Chris Witty – Investor Relations Anthony Reardon – Chairman and Chief Executive Officer Joseph Bellino – Vice President, Chief Financial Officer and Treasurer.

Edward Marshall - Sidoti & Company Mark Jordan – Noble Financial J.B. Groh – D.A. Davidson Ken Herbert – Canaccord Genuity Mike Crawford – B. Riley & Co. Daniel Whalen - Topeka Capital Markets.

Good day, ladies and gentlemen and welcome to the Q3 2014 Ducommun Earnings Conference Call. My name is Whitley and I’ll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this call is being recorded for replay purposes.

I would now like to turn the conference over to your moderator, Chris Witty. Please proceed..

Thank you and welcome to Ducommun’s third quarter conference call. With me today is Tony Reardon, Chairman and CEO; and Joe Bellino, Vice President, CFO and Treasurer. I would now like to provide a brief Safe Harbor statement.

This conference call may include forward-looking statements that represent the Company’s expectations and beliefs concerning future events that involve risks and uncertainties that may cause the Company’s actual performance to be materially different from the performance indicated or implied by such statements.

All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Important factors that could cause actual results to differ materially from the Company’s expectations are disclosed in this conference call and in the Company’s Annual Report and Form 10-K for the fiscal year ended December 31, 2013.

All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements.

Unless otherwise required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call. I’d like to turn it over now to Tony Reardon for a review of the operating results.

Tony?.

Thank you, Chris, and thank you everyone for joining us today to our fiscal third quarter conference call. I’ll begin by providing an overview of the quarter including some market color, after which I’ll turn the call over to Joe Bellino to go over our financial results in detail.

The third quarter was one that continued the themes we discussed earlier this year as strong aerospace shipments once again drove overall top line growth. Ducommun's commercial aircraft revenue grew 21% year-over-year with higher demand seen across many platforms we serve in this sector.

This helped to offset some mixed performances within our military and space programs. Our cash flow was once again noteworthy as we generated $5 million during the quarter and $21 million in the first nine months of 2014, up from $15 million last year.

However, we had a few unusual items negatively impact bottom-line results, as Joe will review in a moment, and we were disappointed with operating margins from the shift in our product mix. We also booked reserve related to shipments affected by delivery delays and freight cost, primarily due to supply constraints.

But we are diligently working to address these issues along with the anticipated changes to the defense side of our business, including platform modifications and are focused on growth opportunities across our addressable markets.

We ended the quarter with a backlog of $569 million and continued to use our free cash flow to strengthen the balance sheet, paying down another $7.5 million of debt during this quarter. Now let me provide some color on our end markets, products and programs.

Our military and space market in Ducommun's revenue fell 3% year-over-year in the third quarter, primarily reflecting the program changes we previously discussed.

Including, lower C-17 run rates as this platform nears its end and the timing of military helicopters shipments and the impact of lower defense spending relating to the drawdown of military operations. Our backlog reflects these issues as well as lower defense technology sales, primarily due to the decline and slowdown in follow-on radar rack orders.

These situations are constantly evolving and it's too early to say how current global events and budget constraints in Washington will impact the quarters to come.

That said, the outlook for missiles and defense and certain other military upgrades appears steady and we are bidding on a number of high-profile programs in defense arena, some of which may not yet have been publicized. One program recently announced by Raytheon is for Israel's Iron Dome missile-defense system.

We will be working with Raytheon to advance the development of this important defense application, supplying both missile equipment and engineering expertise.

We expect programs like this will help fuel growth for years to come as well other new business opportunities exemplified by the recent announcement at Sikorsky on their S-97 RAIDER helicopter, on which Ducommun was a key partner in its development.

We are also partnering with leading military engine manufacturers and aerospace OEMs alike on even more demanding advanced technology applications which will require our unique set of skills. Such wins along with the expansion across other product lines of our business will be critical to offset changes in certain military platforms already underway.

For Ducommun this primarily means the end of the C-17 program this quarter and the Apache switch to an all-composite main rotor blade which reduces somewhat our role in the blade manufacturing process. We expect these two items will impact near-term revenue within our DAS segment.

Given our long-standing supplier status on these programs, there will also be short-term impact on the overall operating margins. We are adjusting our cost basis accordingly to reflect these mix changes and to position Ducommun to win new attractive programs that will over the long-term counteract the inevitable changes in the military spending.

The outlook for our non-A&D end markets continues to show improvement. Our backlog grew sequentially to $71 million from $62 million at the end of the second quarter. And once again represents the highest level of book business in several years even as the sales were down slightly versus 2013.

We believe our efforts to penetrate new customers, particularly within the industrial and energy markets are bearing fruit as we invest resources into new business development activities within these sectors.

Due to our ongoing strategic initiatives as well as overall economic conditions, we continue to be cautiously optimistic with regard to the level of sales momentum. The processes are in place to connect Ducommun's high-value technology solutions to customers who find them cost-effective and a strategic advantage to their operations moving forward.

In our commercial aerospace operations, we again posted strong topline growth on the back of record sales of large aircraft components and systems. Rising build rates reflected -- and reflecting increased customer demand, new business opportunities continue to be major factors driving higher shipments.

While we are benefiting from current end market trends, we are also winning new content on next-generation platforms from both Boeing and Airbus. We have already announced several 737 MAX awards and have captured many additional wins, including on various Airbus programs.

The bottom line is that our unique and broad set of skills with structural components and advanced electronics is leading to more opportunities than ever before. Our team is continuously bidding on new content while at the same time working on the timely delivery of products to support current customers and platforms.

Overall, commercial aerospace revenue climbed 21% year-over-year to approximately $62 million, the highest level in Ducommun's history. Recent wins point to increasing platform content going forward, which demonstrate both the talent of our engineering and our unique set of capabilities we bring to the leading OEMs today.

Our commercial aerospace backlog remains strong at approximately $225 million, and Ducommun's long-standing relationship and broad product and processing capabilities will expand this level going forward.

In summary, the third quarter's topline clearly illustrates our leading role in providing state-of-the-art components and systems to the top-tier global aerospace OEMs.

While margins were softer than we would like, primarily due to specific program related issues, we are focused on getting back to sustainable profitability levels in keeping with leading world-class industrial organizations.

We are committed to winning new business and improving margins in every way possible to address the near-term impact of changes in certain defense programs. We remain on the right path for long-term topline and sustained growth in our margins and we will generate additional shareholder value.

With that, I will now turn the call over to Joe for our financial results.

Joe?.

Thank you, Tony, and good day everyone. Earlier today after the market closed we reported results for the third quarter and the nine months fiscal 2014. A review of the third quarter 2014 results, starting first with sales which were $188 million, a nearly 4% increase versus the $181 million that we recorded in last year's third quarter.

The revenue increase year-over-year was primarily driven by 21% higher sales in our commercial aerospace operation, somewhat offset by 3% lower in our military and space markets.

Within commercial aerospace, we saw increases in both aerostructures and electronics solutions and we continue to benefit higher airframe production rates as well as increased content. While backlogs in our military and defense actors have softened, we have seen significant growth in our non-aerospace and defense bookings.

Typically we see lower bookings at the end of the third quarter, so we do expect a higher backlog sequentially at year-end. Ducommun's net income for the quarter was $2.6 million or $0.24 per diluted share compared to $4.6 million or $0.42 per diluted share for the third quarter of 2013.

As detailed in our earnings release, our pretax income expended 9% to $5 million for the quarter from $4.6 million in the third quarter of 2013.

Third quarter net income was negatively impacted by a 47.2% effective tax rate which included a $0.9 million of additional tax expenses are approximately $0.08 per fully diluted share as a result of income tax returns filed or to be filed.

Additionally, as legislations for the federal R&D tax credits have not yet been passed for 2014 but were passed in 2013, we did not record a benefit during the quarter. Last year as a result of the credit we recorded and effective 2% tax rate benefit for that period.

We reported a decrease in operating income to approximately $10 million in the third quarter compared to the $12 million in the comparable period last year. The decline was primarily due to additional cost related to product delivery delays from a supplier and higher accrued compensation and benefit costs.

I would add that the supply chain issues are not related to any of our large commercial airframe programs and we expect to have these supplies issues resolved by year-end. Our gross margin of 17.7% was similar to last year's comparable period but was lower than the 19.1% gross margin we have recorded year to date.

We are addressing the impact of mix shift and gross margin decline by rightsizing our manufacturing cost structure to adapt to these changes. The higher accrued compensation cost resulted in SG&A running at 12.2% of revenue and as a result our operating margin was 5.5% for the quarter as compared to 6.6% in last year's third quarter.

In addition, we recognized as additional income $1.6 million from insurance recoveries related to property and equipment and this was recorded on the income statement as other income. EBITDA was $18.6 million or approximately 9.9% of revenue in the third quarter of 2014 as compared to $19.2 million or 10.6% of revenue last year.

Looking at results by segment. First starting with the Ducommun aerostructures business segment, DAS. In reviewing these results, DAS reported net sales of $81 million for the third quarter, compares favorably to the $78 million in last year's comparable period.

DAS's sales were favorably impacted by a 15% increase in commercial aerospace revenues partially offset by an 8% decrease in military and space sales, reflecting the end of the two military applications as Tony indicated.

DAS's operating income was $7.2 million or 8.8% of revenue, down from $7.6 million or 9.8% of revenue in last year's comparable period. Segment operating income was impacted by the outside supplier's delay in deliveries which caused us to incur additional expenses in servicing our customers.

EBITDA was $11.1 million or 13.6% of revenues compared to $10.3 million or 13.2% of revenues for the comparable period in 2013. EBITDA results included the $1.6 million of insurance recovery I previously mentioned. Now turning to Ducommun and LaBarge Technologies, DLT, and reviewing DLT segment sales.

They were $107 million for the quarter, a 3% increase as compared to last year's comparable quarter. That said, we have seen a modest shift as commercial aerospace electronics revenues increased $4 million year-over-year, partially offset by a slight decline in defense electronics sales.

We attribute the decrease in defense technologies revenues to timing differences and softer backlogs. We were pleased to see in that sector, higher demand as reflected in backlog growth during the quarter for our commercial aerospace electronics applications as well as our non-aerospace and defense offerings.

Both the result of recent marketing development efforts. DLT's operating income for the third quarter was $8.3 million or 7.8% of revenue compared to $7.6 million or 7.3% of revenue in last year's comparable period. The increases reflect the benefit of higher sales and improved operations.

EBITDA was $12.7 million in the quarter or nearly 12% of revenues compared to $12.1 million or 11.7% of revenues in last year's third quarter. Corporate, general and administrative expenses, CG&A, for the quarter were $5.1 million or 2.7% of revenue.

It was an increase from $3.3 million or 1.8% of revenue in last year's period and it was primarily due to higher accrued compensation and benefit expenses in the period. Our overall backlog at the end of the quarter was $569 million.

This reflects a decrease in defense aerostructures and technology backlog along with a modest decline in overall commercial aerospace products, which we consider mainly timing differences. We did see our non-A&D backlogs grow reflecting market development efforts gaining traction.

We expect to finalize additional orders on various commercial aerospace and defense technologies platforms in the upcoming quarter, consistent with normal seasonal patterns. Looking at liquidity and capital resources during the first nine months of 2014. We generated nearly $21 million in cash from operations.

Compares favorably to the $15 million in cash flow from operations in last year's third quarter. As Tony mentioned, we continue to delever our balance sheet.

We expect our net cash generation for the fourth quarter to be similar to historic seasonal patterns and as a result of the strong cash flows year to date, we have just paid an additional $17.5 million here in October bringing total prepayments for 2014 to $40 million.

We have sufficient cash balances and expect future free cash flow generation to delever the balance sheet. At quarter end our net debt to EBITDA was 3.2 times and we continue to target a leverage level of 2.75 to 3 times by year-end 2015.

We anticipate capital expenditures for 2014 full-year to be in the range of $16 million with capital used to support the expansion of our manufacturing capabilities and new contract awards.

In closing, we continue to focus on achieving sustained operating and EBITDA margins which along with a diligent expense management and continued focus on working capital efficiencies, should permit the company to reach our deleveraging goals. I will now turn it back over to Tony for his closing remarks..

Thank you, Joe. Before opening the call to questions, I would like to say that while Ducommun has certainly made great strides these past few years, we know where further focus and improvements are required. To be a leading solutions provider we must continue investing in innovation, engineering and manufacturing excellence. But this is not enough.

We need to constantly scrutinize the programs we have in-house and the new opportunities being pursued to ensure that they are the right fit with our capabilities and profitability requirements. At the same time, we must address product mix, changes and end-of-life programs wind down.

We along with most defense suppliers are currently seeing a sizable shift in demand driven by military priorities, budget considerations and technology adaptations. In some ways this serves as an opportunity for Ducommun, opening up new paths for sales of advanced applications suited to our strengths and unique capabilities.

But we are also working through specific program changes and reductions which will impact both near-term revenue and operating margins. We continue to aggressively pursue value-added opportunities in the commercial aerospace and industrial markets that can help offset the variability inherent in defense spending.

We feel we are making good progress here even as positive impacts of these efforts may take a few quarters to play out. We believe the environment for the remainder of 2014 will be similar to the third quarter. Meaning strong commercial aerospace shipments and shrinking military revenue with margins in the short-term being impacted accordingly.

Heading into 2015, we believe the growth drivers will be the commercial aerospace demand and higher demand within our non-A&D end markets as our military and space programs stabilize.

The company is clearly more diversified today and technologically superior then we were several years ago which makes us confident we can post attractive results going forward, even given current economic concerns and uncertainties. With that, Whitley, we would like to now open up the call for questions..

(Operator Instructions) Your first question comes from the line of Edward Marshall with Sidoti & Company. Please proceed..

So the supplier delays that caused, I guess you said higher shipment costs for you in the quarter.

Was there any revenue attributable to that or loss revenue attributable to these supplier delays? And then I guess as well, what about the cost side and EPS? I mean can we quantify and put some numbers to the page, kind of talk about what the impact was for the quarter..

Okay, Ed. The supplier delays did impact revenue for the quarter. The revenue was down to what we should have attained. The impact was around $1 million. Slightly over $1 million. So that was the cause of the supplier delays to us that were impacted.

We anticipate that the deliveries will pick up in the fourth quarter but we still have to work our way through the inefficiencies caused by those delays..

So the $1 million of pre-tax operating profit in the segment?.

Yes..

Okay. And that was for DAS. Okay.

And did you say you booked a reserve? Did I hear that right?.

Part of the $1 million charges in the quarter, half of that was probably a reserve on the program..

Okay.

Wait, there was a booking of a charge in the quarter?.

There was a booking of a -- we incurred $1 million of cost normal -- over what we normally would have incurred. And half of that was the delivery cost and half of it was a reserve to cover us through deliveries for the balance of 2014..

I see. So that $1 million was a charge not loss operating profit. It was higher expenses related to it. Was it what -- you had a....

Half of it was cash and half of it was $0.5 million reserve that we will incur here in the fourth quarter..

Did you have to pay premium freighting? I mean what was the cash charge?.

Yes. That was the dropout, premium expediting costs..

Okay. And what about the tax rate? I understand the $900,000 charge-off in the quarter but I look at that as onetime. But I mean still, ex that number it was still close to 43% in the quarter.

What else flowed through that number that caused that tax rate to be slightly higher than normal?.

The $0.9 million is about $0.08 a share. So I think, I would suggest you go back and look at it. We have no benefit of R&D tax credit as we have in several preceding years. So our normalized tax rate and what our year-to-date tax rate is, it was running 32% and year-to-date now it’s 35%.

And I forgot to mention it, it will be 32.1% in the fourth quarter. So we will wind up with 35% for the year. It's higher. The benefit to Ducommun is significant when we get this $2.5 million R&D tax credit if legislation is approved. So we are having timing differences.

And what look at it to last year's, full year rate at a 5% year-to-date for the nine months. That included a full year of 2012 legislation passed that was recorded in 2013 plus three quarters of a year of -- in 2013 the $2.5 million recorded pro rata.

So as I mentioned , we are up 9% on the pretax income and for the full year we are up 50% in pretax income. So obviously, clearly the tax impact of this R&D legislation do make a difference..

Right. But even ex that $900,000 charge, you are still well above kind of where you were at first half.

So what's going on there?.

Well, we were 32.5% in the first half and again which will be in the fourth quarter. But the way we look at the reconciliation, the $0.9 million at on a $5 million basis does -- when you run the numbers that gives you the differential of about 18% additional for the quarter..

Okay. When I look back to the 2Q call, you talked about the DAS segments sustaining EBITDA margins around 16.5%, you came in at 13.6%.

I mean we could talk about the outside suppliers being the variance there and we should have already know about the C-17, the Apache mix shift, which I don’t think was -- which I don’t think really attributed to the loss in the quarter as much as the outside suppliers.

But secondly, I wanted to also say that the DLT operating margin you said was going to be in a range of 8.6 to 10, you came in at 7.8. Between those two things what really is -- I mean do you go back to the old guidance and say that is accurate or do you want to revise that discussion point that we had on the 2Q call..

I think we need to revise that. I think what we saw Ed was the shift. First of all, we did know about C-17 and the Apache. We did not see everything was coming down. The C-17, actually they cancelled three ship sets as well. So that had some impact on inefficiencies in the program that we anticipated would leak into the fourth quarter.

So the third quarter sales were actually a little bit lower than we anticipated in that program and the program is really small going into the fourth quarter. So there was some shift in the revenue base. Same thing on Apache, the Apache program. We thought the existing blade would run through the end of the year.

So that has lower margins on that program also were not anticipated going forward at the time. So those two programs plus we had some inefficiencies with regards to the shut down in the C-17 programs. So those impacted the third quarter and we have more work to do on the Apache in the fourth quarter..

So just to clarify. When we look out to 2015, your previous comments are accurate that those margins are sustainable just as we move into 4Q we might see some impact from some of the stuff that hit in 3Q.

Is that accurate?.

Yes..

Okay.

And then was there acceleration of options of anything that happened in the fourth quarter because the corporate expense line was much higher than normal?.

The higher corporate expense lines were -- there were some additional benefit costs from actuarial truing up. But a larger one was that we are accruing our non-equity based compensation at a target level this year whereas last year as our gaps were getting larger, we did not accrue anything in the third quarter.

So we are just accruing a normalized expense pattern for compensation for all of our team members, which is a little bit higher than what we were accruing last year.

You will recall at the end of the year after the charges, we totally reversed in the fourth quarter $5.3 million worth of accrued expenses to offset some of the, and mitigate some of the expenses related to the $14 million of charges..

With the inefficiencies that you are planning for the second half of the year 2014, do you anticipate hitting your targets from an EBIT and EBITDA perspective in 2014?.

No. Those kind of things Ed, we don’t disclose them..

But they are in the proxy, right?.

No. The proxy that’s issued in May, it shows the performance relative to the fiscal preceding year..

Your next question comes from the line of Mark Jordan with Noble Financial. Please proceed..

Question going back to the impacts of, what I guess you would call restructuring or right sizing on the defense side and the aerostructures segment. Can you quantify the impact that the rebalancing of your expense structure relative to some of the defense contracts.

What the impact was in the third quarter and what you expect in the fourth? And do you expect to, secondly, expect to have that all completed so that you enter into '15 positioned the way you need to get more normalized margins..

Hey, Mark, this is Tony. So I think that when we look at the fourth quarter, we still anticipate that we will have some impact going forward on the shutdown of these programs as we look at the impact of the shutdown.

As I indicated earlier, we did have cancellation on the C-17 and then again the Apache is coming to a halt a little bit faster than we had originally anticipated. So both of those programs, well, they didn’t catch us by surprise early in the quarter, we knew about it.

We have to make adjustments for the normal shutdown of the program and we are sustaining some higher cost. So we ought to be able to improve the margins going forward into the first half of the year and that’s what we would anticipate doing so. So there are going to be some impacts that carry into the fourth quarter.

They are very similar to the third quarter. And as we move forward we think that we will be able to boost this back up to where it belongs..

Okay.

So you would say that as you enter 2015, you should be looking at a more normalized operating environment for that segment?.

Yes..

Going back to the second quarter, you did have - in structures you had 12.5% op margins. I think you said that those were probably a little bit better than could be expected.

But I think you kind of alluded to rotating around 11% operating margin out of the aerostructures segment was a reasonable longer-term target or a proxy you could, you know the ballpark we should be thinking about for '15.

Is that still the case?.

Yes, I believe it is. When we look at -- we tend to look at the longer-term. We are averaging in DAS operating margins year-to-date at 11.3%. As Tony talked about, we will have a similar environment here in 2014 fourth quarter and work through that. But that’s certainly, the 10.5 to 11 are certainly attainable and achievable on a sustainable basis..

And I would like to look into '15 also on the corporate overhead expenses. If you annualize the third quarter you are $20 million. But if you take an average of the four quarters, you are closer to a $16 million number.

As we are thinking about 2015 corporate overhead, is that, I mean where should we be thinking? In the $16 million range or more towards the $20 million?.

Well, the corporate overhead -- you are just talking about the unallocated corporate overhead, not the SG&A consolidated in the...?.

That’s right.

I am just looking at the-?.

Yes. When we look at the year-to-date, last year three quarters we were $13.2 million and this year we are $12.5 million. And then you talked about it probably -- you are probably building some models, but probably it's the run rate of about $16.5 million to $17 million.

And we are very very frugal about our expenses and so we will tend to squeeze those down some more to reflect the environment we are operating within..

Your next question comes from the line of J.B. Groh with D.A. Davidson. Please proceed..

Could you talk about kind of things that you are doing to sort of avoid these supplier delays in the future? Is there anything that you could do with that relationship to make sure that that kind of thing doesn’t happen again?.

Yes. We are working to that. Now it's not as simple because of the customer involvements. It's not as simple as just moving to another supplier because what's unique with this particular customer is that the machine houses are approved as well. So we have to work to that issue and we have been working with the primary customer on that.

So we are working our way through that and we have also geared up in-house in our Mexico facility to be able to manufacture these products. And we anticipate that those will be online in the fourth quarter to supplement the problems that we have in front of us today. So we have taken actions.

We saw this late in the second quarter and then it continued into the third quarter and we geared up and put the capabilities together in Mexico. So I think that we will be able to start that production into the fourth quarter assuming we get all the approvals we need..

Okay. And then, Joe, if I kind of net out the insurance in this $1 million and cost associated with the supplier, it looks like you had about 70 basis point impact on the structures margins.

Does that sound about right to you?.

Yes..

Okay.

And then, Joe, could you talk about the expectations for interest cost on a quarterly basis going forward and kind of update us on the refi plan?.

Well, two questions. Your first question on the interest. As we reported, we were $7 million in the quarter compared to $7.4 million. The term loan B that we are paying down the effective interest rate is 4.75%. So we were at $310 million total in the end of the third quarter.

And by the fourth quarter with this $17.5 million payment we made last week, we will be closer to $290 million. So all that being said, year-over-year in the fourth quarter we should about $0.5 million lower than last year's further period.

As far as our financing, refinancing in 2015, we expect that to occur in the third quarter and we would take out the high yield note of 9.75% and we would probably refinance the whole package.

And what we are targeting given the market rates have moved a little bit in the volatile market, is somewhere between 5.5% and 6% would be the blended interest rate that we would factor in as a go forward starting in the third quarter of next year. We are modeling our 32% tax rate to look at that when we are modeling our earnings per share impacts.

The benefits of it..

Okay.

So the total amount of the refi would be, projected in Q3 of '15 would be how much?.

The total amount of the refi would be, let's see, it would probably be with some fees that we have to pay. It would probably be $290 million (indiscernible) for refi..

Yes..

And it will be anywhere from 5.5% to 6%..

We anticipate that we will pay down in the first two quarters and then the cost of the refi will piggy back up to 290, in that area..

Great. Okay. And then on -- from the Q, it looked like that natural resources was down a little bit sequentially -- I am sorry, industrial was down a little bit sequentially. Medical was down a little bit sequentially.

Is that seasonal or is there a weakening in those businesses or how you are looking at those?.

I think when you look, J.B., on, especially on the medical, that’s pretty flat in that area. And that’s been kind of steady state, flat for the first three quarters. The industrial is just timing, we believe. And we are seeing backlog pick up as I indicated in my remarks. So we think that that’s starting to pickup.

We really have some nice opportunities out in the front of us. We have got some real nice quotes. We have seen some nice pickup in a couple of different contracts. We have some real nice development programs that we have on that side of the business working.

So I think we talked about the strategy last year, we have put it in place and I think we are seeing the fruits of that right now. So we anticipate those markets will start to steadily increase..

Okay. And then lastly, book to bill for the quarter was a little low.

That same sort of thing, timing issues there, related to some of the different markets?.

Yes. I mean we will see some decline in the military as you know a couple of programs will go away. So they will be re-booked on that. But we will see a pickup in the fourth quarter. I think if you look at historically we have seen that type of opportunity. So it is seasonal I think..

Your next question comes from the line of Ken Herbert with Canaccord. Please proceed..

Just wanted to, first of, where did you come in aerostructures? Did top line in the quarter, all things considered, for almost 5%, how much of that was impact from new programs our contract wins versus just volume growth on sort of traditional programs like 737..

Let me think about that for a second, Ken. Across the -- you are looking year-over-year versus sequentially, Ken..

Sure..

That's how we are reporting it. On the commercial aerospace we went from $42 million to $49 million in the quarter. It was across all applications in commercial aerospace.

It was large frame, primarily the 37, and that was probably the biggest one as 787 and 777 seem to have moderated their year-over-year growth from the production rates that Boeing publishes and a modest increase in Airbus. But in our regional and business jets we saw some nice revenue growth as well as across some other commercial applications.

So it was broad-based and we're pleased to see that diversification. Also, you talked about the DAS side but on the electronics side, I mentioned earlier, that as we are growing the commerce electronics side, Ken, we saw that grown nicely from $27 million last quarter to $38 million this year.

So that's as a result of the work that our teams have been doing..

So a lot of the electronics side, Ken, is new programs..

Yes. Okay. No, that makes sense. Because I know you had a very focused sort of business development effort there. But it sounds like, specifically within DAS, that a lot of the growth would have been, for lack of a better word, legacy programs, and a lot of your recent contract wins maybe aren't fully flowing through yet..

Yes. What we would see in a contract (indiscernible), we just get started on the tooling development at this point in time. So we really haven't seen -- we had some programs that we have picked up wins on that we are working on but we have not seen the impact of any sales yet..

Okay. And just on the C-17 specifically. You mentioned there were three ship sets that were canceled. It sounds like Boeing still has a plan to build between now and middle of next year.

But do have any more shipments for the C-17 yet to make or is that program effectively done for you now?.

It is effectively done. I mean we have some minor shipments to make but nothing that would amount to anything..

Okay.

And similar, with the transition on the Apache to the all composite blade?.

Yes. There maybe a few of the old main rotor blades that we are shipping out in this quarter. But nothing again that's significant..

Okay. And a few times you have talked about, I mean clearly the C-17 gives you a pretty substantial sort of absorption headwinds there that we have talked about for a few quarters. But as you look into '15, is there anything else you are considering to maybe address the cost structure.

I mean I get the layering in of the new program certainly helps and I know you have done a few things.

But anything else maybe you could talk about that you are looking at that might help with our confidence, specifically, again with DAS on sort of the '15 margin ramp there?.

Well, we certainly have a significant cost reduction program in place in DAS. So we have to do adjustments because of the lower revenue base in a couple of business units. So we will make appropriate adjustments there. And those will be taking place in November. So as we shut the program down and we adjust the cost base accordingly.

So we are moving out for that. And then in a couple of facilities we are realigning the facility to make sure that we get the most efficiency out of this. So there is work going on in two major facilities to be able to accommodate the growth that we are anticipating but also to accommodate the changes in the revenue base..

Okay. That's helpful. And just finally, Tony, you mentioned in your opening comments, I think, as you look specifically within the defense and space market into '15, I think the word you used was stabilization.

Do you, maybe '15, the trough of that business perhaps and do you expect to see any growth in the latter part of the year or is '16 another calendar year.

Maybe just longer-term how do you think about that business?.

Yes. I would say that we would see the trough in '15. And then I think there are, you know as I mentioned a couple of them, one was the Iron Dome. I'm not sure how the revenue base is going to take off on that, but that's a program that we are working on.

And then we have a couple of other engine programs that we are heavily involved in that we should see some revenue pickup. So I would say in '16 we will see maybe a slight pickup on that side of defense assuming all things being equal on some of the other programs. So we did see a dip, as I mentioned, in the radar systems.

Some of that is just the lower build rates on the F-18 as well as some of the mod programs slowing down..

Your next question comes from the line of Mike Crawford with B. Riley. Please proceed..

Just to build on that.

So the slowing of follow-on radar rack orders, you think it was mostly correlated with lower F-18 build or?.

It's lower F-18 and lower aftermarket..

And then on Iron Dome, are you supplying other ballistic missile defense components for Israel like Barak, Arrow and David's Sling?.

No. No, we're just working on Iron dome..

And is that new?.

And that’s primarily with Raytheon direct..

And that’s new for Ducommun?.

Yes..

Okay. The backlog was up nicely in these natural resources, industrial and medical segments despite the revenue in this quarter.

But are there growth rates you can associate with those non-A&D verticals over the next three years that you are targeting based on the investments you are making?.

Well, we are working through that and I think that we have used, like, 3% year-over-year and we are comfortable with that. We would like to see some stabilization so that we are getting consistent push in some of the new programs that we are seeing, I think will help us get there.

That's a pretty modest growth rate of 3% but we are targeting higher growth rates in that. But I think that’s till we see some rebound in some of these other customer bases that we have on A&D side and I guess it's prudent to stay within that rate..

And then Airbus seems to be a growing customer for Ducommun.

You still, in your Q, are reporting percent of revenue from Boeing and Raytheon as well as your top 10 but is Airbus into the top 10 yet?.

In terms of revenue, the top 10 customers, they are moving closer to that, yes. And when we say, Airbus, some of it may not be Airbus direct. They are Airbus applications, I think it's easier for us to say. Airbus direct, we are just getting started on that and we had a couple of nice wins that we haven't announced yet but that will take up.

But on Airbus applications in general, we are seeing some nice growth..

And then final question relates to the continued mix shift towards commercial aerospace from military and space, where historically the margins were lower in the one and higher on the other.

But do you think that you can -- do you still see pathway to bring up the commercial aerospace margins?.

Yes, we do. We have a couple of major initiatives that we are working on internally. One is on the supply-chain side and another one is on our organizational structures on new product introductions. So I think those two will help support opportunities to improve those margins on that side of the business..

Your next question comes from the line of Daniel Whalen with Topeka Capital Markets. Please proceed..

Lot of my questions have been answered here. But if we could maybe just try, and certainly a lot of moving parts here in the quarter, maybe just try and bridge this together a little bit. It sounds like the incremental tax was about an $0.08 headwind on a tax adjusted basis. The insurance recovery is probably about $0.08 benefit.

The supplier delays, maybe it sounds pretty similar to the tax, maybe another incremental $0.08.

How should we think about the, I guess the accrued compensation benefit and I guess the mix headwind? Just trying to gap things together here either on a sequential basis or the best way you view it?.

Dan, I think your analysis and your logic in bridging is really good. I would use probably about a 35% incremental rate when you take those pretax positives or negatives other than the tax effect which is, that’s certainly the $0.08 after taxes. The accrued expenses are only maybe $0.5 million.

So you are talking about $0.03?.

Okay..

And that’s the rate that. Whereas the sequentially the SG&A didn’t go up that much, where the comparison that comes with a low SG&A consolidated last year's third quarter, it makes it look like it's more significant year-over-year and it's how we report it. So the trending up, it has really just been modest or moderate..

You would look at that type of accrual in Q4 as well. So as you compare it year-over-year, you would not see that last year..

Okay. And in terms of the mix.

How should we, in terms of the incremental headwind from that perspective?.

Can you clarify it, Dan?.

Sure. I mean it just seems like there was mix changes in the quarter.

Is there an easy to kind of think of that from an EPS perspective?.

No, there is not an easy way to think of it from an EPS perspective. I mean when we look at our backlogs from a year ago we had put up on the charts on the investors relations, our military and defense backlogs a year ago comprised 57% of our sales -- of our backlogs, excuse me. And then this year they comprised about 48%.

And we have talked about the backlog usually impact nine to 12 months ahead of time. We also spoke about that the third quarter is usually a trough during our business cycle of backlogs and we expect them to increase. So I mean that's a key metric to look at.

And I think in an analysis of our significant change in commercial aerospace backlogs in total, which have grown from 34% to 40%. And the rest of our business, the non A&D is pretty much stabilized. But if you do some modeling, I think you have to look at that.

I mean, what we haven't talked about little bit is the military program, but our commercial programs on the DAS side have a lot of complex titanium foam products which we have such capability. And those margins are very attractive. And we see that sector, product line sector, growing to offset some of the loss of military.

So there are a lot of moving parts, no question about it..

There are no further questions in queue. I will now turn the call over to Mr. Reardon for any closing remarks..

We would like to thank you again for your continued interest and support and we will look forward to speaking with you in the next quarter. So thank you very much. Bye now..

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. Have a great day..