DUCOMMUN INCORPORATED Overview
Ducommun Incorporated ("Ducommun," "the Company," "we," "us" or "our") is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense ("A&D"), industrial, medical and other industries (collectively, "Industrial"). We differentiate ourselves as a full-service solution-based provider, offering a wide range of value-added products and services in our primary businesses of electronics, structures and integrated solutions. We operate through two primary business segments: Electronic Systems and Structural Systems, each of which is a reportable segment. COVID-19 Pandemic Impact on Our Business The COVID-19 pandemic has had a significant impact on our overall business during the three months endedApril 3, 2021 . As a result of the COVID-19 pandemic, precautionary measures were instituted by governments and businesses to mitigate its spread, including the imposition of travel restrictions, quarantines, shelter in place directives, and shutting down of non-essential businesses. The safety of our workforce is our top priority. We have implemented numerous well-being protocols related to health and welfare at all of our facilities. Safety protocols consistent with guidelines provided by state and local governments and theCenters for Disease Control and Prevention ("CDC") have been put into practice, including social distancing, provision of personal protective equipment, enhanced cleaning, and flexible work arrangements wherever possible. We have also offered enhanced leave and benefits to our employees and provide frequent updates to ensure our workforce is kept apprised of evolving regulations and safety measures. InMarch 2020 , theU.S. enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which provides tax relief to individuals and businesses affected by the coronavirus pandemic. We have not requested or accepted any loans or payments that are available under the CARES Act, however, we have utilized the option to defer payment of the employer portion of payroll taxes (Social Security ) that would otherwise be required to be made during the period beginningMarch 27, 2020 toDecember 31, 2020 . One half of the deferred amount is required to be paid byDecember 31, 2021 , with the remaining 50% to be paid byDecember 31, 2022 . As ofApril 3, 2021 , we have deferred$6.1 million , which is included as part of accrued liabilities and other long-term liabilities on the condensed consolidated balance sheets. The COVID-19 pandemic has and continues to contribute to a general slowdown in the global economy and specifically, the commercial aerospace end-use market. In 2020, both major large aircraft manufacturers, The Boeing Company and Airbus SE, announced lower build rates for the near and medium future. In its 2020 Annual Report on Form 10-K, Boeing indicated it expects it will take approximately three years for worldwide travel to return to 2019 levels and a few years beyond that for the industry to return to a long-term trend growth of five percent. While the full extent and impact of the COVID-19 pandemic cannot be reasonably estimated with certainty at this time, COVID-19 has 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 may have a material adverse impact on our business, results of operations and financial condition for the reminder of 2021 and beyond. First quarter 2021 recap: •Revenues of$157.2 million •Net income of$6.7 million , or$0.55 per diluted share •Adjusted EBITDA of$21.1 million , or 13.5% of revenues Non-GAAP Financial Measures Adjusted earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, andGuaymas fire related expenses ("Adjusted EBITDA") was$21.1 million and$23.2 million for the three months endedApril 3, 2021 andMarch 28, 2020 , respectively. When viewed with our financial results prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP") and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define this measure, explain how it is calculated and provide a reconciliation of this measure to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q ("Form 10-Q"), are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net 19 -------------------------------------------------------------------------------- Table of Contents cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items. We use Adjusted EBITDA as a non-GAAP operating performance measure internally as a complementary financial measure to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include: •It does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments; •It does not reflect changes in, or cash requirements for, our working capital needs; •It does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; •Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; •It is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; •It does not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and •Other companies in our industry may calculate Adjusted EBITDA differently from us, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our Condensed Consolidated Financial Statements contained in this Form 10-Q. However, in spite of the above limitations, we believe that Adjusted EBITDA is useful to an investor in evaluating our results of operations because this measure: •Is widely used by investors to measure a company's operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; •Helps investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and •Is used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting. The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA: •Interest expense may be useful to investors for determining current cash flow; •Income tax expense may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period, and may reduce cash flow available for use in our business; •Depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations; •Amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights; •Stock-based compensation may be useful to our investors for determining current cash flow; and •Guaymas fire related expenses may be useful to our investors in evaluating our core operating performance. 20
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Table of Contents 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)
Three Months Ended
April 3, March 28,
2021 2020
Net income $ 6,695 $ 7,930
Interest expense 2,806 4,246
Income tax expense 1,109 1,450
Depreciation 3,423 3,436
Amortization 3,499 3,900
Stock-based compensation expense 3,133 2,279
Guaymas fire related expenses 475 -
Adjusted EBITDA $ 21,140 $ 23,241
% of net revenues 13.5 % 13.4 %
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Results of Operations
First Quarter of 2021 Compared to First Quarter of 2020
The following table sets forth net revenues, selected financial data, the
effective tax rate and diluted earnings per share:
(Dollars in thousands, except per share data)
Three Months Ended
April 3, % March 28, %
2021 of Net Revenues 2020 of Net RevenuesNet Revenues$ 157,151 100.0 %$ 173,475 100.0 % Cost of Sales 124,051 78.9 % 136,671 78.8 % Gross Profit 33,100 21.1 % 36,804 21.2 % Selling, General and Administrative Expenses 22,490 14.3 % 23,178 13.4 % Operating Income 10,610 6.8 % 13,626 7.8 % Interest Expense (2,806) (1.8) % (4,246) (2.4) % Income Before Taxes 7,804 5.0 % 9,380 5.4 % Income Tax Expense 1,109 nm 1,450 nm Net Income$ 6,695 4.3 %$ 7,930 4.6 % Effective Tax Rate 14.2 % nm 15.5 % nm Diluted Earnings Per Share$ 0.55 nm$ 0.67 nm nm = not meaningful 22
-------------------------------------------------------------------------------- Table of Contents Net Revenues by End-Use Market and Operating Segment Net revenues by end-use market and operating segment during the fiscal three months endedApril 3, 2021 andMarch 28, 2020 , respectively, were as follows: Three Months Ended (Dollars in thousands) % of Net Revenues April 3, March 28, April 3, March 28, Change 2021 2020 2021 2020 Consolidated Ducommun Military and space$ 12,228 $ 114,127 $ 101,899 72.6 % 58.7 % Commercial aerospace (25,205) 35,377 60,582 22.5 % 34.9 % Industrial (3,347) 7,647 10,994 4.9 % 6.4 % Total$ (16,324) $ 157,151 $ 173,475 100.0 % 100.0 % Electronic Systems Military and space$ 7,416 $ 81,733 $ 74,317 82.5 % 75.7 % Commercial aerospace (3,085) 9,724 12,809 9.8 % 13.1 % Industrial (3,347) 7,647 10,994 7.7 % 11.2 % Total$ 984 $ 99,104 $ 98,120 100.0 % 100.0 % Structural Systems Military and space$ 4,812 $ 32,394 $ 27,582 55.8 % 36.6 % Commercial aerospace (22,120) 25,653 47,773 44.2 % 63.4 % Total$ (17,308) $ 58,047 $ 75,355 100.0 % 100.0 % Net revenues for the three months endedApril 3, 2021 were$157.2 million , compared to$173.5 million for the three months endedMarch 28, 2020 . The year-over-year decrease was primarily due to the following: •$25.2 million lower revenues in our commercial aerospace end-use markets due to lower build rates on large aircraft platforms and regional and business aircraft platforms; partially offset by •$12.2 million higher revenues in our military and space end-use markets due to higher build rates on military fixed-wing aircraft platforms and other military and space platforms. Net Revenues by Major Customers A significant portion of our net revenues are from our top ten customers as follows: Three Months Ended April 3, March 28, 2021 2020 Boeing Company 7.4 % 8.4 % Lockheed Martin Corporation 5.3 %
4.1 %
Northrop Grumman Corporation 6.1 % 5.6 %
Raytheon Technologies Corporation 22.7 % 18.4 %
Spirit AeroSystems Holdings, Inc. 2.7 % 5.6 %
Total top ten customers (1) 58.5 % 56.7 %
(1)Includes The Boeing Company ("Boeing"), Lockheed Martin Corporation ("Lockheed"), Northrop Grumman Corporation ("Northrop"), Raytheon Technologies Corporation ("Raytheon"), and Spirit AeroSystems Holdings, Inc. ("Spirit").
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Table of Contents Boeing, Lockheed, Northrop, Raytheon, and Spirit represented the following percentages of total accounts receivable:
April 3, December 31,
2021 2020
Boeing 6.1 % 4.8 %
Lockheed 1.7 % 2.4 %
Northrop 9.7 % 12.3 %
Raytheon 12.6 % 15.0 %
Spirit 0.9 % 1.1 %
The net revenues and accounts receivable from Boeing, Lockheed, Northrop,
Raytheon, and Spirit are diversified over a number of commercial, military and
space programs and were generated by both operating segments.
Gross Profit
Gross profit consists of net revenues less cost of sales. Cost of sales includes
the cost of production of finished products and other expenses related to
inventory management, manufacturing quality, and order fulfillment. Gross profit
as a percentage of net revenues was essentially flat year-over-year with the
three months ended April 3, 2021 of 21.1%, compared to the three months ended
March 28, 2020 of 21.2% primarily due to unfavorable manufacturing volume,
partially offset by favorable product mix and lower compensation and benefit
costs.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses decreased $0.7 million year-over-year in the three months ended
April 3, 2021 compared to the three months ended March 28, 2020 primarily due to
lower professional services fees of $0.4 million and lower compensation and
benefit costs of $0.3 million .
Interest Expense
Interest expense decreased in the three months ended April 3, 2021 compared to
the three months ended March 28, 2020 due to lower interest rates and a lower
outstanding debt balance.
Income Tax Expense
We recorded income tax expense of $1.1 million for the three months ended
April 3, 2021 , compared to $1.5 million for the three months ended March 28,
2020 . The decrease in income tax expense for the first quarter of 2021 compared
to the first quarter of 2020 was primarily due to lower pre-tax income for the
first quarter of 2021 compared to the first quarter of 2020 and higher discrete
tax benefits recognized in the first quarter of 2021 for net tax windfalls
related to stock-based compensation.
We evaluated the amendments in ASU 2019-12 for the three months ended April 3,
2021 and determined they do not have an impact on our income taxes.
We considered the provisions of the Rescue Plan and determined they do not have
a material impact on our income taxes.
Our total amount of unrecognized tax benefits was $4.1 million as of both
April 3, 2021 and December 31, 2020 . If recognized, $2.4 million would affect
the effective tax rate. We record interest and penalty charges, if any, related
to uncertain tax positions as a component of tax expense and unrecognized tax
benefits. The amounts accrued for interest and penalty charges as of April 3,
2021 and December 31, 2020 were not significant. We do not expect the total
amount of unrecognized tax benefits to increase or decrease by a material amount
in the next twelve months.
We file U.S. Federal and state income tax returns. We are subject to examination
by the Internal Revenue Service ("IRS") for tax years after 2016 and by state
taxing authorities for tax years after 2015. 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.
Net Income and Earnings per Share
Net income and earnings per share for the three months ended April 3, 2021 were
$6.7 million , or $0.55 per diluted share, compared to $7.9 million , or $0.67 per
diluted share, for the three months ended March 28, 2020 . The decrease in net
income for the three months ended April 3, 2021 compared to the three months
ended March 28, 2020 was due to $3.7 million of lower gross profit as a result
of lower revenues, partially offset by lower interest expense of $1.4 million .
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Business Segment Performance
We report our financial performance based upon the two reportable operating
segments: Electronic Systems and Structural Systems. The results of operations
differ between our reportable operating segments due to differences in
competitors, customers, extent of proprietary deliverables and performance. The
following table summarizes our business segment performance for the three months
ended April 3, 2021 and March 28, 2020 :
Three Months Ended
% (Dollars in thousands) % of Net Revenues
April 3, March 28, April 3, March 28,
Change 2021 2020 2021 2020
Net Revenues
Electronic Systems 1.0 % $ 99,104 $ 98,120 63.1 % 56.6 %
Structural Systems (23.0) % 58,047 75,355 36.9 % 43.4 %
Total Net Revenues (9.4) % $ 157,151 $ 173,475 100.0 % 100.0 %
Segment Operating Income
Electronic Systems $ 12,491 $ 15,122 12.6 % 15.4 %
Structural Systems 5,128 5,390 8.8 % 7.2 %
17,619 20,512
Corporate General and Administrative Expenses (1) (7,009) (6,886) (4.5) % (4.0) %
Total Operating Income $ 10,610 $ 13,626 6.8 % 7.8 %
Adjusted EBITDA
Electronic Systems
Operating Income $ 12,491 $ 15,122
Depreciation and Amortization 3,423 3,575
15,914 18,697 16.1 % 19.1 %
Structural Systems
Operating Income 5,128 5,390
Depreciation and Amortization 3,440 3,689
Guaymas fire related expenses 475 -
9,043 9,079 15.6 % 12.0 %
Corporate General and Administrative Expenses (1)
Operating Loss (7,009) (6,886)
Depreciation and Amortization 59 72
Stock-Based Compensation Expense 3,133 2,279
(3,817) (4,535)
Adjusted EBITDA $ 21,140 $ 23,241 13.5 % 13.4 %
Capital Expenditures
Electronic Systems $ 624 $ 815
Structural Systems 1,989 2,137
Corporate Administration - -
Total Capital Expenditures $ 2,613 $ 2,952
(1)Includes costs not allocated to either the Electronic Systems or Structural
Systems operating segments.
Electronic Systems
Electronic Systems net revenues in the three months ended April 3, 2021 compared
to the three months ended March 28, 2020 increased $1.0 million primarily due to
the following:
•$7.4 million higher revenues in our military and space end-use markets due to
higher build rates on other military and space platforms; partially offset by
•$3.1 million lower revenues in our commercial aerospace end-use markets due to
lower build rates on large aircraft platforms, regional and business aircraft
platforms, and other commercial aerospace platforms.
Electronic Systems segment operating income in the three months ended April 3,
2021 compared to the three months ended March 28, 2020 decreased $2.6 million
primarily due to unfavorable manufacturing volume and unfavorable product mix,
partially offset by lower compensation and benefit costs.
Structural Systems
Structural Systems net revenues in the three months ended April 3, 2021 compared
to the three months ended March 28, 2020 decreased $17.3 million due to the
following:
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•$22.1 million lower revenues in our commercial aerospace end-use markets due to
lower build rates on large aircraft platforms and regional and business aircraft
platforms; partially offset by
•$4.8 million higher revenues in our military and space end-use markets due to
higher build rates on various missile platforms.
The Structural Systems segment operating income in the three months ended
April 3, 2021 compared to the three months ended March 28, 2020 decreased $0.3
million primarily due to unfavorable manufacturing volume, partially offset by
favorable product mix and lower compensation and benefit costs.
In June 2020 , a fire severely damaged our performance center in Guaymas, Mexico ,
which is part of our Structural Systems segment. There were no injuries,
however, property and equipment, inventory, and tooling in this leased facility
were damaged. We have insurance coverage and expect the majority, if not all, of
these items will be covered, less our deductible. 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. Our Guaymas performance center is
comprised of two buildings with an aggregate total of 62,000 square feet. The
loss of production from the Guaymas performance center is being absorbed by our
other existing performance centers. See Note 8 to our condensed consolidated
financial statements included in Part I, Item 1 of this Form 10-Q.
Corporate General and Administrative ("CG&A") Expenses
CG&A expenses were essentially flat for the three months ended April 3, 2021
compared to the three months ended March 28, 2020 .
Backlog
We define backlog as customer placed purchase orders ("POs") and long-term
agreements ("LTAs") with firm fixed price and expected delivery dates of 24
months or less. The majority of the LTAs do not meet the definition of a
contract under ASC 606 and thus, the backlog amount disclosed below is greater
than the remaining performance obligations amount disclosed in Note 1 to our
condensed consolidated financial statements included in Part I, Item 1 of this
Form 10-Q. Backlog is subject to delivery delays or program cancellations, which
are beyond our control. Backlog is affected by timing differences in the
placement of customer orders and tends to be concentrated in several programs to
a greater extent than our net revenues. Backlog in industrial markets tends to
be of a shorter duration and is generally fulfilled within a three month period.
As a result of these factors, trends in our overall level of backlog may not be
indicative of trends in our future net revenues.
The increase in backlog was primarily in the industrial end-use markets. $555.0
million of total backlog is expected to be delivered over the next 12 months.
The following table summarizes our backlog as of April 3, 2021 and December 31,
2020 :
(Dollars in thousands)
April 3, December 31,
Change 2021 2020
Consolidated Ducommun
Military and space $ 1,028 $ 516,424 $ 515,396
Commercial aerospace (1,926) 266,400 268,326
Industrial 3,290 27,309 24,019
Total $ 2,392 $ 810,133 $ 807,741
Electronic Systems
Military and space $ (4,251) $ 385,626 $ 389,877
Commercial aerospace (2,620) 54,099 56,719
Industrial 3,290 27,309 24,019
Total $ (3,581) $ 467,034 $ 470,615
Structural Systems
Military and space $ 5,279 $ 130,798 $ 125,519
Commercial aerospace 694 212,301 211,607
Total $ 5,973 $ 343,099 $ 337,126
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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)
April 3, December 31,
2021 2020
Total debt, including long-term portion $ 313.0 $ 320.6
Weighted-average interest rate on debt 3.16 % 3.59 % Term Loans interest rate 3.23 % 3.81 % Cash and cash equivalents$ 17.0 $ 56.5 Unused Revolving Credit Facility$ 79.8 $
74.8
InDecember 2019 , we completed the refinancing of a portion of our existing debt by entering into a new revolving credit facility ("2019 Revolving Credit Facility") to replace the then existing revolving credit facility that was entered into inNovember 2018 ("2018 Revolving Credit Facility") and entered into a new term loan ("2019 Term Loan"). The 2019 Revolving Credit Facility is a$100.0 million senior secured revolving credit facility that will mature onDecember 20, 2024 , replacing the$100.0 million 2018 Revolving Credit Facility that would have matured onNovember 21, 2023 . The 2019 Term Loan is a$140.0 million senior secured term loan that will mature onDecember 20, 2024 . We also have an existing$240.0 million senior secured term loan that was entered into inNovember 2018 that will mature onNovember 21, 2025 ("2018 Term Loan"). The original amounts available under the 2019 Revolving Credit Facility, 2019 Term Loan, and 2018 Term Loan (collectively, the "Credit Facilities") in aggregate, totaled$480.0 million . We are required to make installment payments of 1.25% of the original outstanding principal balance of the 2019 Term Loan amount on a quarterly basis, on the last day of the calendar quarter. We made the mandatory quarterly principal prepayment under the 2019 Term Loan during the three months endedApril 3, 2021 of$1.8 million . In addition, if we meet the annual excess cash flow threshold, we are required to make an annual additional principal payment on the 2018 Term Loan based on the consolidated adjusted leverage ratio. During the first quarter of 2021, we made the required 2020 annual excess cash flow principal payment of$0.9 million . Further, the undrawn portion of the commitment of the 2019 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. As ofApril 3, 2021 , we were in compliance with all covenants required under the Credit Facilities. See Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. We drew down$50.0 million on the 2019 Revolving Credit Facility during the first quarter of 2020 to hold as cash on hand,$25.0 million of which was repaid during the fourth quarter of 2020. We made net voluntary prepayments of$5.0 million on the 2019 Revolving Credit Facility during the first quarter of 2021. InNovember 2018 , we completed credit facilities to replace the then existing credit facilities. TheNovember 2018 credit facilities consisted of the 2018 Term Loan and the 2018 Revolving Credit Facility (collectively, the "2018 Credit Facilities"). We were required to make installment payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a quarterly basis, however, in conjunction with the 2019 refinancing where we paid down$56.0 million on the 2018 Term Loan, it paid all the required quarterly installment payments on the 2018 Term Loan until maturity. InOctober 2015 , we entered into interest rate cap hedges that were designated as cash flow hedges, which matured during our second quarter of 2020. We expect to spend a total of$16.0 million to$18.0 million for capital expenditures in 2021 (excluding capital expenditures we will spend to restore the manufacturing capabilities related to ourGuaymas performance center that was severely damaged by fire inJune 2020 ), 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 a wider range 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. However, some portion of the expected capital expenditures in 2021 could be delayed as a result of the COVID-19 pandemic. 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. 27
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Table of Contents We continue to depend on operating cash flow and the availability of our Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet our obligations during the next twelve months from the date of issuance of these financial statements. Cash Flow Summary Net cash used in operating activities for the three months endedApril 3, 2021 was$23.4 million , compared to$12.0 million for the three months endedMarch 28, 2020 . The higher cash used in operating activities during the first three months of 2021 was due to higher contract assets, lower accrued and other liabilities, and higher inventories, partially offset by higher accounts payable. Net cash used in investing activities was$4.5 million for the three months endedApril 3, 2021 , compared to$3.7 million in the three months endedMarch 28, 2020 . The higher net cash used during the first three months of 2021 compared to the prior year period was due to higher purchases of property and equipment. Net cash used in financing activities was$11.6 million for the three months endedApril 3, 2021 , compared to net cash provided by financing activities of$41.7 million for the three months endedMarch 28, 2020 . The higher net cash used in financing activities during the first three months of 2021 was mainly due to lower net draw downs on the 2019 Revolving Credit Facility, partially offset by lower repayments of term loans. Off-Balance Sheet Arrangements Our off-balance sheet arrangements consist of operating and finance leases not recorded as a result of the practical expedients utilized, right of offset of industrial revenue bonds and associated failed sales-leasebacks on property and equipment, and indemnities, none of which we believe may have a material current or future effect on our financial condition, liquidity, capital resources, or results of operations. Critical Accounting Policies The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted inthe United States requires estimation and judgment that affect the reported amounts of net revenues, expenses, assets and liabilities. For a description of our critical accounting policies, please refer to "Critical Accounting Policies" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2020 Annual Report on Form 10-K. There have been no material changes in any of our critical accounting policies during the three months endedApril 3, 2021 . Recent Accounting Pronouncements See "Part I, Item 1.Ducommun Incorporated and Subsidiaries-Notes to Condensed Consolidated Financial Statements-Note 1. Summary of Significant Accounting Policies-Recent Accounting Pronouncements" for further information.
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