmentmainly toolingand a $1.3-million contract loss reserve.
Cost overruns for the development and production phases of the Embraer contracts and "difficulties" in reaching earlier-anticipated cost reductions for the Embraer and Boeing programs caused the charges, the company said.
Reardon said that changes by the two customers "exacerbated" its profitability problems on the programs, but acknowledged that Ducommun has been "unable to resolve these issues with equitable price adjustments to date," although discussions continue with Embraer and Boeing.
Ducommun AeroStructures won a long-term contract from Boeing in June 2010 to furnish empennage, vertical and horizontal fin tip assemblies for the Boeing 777 (amm.com, June 10, 2010). Ducommun, which did not disclose the value of the contract, told AMM that the work would be performed at its Gardena, Monrovia and Orange facilities in California, as well as at the subsidiarys operation in Guaymas, Mexico.