Dorman Products, Inc. - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________
FORM
10-K
___________________
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
fiscal year ended December 30, 2006
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from _____________________ to
____________________________
Commission
file number 0-18914
DORMAN
PRODUCTS, INC.
(Exact
name of registrant as specified in its charter)
Pennsylvania
|
23-2078856
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
- Employer Identification No.)
|
3400
East Walnut Street, Colmar, Pennsylvania 18915
(Address
of principal executive offices) (Zip Code)
(215)
997-1800
(Registrants
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par
Value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act
Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Securities Act
Yes
o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405
of this chapter) is not contained herein, and will not be contained, to the
best
of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in the
Rule
12b-2 of the Exchange Act.)
Yes o
No x
As
of
March 1, 2007 the registrant had 17,677,090 shares of common stock, $.01
par
value, outstanding. The aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant as of June 30, 2006
was
$120,786,901.46.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
portions of the registrant's
definitive
proxy statement, in connection with its Annual Meeting of Shareholders, to
be
filed with the Securities and Exchange Commission within 120 days after December
30, 2006, are incorporated by reference into Part III of this Annual Report
on
Form 10-K
DORMAN
PRODUCTS, INC.
INDEX
TO
ANNUAL REPORT ON FORM 10-K
DECEMBER
30, 2006
Part
I
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Item
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Part
II
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Item
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Item
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Part
III
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Item
10.
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38
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Item
11.
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Item
12.
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Item
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Item
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Part
IV
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Item
15.
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39
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42
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PART
I
Dorman
Products, Inc. (formerly R&B, Inc.) was incorporated in Pennsylvania in
October 1978. As used herein, unless the context otherwise requires,
"Dorman", the "Company", “we”, “us”, or “our”
refers
to Dorman Products, Inc. and its subsidiaries.
We
are a
leading supplier of original equipment dealer "exclusive"
automotive replacement parts, and fasteners and service line products primarily
for the automotive aftermarket, a market segment which we helped to establish.
We
design, package and market over 77,000 different automotive replacement parts
(including brake parts), fasteners and service line products manufactured
to our
specifications. Approximately
34% of our parts and 60% of our net sales consist of original equipment dealer
"exclusive"
parts and fasteners.
Original
equipment dealer "exclusive"
parts are those which were traditionally available to consumers only from
original equipment manufacturers or salvage yards and include, among other
parts, intake manifolds, exhaust manifolds, oil cooler lines, window regulators,
radiator fan assemblies, power steering pulleys and harmonic
balancers.
Fasteners include such items as oil drain plugs and wheel lug nuts.
Approximately 90% of our products are sold under our brand names and the
remainder is sold for resale under customers' private labels, other brands
or in
bulk. Our products are sold primarily in the United States through automotive
aftermarket retailers (such as AutoZone, Advance and O'Reilly), national,
regional and local warehouse distributors (such as Carquest and NAPA) and
specialty markets and salvage yards. Through our Scan-Tech and Hermoff
subsidiaries, we are increasing our international distribution of automotive
replacement parts, with sales into Canada, Europe, the Middle East and the
Far
East.
The
Automotive Aftermarket
The
automotive replacement parts market is made up of two components: parts for
passenger cars and light trucks, which accounted for sales of approximately
$204.4 billion in 2006, and parts for heavy duty trucks, which accounted
for
sales of approximately $74.9 billion in 2006. We currently market products
primarily for pas-senger cars and light trucks.
Two
distinct groups of end-users buy replacement automotive parts: (i) individual
consumers, who purchase parts to perform "do-it-yourself" repairs on their
own
vehicles; and (ii) professional installers, which include automotive repair
shops and the service departments of automobile dealers. The individual consumer
market is typically supplied through retailers and through the retail arms
of
warehouse distributors. Automotive repair shops generally purchase parts
through
local independent parts wholesalers and through national warehouse distributors.
Automobile dealer service departments generally obtain parts through the
distribution systems of automobile manufacturers and specialized national
and
regional warehouse distributors.
The
increasing complexity of automobiles and the number of different makes and
models of automobiles have resulted in a significant increase in the number
of
products required to service the domestic and foreign automotive fleet.
Accordingly, the number of parts required to be carried by retailers and
wholesale distributors has increased substantially. These pressures to include
more products in inventory and the significant consolidation among distributors
of automotive replacement parts have in turn resulted in larger
distributors.
Retailers
and others who purchase aftermarket automotive repair and replacement parts
for
resale are constrained to a finite amount of space in which to display and
stock
products. Thus, the reputation for quality, customer service, and line
profitability which a supplier enjoys is a significant factor in a purchaser's
decision as to which product lines to carry in the limited space available.
Further, because of the efficiencies achieved through the ability to order
all
or part of a complete line of products from one supplier (with possible volume
discounts), as opposed to satisfying the same requirements through a variety
of
different sources, retailers and other purchasers of automotive parts seek
to
purchase products from fewer but stronger suppliers.
Products
We
sell
over 77,000 different automotive replacement parts, fasteners and service
line
products to meet a variety of needs including original equipment dealer
"exclusive" parts. Our DORMAN® NEW SINCE 1918™
marketing campaign launched in 2005 repositioned our brands under a single
corporate umbrella - DORMAN® . All of our products are now sold under one of the
seven DORMAN® sub-brands as follows:
DORMAN®
OE Solutions ™
|
-
Original equipment dealer "exclusive" parts, such as intake manifolds,
exhaust manifolds, oil cooler
lines, window regulators, harmonic balances and radiator fan
assemblies.
|
DORMAN®
HELP! ®
|
-
An extensive array of replacement parts, including window handles,
and
switches, door hardware, interior trim
parts, headlamp aiming screws and retainer rings, radiator parts,
bat-tery
hold-down bolts and repair kits, valve
train parts and power steering filler caps
|
DORMAN®
Auto Grade
|
-
A
comprehensive line of application specific and general automotive
hardware
that is a necessary element to
a complete repair. Product categories include body hardware, general
automotive fasteners, oil drain plugs, and
wheel hardware.
|
DORMAN®
Conduct-Tite!®
|
-
Extensive selection of electrical connectors, wire, tools, testers,
and
accessories.
|
DORMAN®
First Stop™
|
-
Value priced technician quality brake and clutch program containing
more
than 8,500 SKU's.
|
DORMAN®
Pik-A-Nut®
|
-
A
specialized and highly efficient line of home hardware and home
organization products specifically designed
for retail merchandisers.
|
DORMAN®
Scan-Tech®
|
-
Based in Stockholm, Sweden, DORMAN7
Scan-Tech7
sells a complete line of Volvo7
and Saab7
replacement
parts throughout the world, reducing the dependency on the OE
Dealer.
|
The
remainder of our revenues are generated by the sale of parts that we package
for
ourselves, or others, for sale in bulk or under the private labels of parts
manufacturers and national warehouse distributors (such as Carquest and NAPA).
During the years ended December 2006, 2005, and 2004, no single product or
related group of products accounted for more than 10% of gross
sales.
We
warrant our products against certain defects in material and workmanship
when
used as designed on the vehicle on which it was originally installed. We
offer a
one year, two year, or limited lifetime warranty depending on the product
type.
All warranties limit the customer’s remedy to the repair or replacement of the
part that is defective.
Product
Development
Product
development is central to our business. The development of a broad range
of
products, many of which are not conveniently or economically available
elsewhere, has in part, enabled us to grow to our present size and is important
to our future growth. In developing our products, our strategy has been to
design and package parts so as to make them better and easier to install
and/or
use than the original parts they replace and to sell automotive parts for
the
broadest possible range of uses. Through careful evaluation, exacting design
and
precise tooling, we are frequently able to offer products which fit a broader
range of makes and models than the original equipment parts they replace,
such
as an innovative neoprene replacement oil drain plug which fits not only
a
variety of Chevrolet models, but also Fords, Chryslers and a range of foreign
makes. This assists retailers and other purchasers in maximizing the
productivity of the limited space available for each class of part sold.
Further, where possible, the Company improves its parts so they are better
than
the parts they replace. Thus, many of the our products are simpler to install
or
use, such as a replacement "split boot" for a constant velocity joint that
can
be installed without disassembling the joint itself and a replacement spare
tire
hold-down bolt that is longer and easier to thread than the original equipment
bolt it replaced. In addition, we often package different items in complete
kits
to ease installation.
Ideas
for
expansion of our product lines arise through a variety of sources. We maintain
an in-house product management staff that routinely generates ideas for new
parts and expansion of existing lines. Further, we maintain an "800" telephone
number and an Internet site for "New Product Suggestions" and receive, either
directly or through our sales force, many ideas from our customers as to
which
types of presently unavailable parts the ultimate consumers are
seeking.
Each
new
product idea is reviewed by our product management staff, as well as by members
of the production, sales, finance, marketing, and administrative staffs.
In
determining whether to produce an individual part or a line of related parts,
we
consider the number of vehicles of a particular model to which the part may
be
applied, the potential for modifications which will allow the product to
be used
over a broad range of makes and models, the average age of the vehicles in
which
the part would be used and the failure rate of the part in question. This
review
process narrows the many new product suggestions down to those most likely
to
enhance our exist-ing product lines or to support new product
lines.
Sales
and
Marketing
We
market
our products to three groups of purchasers who in turn supply individual
consumers and professional installers:
(i)
Approximately 46% of our revenues are generated from sales to automotive
aftermarket retailers (such as AutoZone, Advance and O'Reilly), local
independent parts wholesalers and national general merchandise chain retailers.
We sell some of our products to virtually all major chains of automotive
aftermarket retailers;
(ii)
Approximately 30% of our revenues are generated from sales to warehouse
distributors (such as Carquest and NAPA), which may be local, regional or
national in scope, and which may also engage in retail sales; and
(iii)
The
balance of our revenues (approximately 24%) are generated from international
sales and sales to special markets, which include, among others, mass merchants
(such as Wal-Mart), salvage yards and the parts distribution systems of parts
manufacturers.
We
use a
number of different methods to sell our products. Our more than 30 person
direct
sales force solicits purchases of our products directly from customers, as
well
as managing the activities of 18 independent manufacturers’ representative
agencies. We use independent manufacturers’ represen-tative agencies to help
service existing retail and warehouse distribution customers, providing frequent
on-site contact. The sales focus is designed to increase sales by adding
new
product lines and expanding product selection within existing customers and
secure new customers. For certain of our major customers, and our private
label
purchasers, we rely primarily upon the direct efforts of our sales force,
who,
together with the marketing department and our executive officers, coordinate
the more complex pricing and ordering requirements of these
accounts.
Our
sales
efforts are not directed merely at selling individual products, but rather
more
broadly towards selling groups of related products that can be displayed
on
attractive Dorman-designed display systems, thereby maximizing each customer's
ability to present our product line within the confines of the available
area.
We
prepare a number of catalogs, application guides and training materials designed
to describe our products and other applications as well as to train our
customers' salesmen in the promotion and sale of our products. Every two
to
three years we prepare a new master catalog which lists all of our products.
The
catalog is updated periodically through supplements.
We
currently service more than 2,500 active accounts. During 2006, three customers
(AutoZone, Advance and O’Reilly) each accounted for more than 10% of net sales
and in the aggregate accounted for 40% of net sales. During 2005 and 2004,
two
customers (AutoZone and Advance) each accounted for more than 10% of net
sales
and in the aggregate accounted for 31%
and
34%
of net
sales, respectively.
Manufacturing
Substantially
all of our products are manufactured to our specifications by third parties.
Because numerous contract manufacturers are available to manufacture our
products, we are not dependent upon the services of any one contract
manufacturer or any small group of them. No one vendor supplies more than
10% of
our products. In 2006, as a percentage of our total dollar volume of purchases,
approximately 33% of our products were purchased from various suppliers
throughout the United States and the balance of our products were purchased
directly from a variety of foreign countries.
Once
a
new product has been developed, our engineering department produces detailed
engineering drawings and prototypes which are used to solicit bids for
manufacture from a variety of vendors in the United States and abroad. After
a
vendor is selected, tooling for a production run is produced by the vendor
at
our expense. A pilot run of the product is produced and subjected to rigorous
testing by our engineering department and, on occasion, by outside testing
laboratories and facilities in order to evaluate the precision of manufacture
and the resiliency and structural integrity of the materials used. If
acceptable, the product then moves into full production.
Packaging,
Inventory and Shipping
Finished
products are received at one or more of our facilities, depending on the
type of
part. It is our practice to inspect samples of shipments based upon vendor
performance. If cleared, these shipments of finished parts are logged into
our
computerized production tracking systems and staged for packaging.
We
employ
a variety of custom-designed packaging machines which include blister sealing,
skin film sealing, clamshell sealing, bagging and boxing lines. Packaged
product
contains our label (or a private label), a part number, a universal packaging
bar code suitable for electronic scanning, a description of the part and,
if
appropriate, installation instructions. Products are also sold in bulk to
automotive parts manufacturers and packagers. Computerized tracking systems,
mechanical counting devices and experienced workers combine to assure that
the
proper variety and numbers of parts meet the correct packaging materials
at the
appropriate places and times to produce the required quantities of finished
products.
Completed
inventory is stocked in the warehouse portions of our facilities and is stored
and organized to facilitate the most efficient methods of retrieving product
to
fill customer orders. We strive to maintain a level of inventory to adequately
meet current customer order demand with additional inventory to satisfy new
customer orders and special programs. We maintain a "safety stock" of inventory
to compensate for fluctuations in demand and delivery.
We
ship
our products from all of our locations by contract carrier, common carrier
or
parcel service. Products are generally shipped to the customer's main warehouse
for redistribution within their network. In certain circumstances, at the
request of the customer, we ship directly to the customer's stores either
via
smaller direct ship orders or consolidated store orders that are cross
docked.
Competition
The
replacement automotive parts industry is highly competitive. Various competitive
factors affecting the automotive aftermarket are price, product quality,
breadth
of product line, range of applications and customer serv-ice. Substantially
all
of our products are subject to competition with similar products manufactured
by
other manufacturers of aftermarket automotive repair and replacement parts.
Some
of these competitors are divisions and subsidiaries of companies much larger
than us, and possess a longer history of operations and greater financial
and
other resources than we do. Further, some of our private label customers
also
compete with us.
Proprietary
Rights
While
we
take steps to register our trademarks when possible, we do not believe that
trademark registration is generally important to our business. Similarly,
while
we actively seek patent protection for the products and improvements which
we
develop, we do not believe that patent protection is generally important
to our
business.
At
December 30, 2006, we had 961 employees worldwide, of whom 942 were employed
full-time and 19 were employed part-time. Of these employees, 657 were engaged
in production, inventory, or quality control, 94 were involved in engineering,
product development and brand management, 71 were employed in sales and order
entry, and the remaining 139, including our 7 executive officers, were devoted
to administration, finance, legal, and strategic plan-ning.
No
domestic employees are covered by any collective bargaining agreement.
Approximately 30 employees at the our Swedish subsidiary are governed by
a
national union. We consider our relations with our employees to be generally
good.
Available
Information
Our
internet address is www.dormanproducts.com. The information on this website
is
not and should not be considered part of this Form 10-K and is not incorporated
by reference in this Form 10-K. This website is, and is only intended to
be, for
reference purposes only. We make available free of charge on our web site
our
annual report on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant
to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC.
In
addition, we will provide, at no cost, paper or electronic copies of our
reports
and other filings made with the SEC. Requests should be directed to: Dorman
Products, Inc. - Office of General Counsel, 3400 East Walnut Street, Colmar,
Pennsylvania 18915.
In
addition to the other information set forth in this report, you should carefully
consider the following factors, which could materially affect our business,
financial condition or future results. The risks described below are not
the
only risks we face. Additional risks and uncertainties not currently known
to us
or that we currently deem to be immaterial also may materially affect our
business, financial conditions or results of operations.
Competition
for Shelf Space. Since the amount of space available to a retailer and other
purchasers of our products is limited, our products compete with other
automotive aftermarket products, some of which are entirely dissimilar and
otherwise non-competitive (such as car waxes and engine oil), for shelf and
floor space. No assurance can be given that additional space will be available
in our customers' stores to support expansion of the number of products that
we
offer.
Concentration
of Sales to Certain Customers. A significant percentage of our sales has
been,
and will continue to be, concentrated among a relatively small number of
customers. During 2006, three customers (AutoZone, Advance, and O’Reilly) each
accounted for more than 10% of net sales and in the aggregate accounted for
40%
of net sales. During 2005 and 2004, two customers (AutoZone and Advance)
each
accounted for more than 10% of net sales and in the aggregate accounted for
31%
and 34% of net sales, respectively. We anticipate that this concentration
of
sales among customers will continue in the future. The loss of a significant
customer or a substantial decrease in sales to such a customer could have
a
material adverse effect on our sales and operating results. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
and
"Business-Sales and Marketing" sections of this Form 10-K.
Concentrations
of Credit Risk. Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash and cash equivalents
and
accounts receivable. All cash equivalents are managed within established
guidelines which limit the amount which may be invested with one issuer.
A
significant percentage of our accounts receivable have been, and will continue
to be concentrated among a relatively small number of automotive retailers
and
warehouse distributors in the United States. Our five largest customers
accounted for 73% and 77% of total accounts receivable as of December 30,
2006
and December 31, 2005, respectively. Management continually monitors the
credit
terms and credit limits to these and other customers.
Customer
Terms. The automotive aftermarket has been consolidating over the past several
years. As a result, many of our customers have grown larger and therefore
have
more leverage in negotiations. Customers press for extended payment terms
and
returns of slow moving product when negotiating with us. While we do our
best to
avoid such concessions, in some cases payment terms to customers have been
extended and returns of product have exceeded historical levels. The product
returns primarily affect our profit levels while terms extensions generally
reduce operating cash flow and require additional capital to finance the
business. We expect both of these trends to continue for the foreseeable
future.
Foreign
Currency Fluctuations. In 2006, 67% of our products were purchased from
suppliers located in a variety of foreign countries. The products generally
are
purchased through purchase orders with the purchase price specified in U.S.
dollars. Accordingly, we do not have exposure to fluctuations in the
relationship between the dollar and various foreign currencies between the
time
of execution of the purchase order and payment for the product. However,
weakness in the dollar has resulted in some materials price increases and
pressure from several foreign suppliers to increase prices. To the extent
that
the dollar decreases in value to foreign currencies in the future or the
present
weakness in the dollar continues for a sustained period of time, the price
of
the product in dollars for new purchase orders may increase
further.
The
largest portion of our overseas purchases come from China. The value of the
Chinese Yuan has increased relative to the U.S. Dollar over 6% since July
2005
when it was allowed to fluctuate against a basket of currencies. Most experts
believe that the value of the Yuan will increase further relative to the
U.S.
Dollar over the next few years. Such a move would most likely result in an
increase in the cost of products that are purchased from China.
Dependence
on Senior Management. The success of our business will continue to be dependent
upon Richard N. Berman, Chairman of the Board, President and Chief Executive
Officer and Steven L. Berman, Executive Vice President, Secretary-Treasurer
and
Director. The loss of the services of one or both of these individuals could
have a material adverse effect on our business.
Dividend
Policy. We do not intend to pay cash dividends for the foreseeable future.
Rather, we intend to retain our earnings, if any, for the operation and
expansion of our business.
Control
by Officers, Directors and Family Members. As of March 1, 2007, Richard N.
Berman and Steven L. Berman, who are officers and directors of Dorman Products,
Inc., their father, Jordan S. Berman, and their brothers, Marc H. Berman
and
Fred B. Berman beneficially own approximately 42 % of the outstanding Common
Stock and are able to elect the Board of Directors, determine the outcome
of
most corporate actions requiring share-holder approval (including certain
fundamental transactions) and control over our policies.
Increase
in OE Patent Filings. Recently, we have seen an increase in patent requests
for
new designs made by original equipment manufacturers. If original equipment
manufacturers are able to obtain patents on new designs at a rate higher
than
historical levels, we could be restricted or prohibited from selling aftermarket
products covered by such items, which could have an adverse impact on our
business.
There
are
no unresolved comments from the Commission staff regarding our periodic or
current reports under the Securities Act.
Facilities
We
currently have 13 warehouse and office facilities located throughout the
United
States, Canada, Sweden, China and Korea. Two of these facilities are owned
and
the remainder are leased. Our headquarters and principal warehouse facilities
are as follows:
Location
|
Description
|
|
Colmar,
PA
|
Corporate
Headquarters and
Warehouse
and office - 334,000 sq. ft. (leased) (1)
|
|
Warsaw,
KY
|
Warehouse
and office - 362,000 sq. ft. (owned)
|
|
Portland,
TN
|
Warehouse
and office - 269,000 sq. ft. (leased)
|
|
Louisiana,
MO
|
Warehouse
and office - 90,000 sq. ft. (owned)
|
|
Baltimore,
MD
|
Warehouse
and office - 83,000 sq. ft. (leased)
|
|
Hagersville,
ON
|
Manufacturing,
warehouse, and office 37,000 sq. ft. (leased)
(2)
|
In
the
opinion of management, the existing facilities are in good
condition.
_________________
(1) We
lease
the Colmar facility from a partnership of which Richard N. Berman, President
and
Chief Executive Officer of the Company, and Steven L. Berman, Executive Vice
President of the Company, their father, Jordan S. Berman, and their brothers,
Marc H. Berman and Fred B. Berman, are partners. Under the lease we paid
rent of
$3.89 per square foot ($1.3 million per year) in 2006. The rents payable
will be
adjusted on January 1 of each year to reflect annual changes in the Consumer
Price Index for All Urban Consumers - U.S. City Average, All Items. In 2002,
the
lease term was extended and will expire on December 31, 2007. In the opinion
of
management, the terms of this lease are no less favorable than those which
could
have been obtained from an unaffiliated party.
(2) In
June
2005, we acquired The Automotive Edge/Hermoff (Hermoff) for approximately
$1.7
million. As part of the acquisition of Hermoff, we leased the existing facility
from an Ontario corporation of which Arthur Bluhm, President of Hermoff,
and
Robert Bluhm, Vice President of Hermoff, are shareholders. Under the lease
we
paid rent of $112,000 Canadian in 2006. The term of the lease is for a period
of
2 years beginning June 1, 2005 and ending May 31, 2007. In the opinion of
management, the terms of this lease are no less favorable than those which
could
have been obtained from an unaffiliated party.
We
are a
party to or otherwise involved in legal proceedings that arise in the ordinary
course of business, such as various claims and legal actions involving
contracts, competitive practices, trademark rights, product liability claims
and
other matters arising out of the conduct of our business. In the opinion
of
management, none of the actions, individually or in the aggregate, would
likely
have a material financial impact on the Company.
Item
4.
Submission of Matters to a Vote of Security
Holders.
There
were no matters submitted to a vote of our security holders during the fourth
quarter of fiscal year 2006.
Item
4.1
Certain Executive Officers of the Registrant.
The
following table sets forth certain information with respect to our executive
officers:
Name
|
Age
|
Position
with the Company
|
Mathias
J. Barton
|
47
|
Senior
Vice President, Chief Financial Officer
|
Joseph
M. Beretta
|
52
|
Senior
Vice President, Product
|
Richard
N. Berman
|
50
|
President,
Chief Executive Officer, Chairman of the Board of Directors, and
Director
|
Steven
L. Berman
|
47
|
Executive
Vice President, Secretary-Treasurer, and Director
|
Fred
V. Frigo
|
50
|
Senior
Vice President, Operations
|
Donald
J. Barry
|
44
|
Senior
Vice President of Sales and Trade Marketing
|
Thomas
J. Knoblauch
|
51
|
Vice
President, General Counsel and Assistant
Secretary
|
Mathias
J. Barton joined the Company in November 1999 as Senior Vice President, Chief
Financial Officer. Prior to joining the Company, Mr. Barton was Senior Vice
President and Chief Financial Officer of Central Sprinkler Corporation, a
manufacturer and distributor of automatic fire sprinklers, valves and component
parts. From May 1989 to September 1998, Mr. Barton was employed by Rapidforms,
Inc., most recently as Executive Vice President and Chief Financial Officer.
He
is a graduate of Temple University.
Joseph
M.
Beretta joined the Company in January 2004 as Senior Vice President, Product.
Prior to joining the Company, Mr. Beretta was employed by Cardone Industries,
Inc., most recently as its Chief Operating Officer. Cardone is a remanufacturer
and supplier of automotive replacement parts. He is a graduate of Oral Roberts
University.
Richard
N. Berman has been President, Chief Executive Officer and a Director of the
Company since its incep-tion in October 1978. He is a graduate of the University
of Pennsylvania.
Steven
L.
Berman has been Executive Vice-President, Secretary-Treasurer and a Director
of
the Company since its inception. He attended Temple University.
Fred
V.
Frigo joined the Company in March 1997 as Director, Operations and was named
Senior Vice President, Operations in September 2003. Prior to joining the
Company, Mr. Frigo was the Plant Manager for Cooper Industries (Federal Mogul),
where he was responsible for their Wagner Brake Plant in Boston and following
that the Wagner Lighting Operations in Boyertown Pennsylvania. He is a graduate
of Elmhurst College.
Donald
J.
Barry joined the Company in July 2005 as Senior Vice President of Sales and
Trade Marketing. Prior to joining the Company he was European Business Director
for 3M Company where he was responsible for Consumer and Office business
operations. He is a graduate of University of Wisconsin-Whitewater.
Thomas
J
Knoblauch joined the Company in April 2005 as Vice President and General
Counsel. In May 2005, Mr. Knoblauch was appointed Assistant Secretary. Prior
to
joining the Company he was Corporate Counsel at SunGard Data Systems, Inc.
and
General Counsel at Rosenbluth International, Inc. He is a graduate of Widener
University, St. Joseph's University , and the Widener University School of
Law.
Mr. Knoblauch is a member of both the Pennsylvania and New York Bar.
PART
II
Item
5. Market for Registrant's Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities.
Our
shares of common stock are traded publicly in the over-the-counter market
on the
NASDAQ system. At March 1, 2007 there were 154 holders of record of common
stock, representing more than 1,400 beneficial owners. The last price for
our
common stock on March 1, 2007, as reported by NASDAQ, was $11.28 per share.
Since our initial public offering, we have paid no cash dividends. We do
not
presently contemplate paying any such dividends in the foreseeable future.
The
range of high and low sales prices for our common stock for each quarterly
period of 2006 and 2005 are as follows:
2006
|
2005
(1)
|
||||||||||||
High
|
Low
|
High
|
Low
|
||||||||||
First
Quarter
|
$
|
11.36
|
$
|
9.15
|
$
|
13.75
|
$
|
12.03
|
|||||
Second
Quarter
|
11.78
|
9.90
|
14.46
|
10.00
|
|||||||||
Third
Quarter
|
12.81
|
9.99
|
14.50
|
9.04
|
|||||||||
Fourth
Quarter
|
10.83
|
9.95
|
12.62
|
9.35
|
(1)
|
Amounts
have been restated to reflect a two-for-one split of our common
stock on
March 28, 2005.
|
For
the
information regarding our compensation plans, see Item 12, Security Ownership
of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
Stock
Performance Graph. Below is a line graph comparing, for period from December
29,
2001 to December 31, 2006, the cumulative total shareholder return on our
Common
Stock with the cumulative total shareholder return on the Automotive Parts
&
Accessories Peer Group of the Hemscott Group Index and the NASDAQ Market
Index.
The Automotive Parts & Accessories Peer Group is comprised of 35 public
companies and the information was furnished by Hemscott Inc. The graph assumes
$100 invested on December 29, 2001 in our Common Stock and each of the indices,
and that the dividends were reinvested when and as paid. In calculating the
cumulative total shareholder returns, the companies included are weighted
according to the stock market capitalization of such companies.
COMPARE
5-YEAR CUMULATIVE TOTAL RETURN
AMONG
DORMAN PRODUCTS, INC.,
NASDAQ
MARKEY INDEX AND HEMSCOTT GROUP INDEX
![](https://www.sec.gov/Archives/edgar/data/0000868780/000114036107005283/graph.jpg)
ASSUMES
$100 INVESTED ON DEC. 29, 2001
ASSUMES
DIVIDEND REINVESTED
FISCAL
YEAR ENDING DEC. 31, 2006
Stock
Repurchases
During
the last three months of fiscal year ended December 30, 2006, we purchased
shares of our Common Stock as follows:
Period
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or
Programs
|
Maximum
Number (or Approximate Dollar Value of Shares that May Yet Be Purchased
Under the Plans or Programs
|
October
1, 2006 through October 31, 2006
|
-
|
-
|
-
|
|
November
1, 2006 through November 30, 2006
|
5,477
|
$
10.01
|
-
|
-
|
December
1, 2006 through December 30, 2006
|
6,158
|
$
10.05
|
-
|
-
|
Total
|
11,635
|
$
10.03
|
-
|
-
|
(1)
We
currently do not have a publicly announced repurchase program in place. All
of
the shares indicated in the above table were purchased from our 401(k) Plan.
Shares are generally purchased from our 401(k) Plan when participants elect
to
sell units as permitted by the Plan or to leave the Plan upon retirement,
termination or other reason. This table does not include shares tendered
to
satisfy the exercise price in connection with cashless exercises of employee
stock options or shares tendered to satisfy tax withholding obligations in
connection with equity awards.
Item
6.
Selected Financial Data.
Selected
Consolidated Financial Data
|
||||||||||||||||
Year
Ended December
|
||||||||||||||||
(in
thousands, except per share data)
|
2006
(a)
|
2005
|
2004
|
2003
|
2002
(b)
|
|||||||||||
Statement
of Operations Data:
|
||||||||||||||||
Net
sales
|
$
|
295,825
|
$
|
278,117
|
$
|
249,526
|
$
|
222,083
|
$
|
215,524
|
||||||
Income
from operations
|
26,770
|
29,776
|
29,638
|
24,052
|
23,133
|
|||||||||||
Net
income
|
13,799
|
17,077
|
17,081
|
13,304
|
12,357
|
|||||||||||
Earnings
per share
|
||||||||||||||||
Basic
(c)
|
$
|
0.78
|
$
|
0.95
|
$
|
0.97
|
$
|
0.77
|
$
|
0.73
|
||||||
Diluted
(c)
|
$
|
0.76
|
$
|
0.93
|
$
|
0.93
|
$
|
0.73
|
$
|
0.69
|
||||||
Balance
Sheet Data:
|
||||||||||||||||
Total
assets
|
217,758
|
212,156
|
195,404
|
176,606
|
170,128
|
|||||||||||
Working
capital
|
126,804
|
115,812
|
101,585
|
98,452
|
91,340
|
|||||||||||
Long-term
debt
|
20,596
|
27,243
|
25,714
|
35,213
|
44,218
|
|||||||||||
Shareholders'
equity
|
153,843
|
138,542
|
125,227
|
105,985
|
89,572
|
(a)
Results for 2006 include a $3.2 million non-cash write-down for goodwill
impairment ($2.9 million or $0.16 per share) and the write-off of deferred
tax
benefits ($0.3 million or $0.02 per share).
(b)
Results for 2002 include a gain on sale of specialty fastener business of
$2,143
($1,329 after tax or $0.07 per share).
(c)
Per
share amounts have been retroactively adjusted to reflect a two-for-one stock
split of our common stock effective March 28, 2005.
Item
7. Management's
Discussion
and Analysis of Financial Condition and Results of
Operations.
Cautionary
Statement Regarding Forward Looking Statements
Certain
statements in this document constitute “forward-looking statements” within the
meaning of the Federal Private Securities Litigation Reform Act of 1995.
While
forward-looking statements sometimes are presented with numerical specificity,
they are based on various assumptions made by management regarding future
circumstances over many of which the Company has little or no control.
Forward-looking statements may be identified by words including “anticipate,”
“believe,” “estimate,” “expect,” and similar expressions. The Company cautions
readers that forward-looking statements, including, without limitation, those
relating to future business prospects, revenues, working capital, liquidity,
and
income, are subject to certain risks and uncertainties that would cause actual
results to differ materially from those indicated in the forward-looking
statements. Factors that could cause actual results to differ from
forward-looking statements include but are not limited to competition in
the
automotive aftermarket industry, concentration of the Company’s sales and
accounts receivable among a small number of customers, the impact of
consolidation in the automotive aftermarket industry, foreign currency
fluctuations, dependence on senior management and other risks and factors
identified from time to time in the reports the Company files with the
Securities and Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. For additional information concerning factors that could cause
actual
results to differ materially from the information contained in this report,
reference is made to the information in Part I, “Item 1A, Risk
Factors.”
Overview
We
are a
leading supplier of Original Equipment (OE) Dealer “Exclusive” automotive
replacement parts, automotive hardware, brake products, and household hardware
to the automotive aftermarket and mass merchandise markets. Dorman automotive
parts and hardware are marketed under the OE Solutions™, HELP!®, AutoGrade™,
First Stop™, Conduct-Tite®, Pik-A-Nut®, and Scan-Tech™ brand names. We design,
package and market over 77,000 different automotive replacement parts (including
brake parts), fasteners and service line products manufactured to our
specifications. Our products are sold under one of the seven Dorman brand
names
listed above. Our products are sold primarily in the United States through
automotive aftermarket retailers (such as AutoZone, Advance and O’Reilly),
national, regional and local warehouse distributors (such as Carquest and
NAPA)
and specialty markets including parts manufacturers for resale under their
own
private labels and salvage yards. Through our Scan-Tech and Hermoff
subsidiaries, we are increasing our international distribution of automotive
replacement parts, with sales into Canada, Europe, the Middle East and the
Far
East.
The
automotive aftermarket in which we compete has been growing in size; however,
the market continues to consolidate. As a result, our customers regularly
seek
more favorable pricing, product returns and extended payment terms when
negotiating with us. While we do our best to avoid such concessions, in some
cases pricing concessions have been made, customer payment terms have been
extended and returns of product have exceeded historical levels. The product
returns and more favorable pricing primarily affect our profit levels while
terms extensions generally reduce operating cash flow and require additional
capital to finance the business. We expect both of these trends to continue
for
the foreseeable future. Gross profit margins have declined over the past
two
years as a result of this pricing pressure. Another contributing factor in
our
gross profit margin decline is a shift in mix to higher-priced, but lower
gross
margin products. Both of these trends are expected to continue for the
foreseeable future. We have increased our focus on efficiency improvements
and
product cost reduction initiatives to offset the impact of price pressures.
In
addition, we are relying on new product development as a way to offset some
of
these customer demands and as our primary vehicle for growth. As such, new
product development is a critical success factor for us. We have invested
heavily in resources necessary for us to increase our new product development
efforts and to strengthen our relationships with our customers. These
investments are primarily in the form of increased product development resources
and awareness programs, customer service improvements and increased customer
credits and allowances. This has enabled us to provide an expanding array
of new
product offerings and grow our revenues.
We
may
experience significant fluctuations from quarter to quarter in our results
of
operations due to the timing of orders placed by our customers. Generally,
the
second and third quarters have the highest level of customer orders, but
the
introduction of new products and product lines to customers may cause
significant fluctuations from quarter to quarter.
We
operate on a fifty-two, fifty-three week period ending on the last Saturday
of
the calendar year. The fiscal years ended December 30, 2006, December 31,
2005
and December 25, 2004 were fifty-two, fifty-three, and fifty-two weeks,
respectively.
Stock
Split
All
prior
period common stock and applicable share and per share amounts have been
adjusted to reflect a two-for-one split in the form of a stock dividend of
our
common stock effective March 28, 2005.
Write
Off
of Goodwill and Deferred Tax Asset Related to Swedish Subsidiary
During
the second quarter of fiscal 2006, we assessed the value of the goodwill
recorded at our Swedish subsidiary (Scan-Tech) as a result of a review of
the
Scan-Tech business in response to bad debt charge offs of two large customers
and the resulting loss of those customers in the first half of the year.
After
completing the required analyses, we concluded that the goodwill at the
subsidiary was impaired. Accordingly, an impairment charge of approximately
$2.9
million, which represented the entire goodwill balance at the subsidiary,
was
recorded in the consolidated statements of operations. In addition, we recorded
a $0.3 million charge to our provision for income taxes to write off deferred
tax assets of the subsidiary which were deemed unrealizable.
Acquisition
In
June
2005, we acquired The Automotive Edge/Hermoff (“Hermoff”) for approximately $1.7
million. The consolidated results include Hermoff since June 1, 2005. We
have
not presented pro forma results of operations for the years ended December
31,
2005 and December 25, 2004, assuming the acquisition had occurred at the
beginning of the respective periods, as these results would not have been
materially different than actual results for the periods.
Stock-Based
Compensation
Effective
January 1, 2006, we adopted SFAS No. 123(R) and related interpretations and
began expensing the grant-date fair value of employee stock options. Prior
to
January 1, 2006, we applied Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations in
accounting for our stock option plans. Accordingly, no compensation expense
was
recognized in net income for employee stock options for those options granted
which had an exercise price equal to the market value of the underlying common
stock on the date of grant.
We
adopted SFAS No. 123(R) using the modified prospective transition method
and
therefore have not restated prior periods. Under this transition method,
compensation cost associated with employee stock options recognized in 2006
includes amortization related to the remaining unvested portion of stock
option
awards granted prior to January 1, 2006, and amortization related to new
awards
granted after January 1, 2006. Prior to the adoption of SFAS No. 123(R),
we
presented tax benefits resulting from stock-based compensation as operating
cash
flows in the consolidated statements of cash flows. SFAS No. 123(R) requires
that cash flows resulting from tax deductions in excess of compensation cost
recognized in the financial statements be classified as financing cash flows.
Compensation
cost is recognized on a straight-line basis over the vesting period during
which
employees perform related services. The compensation cost charged against
income
for the year ended December 30, 2006 was $0.5 million before taxes. The
compensation cost recognized is classified as selling, general and
administrative expense in the consolidated statement of operations.
Results
of Operations
The
following table sets forth, for the periods indicated, the percentage of
net
sales represented by certain items in our Consolidated Statements of Operations:
Percentage
of Net Sales
|
||||||||||
Year
Ended
|
||||||||||
December
30, 2006
|
December
31, 2005
|
December
25, 2004
|
||||||||
Net
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of goods sold
|
65.0
|
64.5
|
62.9
|
|||||||
Gross
profit
|
35.0
|
35.5
|
37.1
|
|||||||
Selling,
general and administrative expenses
|
25.0
|
24.8
|
25.2
|
|||||||
Goodwill
impairment
|
1.0
|
-
|
-
|
|||||||
Income
from operations
|
9.0
|
10.7
|
11.9
|
|||||||
Interest
expense, net
|
0.7
|
0.9
|
1.2
|
|||||||
Income
before taxes
|
8.3
|
9.8
|
10.7
|
|||||||
Provision
for taxes
|
3.6
|
3.7
|
3.9
|
|||||||
Net
Income
|
4.7
|
%
|
6.1
|
%
|
6.8
|
%
|
Fiscal
Year Ended December 30, 2006 Compared to Fiscal Year Ended December 31,
2005
Net
sales
increased 6% to $295.8 million in 2006 from $278.1 million in 2005. Revenues
in
2006 increased primarily as a result of increases in revenue from new products.
Results for 2005 include an extra week’s sales due to the 53-week year. The loss
of an extra week’s sales in 2006 was somewhat offset by a full year’s sales from
the Hermoff acquisition made in June 2005.
Cost
of
goods sold, as a percentage of sales, increased to 65.0% in 2006 from 64.5%
in
the prior year. The increase is the result of gross margin reductions in
several
product lines due to higher customer allowances and selling price reductions
due
to competitive pressures. We offset a portion of these increased selling
price
reductions through material cost savings from suppliers.
Selling,
general and administrative expenses in 2006 increased 7% to $73.8 million
from
$69.1 million in 2005. The increase is the result of the addition of a new
distribution center in 2006, inflationary cost increases and higher variable
costs as a result of our 6% sales increase. Selling, general and administrative
expenses in 2006 also include a $0.9 million increase in bad debt expense
primarily as a result of the write off of two large Scan-Tech accounts
receivable, $0.5 million in additional financing costs associated with accounts
receivable sales programs whereby we sell our accounts receivable on a
non-recourse basis to financial institutions and $0.5 million in stock option
expense under SFAS-123(R). These increased costs were partially offset by
a $1.3
million reduction in incentive compensation expense in the current year.
As
noted
above, the Company recorded a $2.9 million charge in the second quarter of
2006
to write off goodwill of its Swedish subsidiary.
Interest
expense, net, decreased to $2.3 million in 2006 from $2.6 million in 2005
due to
lower overall borrowing levels as cash generated by operations was used to
reduce debt levels.
Our
effective tax rate increased to 43.7% in 2006 from 37.1% in 2005. The increase
is primarily the result of the $2.9 million second quarter goodwill impairment
charge which is not tax deductible and therefore had no income tax benefit
associated with it. In addition, our 2006 provision for income includes a
$0.3
million charge to write off deferred tax assets.
Fiscal
Year Ended December 31, 2005 Compared to Fiscal Year Ended December 25,
2004
Net
sales
increased 11% to $278.1 million in 2005 from $249.5 million in 2004. Revenues
in
2005 were up primarily as a result of continued growth in new product sales.
An
additional week’s sales in 2005 and the June 2005 acquisition of Hermoff
accounted for approximately 1% of the sales growth.
Cost
of
goods sold, as a percentage of net sales, increased from 62.9% in 2004 to
64.5%
in 2005. The primary reasons for the increase in cost of goods sold as a
percentage of sales were a continued mix shift toward lower margin automotive
hard parts and a $1.8 million increase in the provision for excess and slow
moving inventory reserves in 2005.
Selling,
general and administrative expenses in 2005 increased 10% to $69.1 million
from
$62.9 million. The expense increase was the result of inflationary cost
increases, an increase in variable operating expenses due to sales volume
growth
and the Company’s decision to invest more resources in new product development
which resulted in higher spending for product management, purchasing,
engineering and quality control in 2005. During 2005, the Company also increased
the use of its accounts receivable sale facilities. Financing costs associated
with the sale of accounts receivable are recorded as operating expenses and
amounted to $1.2 million and $0.3 million in 2005 and 2004,
respectively.
Interest
expense, net decreased to $2.6 million in 2005 from $2.9 million in 2004
due to
lower overall borrowing rates in 2005. The primary reason for the lower
borrowing rates was a reduction in the outstanding principal of the Company’s
6.81% Senior Notes, which was replaced with revolving credit borrowings at
a
lower interest rate.
The
Company’s effective tax rate increased to 37.1% in 2005 from 36.2% in 2004 due
to the loss of certain state tax benefits in 2005 as a result of changes
in
state tax legislation and lower earnings from the Company’s Swedish subsidiary
where tax rates are lower than the statutory rate in the United States.
Liquidity
and Capital Resources
Historically,
we have financed our growth through a combination of cash flow from operations,
accounts receivable sales programs provided by certain customers and through
the
issuance of senior indebtedness through our bank credit facility and senior
note
agreements. At December 30, 2006, working capital was $126.8 million, total
long-term debt (including the current portion and revolving credit borrowings)
was $29.2 million and shareholders’ equity was $153.8 million. Cash and cash
equivalents as of December 30, 2006 totaled $5.1 million.
Over
the
past several years we have extended payment terms to certain customers as
a
result of customer requests and market demands. These extended terms have
resulted in increased accounts receivable levels and significant uses of
cash
flow. We participate in accounts receivable sales programs with several
customers which allow us to sell our accounts receivable on a non-recourse
basis
to financial institutions to offset the negative cash flow impact of these
payment terms extensions. As of December 30, 2006 and December 31, 2005,
respectively, we had sold $18.5 million and $23.2 million in accounts receivable
under these programs and had removed them from our balance sheets. We expect
continued pressure to extend our payment terms for the foreseeable future.
Further extensions of customer payment terms will result in additional uses
of
cash flow or increased costs associated with the sale of accounts receivable.
In
July
2006, we amended our revolving credit facility. The amendment increased the
size
of the total credit facility from $20 million to $30 million and extended
the
expiration date from June 2007 to June 2008. Borrowings under the facility
are
on an unsecured basis with interest at rates ranging from LIBOR plus 65 basis
points to LIBOR plus 150 basis points based upon the achievement of certain
benchmarks related to the ratio of funded debt to EBITDA. The interest rate
at
December 30, 2006 was LIBOR plus 85 basis points (6.17%). Borrowings under
the
facility were $11.5 million as of December 30, 2006. We have approximately
$16.5
million available under the facility at December 30, 2006. The loan agreement
also contains covenants, the most restrictive of which pertain to net worth
and
the ratio of debt to EBITDA. We were in compliance with all financial covenants
contained in the Notes and Revolving Credit Facility at December 30,
2006.
At
December 30, 2006, long-term debt includes $17.2 million in Senior Notes
that
were originally issued in August 1998, in a private placement on an unsecured
basis (“Notes”). The Notes bear a 6.81% fixed interest rate, payable quarterly.
Annual principal payments of $8.6 million are due in August 2007 and August
2008. The Notes require, among other things, that we maintain certain financial
covenants relating to debt to capital ratios and minimum net worth.
In
September 2006, we borrowed $625,000 under a commercial loan granted in
connection with the opening of a new distribution facility. The principal
balance is paid monthly in equal installments through September 2013. The
outstanding balance bears interest at an annual rate of 4% payable monthly.
The
loan is secured by a letter of credit issued under our revolving credit
facility.
Our
business activities do not include the use of unconsolidated special purpose
entities, and there are no significant business transactions that have not
been
reflected in the accompanying financial statements.
We
have
future obligations for debt repayments, future minimum rental and similar
commitments under noncancellable operating leases as well as contingent
obligations related to outstanding letters of credit. These obligations (in
millions) as of December 30, 2006 are summarized in the tables
below:
Payments
Due by Period
|
||||||||||||||||
Less
than
|
|
|||||||||||||||
Contractual
Obligations
|
Total
|
1
year
|
1-3
years
|
4-5
years
|
After
5 years
|
|||||||||||
Long-term
borrowings
|
$
|
29,247
|
$
|
8,651
|
$
|
20,330
|
$
|
188
|
$
|
78
|
||||||
Estimated
interested payments (1)
|
2,463
|
1,681
|
768
|
14
|
1
|
|||||||||||
Operating
leases
|
9,546
|
3,088
|
3,342
|
1,225
|
1,891
|
|||||||||||
$
|
41,256
|
$
|
13,420
|
$
|
24,440
|
$
|
1,427
|
$
|
1,970
|
(1)
These
amounts represent future interest payments related to our existing debt
obligations based on fixed and variable interest rates specified in the
underlying loan agreements. Payments related to variable debt are based on
interest rates and outstanding balances as of December 30, 2006. The amounts
do
not assume the refinancing or replacement of such debt.
Amount
of Commitment Expiration Per Period
|
||||||||||||||||
Total
Amount
|
||||||||||||||||
Amounts
|
Less
than
|
|
||||||||||||||
Other
Commercial Commitments
|
Committed
|
1
year
|
1-3
years
|
4-5
years
|
Over
5 years
|
|||||||||||
Letters
of credit
|
$
|
1,998
|
$
|
1,998
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
$
|
1,998
|
$
|
1,998
|
$
|
-
|
$
|
-
|
$
|
-
|
We
reported a net source of cash flow from our operating activities of $16.7
million in fiscal 2006. Net income, depreciation and a $8.7 million decrease
in
inventory were the primary sources of operating cash flow in 2006. Inventory
levels declined despite higher sales volumes as a result of our efforts to
reduce vendor lead times and more accurately forecast customer demand for
our
products. The primary use of cash flow was accounts receivable which increased
$13.1 million. The increase is the result of a lengthening of payment terms
to
certain customers, higher sales levels and a $4.7 million reduction in accounts
receivable sold under accounts receivable sales programs with several
customers.
Investing
activities used $7.3 million of cash in fiscal 2006 as a result of additions
to
property, plant and equipment. Our largest 2006 capital project was the
automation and expansion of our central distribution center in Warsaw, Kentucky,
which was completed in the third quarter of 2006 at a cost of approximately
$7.0
million, most of which was incurred in prior years. Capital spending in 2006
also included tooling associated with new products, purchases of equipment
to
outfit our new distribution center in Portland, Tennessee, upgrades to
information systems, purchases of equipment designed to improve operational
efficiencies and scheduled equipment replacements.
Financing
activities used $7.2 million in fiscal 2006. The primary use of cash flow
was a
scheduled $8.6 million repayment of our Senior Notes in August 2006. This
repayment was partially funded with $1.4 million in borrowings under our
revolving credit facility with the rest coming from operating cash flow.
Based
on
our current operating plan, we believe that our available sources of capital
under our Revolving Credit Agreement, accounts receivable sales programs
and
cash generated from operations will be sufficient to meet our ongoing cash
needs
for the next twelve months.
Foreign
Currency Fluctuations
In
2006,
approximately 67% of our products were purchased from a variety of foreign
countries. The products generally are purchased through purchase orders with
the
purchase price specified in U.S. dollars. Accordingly, we do not have exposure
to fluctuations in the relationship between the dollar and various foreign
currencies between the time of execution of the purchase order and payment
for
the product. However, weakness in the dollar has resulted in some materials
price increases and pressure from several foreign suppliers to increase prices
further. To the extent that the dollar decreases in value to foreign currencies
in the future or the present weakness in the dollar continues for a sustained
period of time, the price of the product in dollars for new purchase orders
may
increase further.
The
largest portion of our overseas purchases come from China. The value of the
Chinese Yuan has increased relative to the U.S. Dollar over 6% since July
2005
when it was allowed to fluctuate against a basket of currencies. Most experts
believe that the value of the Yuan will increase further relative to the
U.S.
Dollar over the next few years. Such a move would most likely result in an
increase in the cost of products that are purchased from China.
Impact
of
Inflation
We
have
experienced increases in the cost of materials and transportation costs as
a
result of raw materials shortages and commodity price increases. These increases
did not have a material impact on us. We believes that further cost increases
could potentially be mitigated by passing along price increases to customers
or
through the use of alternative suppliers or resourcing purchases to other
countries, however there can be no assurance that we will be successful in
such
efforts.
Related-Party
Transactions
We
have a
noncancelable operating lease for our primary operating facility from a
partnership in which Richard N. Berman, our Chief Executive Officer, and
Steven
L. Berman, our Executive Vice President, are partners. Total rental payments
in
2006 to the partnership under the lease arrangement were $1.3 million.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based upon the consolidated financial statements, which have been prepared
in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments
that
affect the reported amounts of assets and liabilities, the disclosure of
contingent liabilities and the reported amounts of revenues and expenses.
We
regularly evaluate our estimates and judgments, including those related to
revenue recognition, bad debts, customer credits, inventories, goodwill and
income taxes. Estimates and judgments are based upon historical experience
and
on various other assumptions believed to be accurate and reasonable under
the
circumstances. Actual results may differ materially from these estimates
under
different assumptions or conditions. We believe the following critical
accounting policies affect our more significant estimates and judgments used
in
the preparation of our consolidated financial statements:
Allowance
for Doubtful Accounts. The preparation of our financial statements requires
us
to make estimates of the collectability of our accounts receivable. We
specifically analyze accounts receivable and historical bad debts, customer
creditworthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of the allowance for doubtful accounts.
A
significant percentage of our accounts receivable have been, and will continue
to be, concentrated among a relatively small number of automotive retailers
and
warehouse distributors in the United States. Our five largest customers
accounted for 73% and 77% of net accounts receivable as of December 30, 2006
and
December 31, 2005, respectively. A bankruptcy or financial loss associated
with
a major customer could have a material adverse effect on our sales and operating
results.
Revenue
Recognition and Allowance for Customer Credits. Revenue is recognized from
product sales when goods are shipped, title and risk of loss have been
transferred to the customer and collection is reasonably assured. We record
estimates for cash discounts, product returns and warranties, discounts and
promotional rebates in the period of the sale ("Customer Credits"). The
provision for Customer Credits is recorded as a reduction from gross sales
and
reserves for Customer Credits are shown as a reduction of accounts receivable.
Amounts billed to customers for shipping and handling are included in net
sales.
Costs associated with shipping and handling are included in cost of goods
sold.
Actual Customer Credits have not differed materially from estimated amounts
for
each period presented.
Excess
and Obsolete Inventory Reserves. We must make estimates of potential future
excess and obsolete inventory costs. We provide reserves for discontinued
and
excess inventory based upon historical demand, forecasted usage, estimated
customer requirements and product line updates. We maintain contact with
our
customer base in order to understand buying patterns, customer preferences
and
the life cycle of our products. Changes in customer requirements are factored
into the reserves as needed.
Goodwill.
We follow the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets". We employ a discounted cash flow analysis and a market comparable
approach in conducting our impairment tests. Cash flows were discounted at
12%
and an earnings multiple of 5.6 to 5.85 times EBITDA was used when conducting
these tests in 2006. As a result of the impairment test, we wrote-off all
of the
goodwill of our Swedish subsidiary (Scan-Tech). See Note 1 of the Notes to
Consolidated Financial Statements in this report.
Income
Taxes. We follow the liability method of accounting for deferred income taxes.
Under this method, income tax expense is recognized for the amount of taxes
payable or refundable for the current year and for the change in the deferred
tax liabilities and assets for the future tax consequences of events that
have
been recognized in an entity's financial statements or tax returns. We must
make
assumptions, judgments and estimates to determine our current provision for
income taxes and also our deferred tax assets and liabilities and any valuation
allowance to be recorded against a deferred tax asset. Our judgments,
assumptions and estimates relative to the current provision for income taxes
takes into account current tax laws, our interpretation of current tax laws
and
possible outcomes of current and future audits conducted by tax authorities.
Changes in tax laws or our interpretation of tax laws and the resolution
of
current and future tax audits could significantly impact the amounts provided
for income taxes in our consolidated financial statements. Our assumptions,
judgments and estimates relative to the value of a deferred tax asset takes
into
account predictions of the amount and category of future taxable income.
Actual
operating results and the underlying amount and category of income in future
years could render our current assumptions, judgments and estimates of
recoverable net deferred taxes inaccurate. Any of the assumptions, judgments
and
estimates mentioned above could cause our actual income tax obligations to
differ from our estimates.
Recent
Accounting Pronouncements
In
September 2006, the SEC Office of the Chief Accountant and divisions of
Corporation Finance and Investment Management released SAB No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements,” that provides interpretive guidance on how
the effects of the carryover or reversal of prior year misstatements should
be
considered in quantifying a current year misstatement. The SEC staff believes
that registrants should quantify errors using both a balance sheet and an
income
statement approach and evaluate whether either approach results in quantifying
a
misstatement that, when all relevant quantitative and qualitative factors
are
considered, is material. This pronouncement is effective for fiscal year
2006.
This pronouncement had no effect on our Consolidated Financial
Statements.
In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No.
157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements
that
require or permit fair value measurements. Accordingly, SFAS No. 157 does
not
require any new fair value measurements. The provisions of SFAS No. 157 are
to
be applied prospectively and are effective for financial statements issued
for
fiscal years beginning after November 15, 2007. We are currently evaluating
what
effect, if any, adoption of SFAS No. 157 will have on the Company’s consolidated
results of operations and financial position.
In
June
2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109, Accounting for Income Taxes”, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits
of
the position. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure. The
provisions of FIN 48 are effective beginning January 1, 2007 with the
cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. We have performed a preliminary
assessment of the impact of adopting FIN 48, and do not believe that adoption
of
this pronouncement will have a material impact on the Company’s consolidated
financial condition or results of operation.
Item
7A. Quantitative and Qualitative Disclosure about Market
Risk
Our
market risk is the potential loss arising from adverse changes in interest
rates. With the exception of our revolving credit facility, long-term debt
obligations are at fixed interest rates and denominated in U.S. dollars.
We
manage our interest rate risk by monitoring trends in interest rates as a
basis
for determining whether to enter into fixed rate or variable rate agreements.
Under the terms of our revolving credit facility and customer-sponsored programs
to sell accounts receivable, a change in either the lender's base rate or
LIBOR
would affect the rate at which we could borrow funds under the revolving
credit
facility. We believe that the effect of any such change would be minimal.
Item
8. Financial Statements and Supplementary
Data.
Our
financial statement schedules that are filed with this Report on Form 10-K
are
listed in Item 15(a)(2), Part IV, of this Report.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors
Dorman
Products, Inc.:
We
have
audited the accompanying consolidated balance sheets of Dorman Products,
Inc.
(formerly R&B, Inc.) and subsidiaries (the “Company”) as of December 30,
2006 and December 31, 2005, and the related consolidated statements of
operations, shareholders’ equity and cash flows for each of the years in the
three-year period ended December 30, 2006. In connection with our audits
of the
consolidated financial statements, we also have audited the financial statement
schedule. These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Dorman Products, Inc.
and
subsidiaries as of December 30, 2006 and December 31, 2005, and the results
of
their operations and their cash flows for each of the years in the three-year
period ended December 30, 2006, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Dorman Products,
Inc.’s
internal control over financial reporting as of December 30, 2006, based
on
criteria established in Internal Control-Integrated Framework issued by
the
Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our
report dated March 7, 2007 expressed an unqualified opinion on management’s
assessment of, and the effective operation of, internal control over financial
reporting.
As
discussed in Note 11 to the consolidated financial statements, effective
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123(R) Share-Based
Payment,
applying the modified prospective method.
KPMG
LLP
Philadelphia,
Pennsylvania
March
7,
2007
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Year Ended
|
||||||||||
(in
thousands, except per share data)
|
December
30,
2006
|
December
31,
2005
|
December
25,
2004
|
|||||||
Net
Sales
|
$
|
295,825
|
$
|
278,117
|
$
|
249,526
|
||||
Cost
of goods sold
|
192,348
|
179,253
|
157,004
|
|||||||
Gross
profit
|
103,477
|
98,864
|
92,522
|
|||||||
Selling,
general and administrative expenses
|
73,810
|
69,088
|
62,884
|
|||||||
Goodwill
impairment
|
2,897
|
-
|
-
|
|||||||
Income
from operations
|
26,770
|
29,776
|
29,638
|
|||||||
Interest
expense, net
|
2,267
|
2,615
|
2,853
|
|||||||
Income
before income taxes
|
24,503
|
27,161
|
26,785
|
|||||||
Income
taxes
|
10,704
|
10,084
|
9,704
|
|||||||
Net
Income
|
$
|
13,799
|
$
|
17,077
|
$
|
17,081
|
||||
Earnings
Per Share:
|
||||||||||
Basic
|
$
|
0.78
|
$
|
0.95
|
$
|
0.97
|
||||
Diluted
|
$
|
0.76
|
$
|
0.93
|
$
|
0.93
|
||||
Weighted
Average Shares Outstanding:
|
||||||||||
Basic
|
17,722
|
17,914
|
17,690
|
|||||||
Diluted
|
18,139
|
18,437
|
18,368
|
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share data)
|
December
30,
2006
|
December
31,
2005
|
|||||
Assets
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
5,080
|
$
|
2,944
|
|||
Accounts
receivable, less allowance for doubtful accounts and customer credits
of
$27,601 and $22,728
|
77,187
|
64,778
|
|||||
Inventories
|
67,768
|
75,535
|
|||||
Deferred
income taxes
|
10,330
|
9,560
|
|||||
Prepaids
and other current assets
|
1,443
|
1,545
|
|||||
Total
current assets
|
161,808
|
154,362
|
|||||
Property,
Plant and Equipment, net
|
27,963
|
27,473
|
|||||
Goodwill
|
26,958
|
29,617
|
|||||
Other
Assets
|
1,029
|
704
|
|||||
Total
|
$
|
217,758
|
$
|
212,156
|
|||
Liabilities
and Shareholders' Equity
|
|||||||
Current
Liabilities:
|
|||||||
Current
portion of long-term debt
|
$
|
8,651
|
$
|
8,571
|
|||
Accounts
payable
|
12,822
|
14,739
|
|||||
Accrued
compensation
|
6,949
|
6,727
|
|||||
Other
accrued liabilities
|
6,582
|
8,513
|
|||||
Total
current liabilities
|
35,004
|
38,550
|
|||||
Other
Long-Term Liabilities
|
-
|
626
|
|||||
Long-Term
Debt
|
20,596
|
27,243
|
|||||
Deferred
Income Taxes
|
8,315
|
7,195
|
|||||
Commitments
and Contingencies (Note 10)
|
|||||||
Shareholders'
Equity:
|
|||||||
Common
stock, par value $.01; authorized 25,000,000 shares; issued and
outstanding 17,705,499 and 17,749,583 shares
|
177
|
177
|
|||||
Additional
paid-in capital
|
32,956
|
33,138
|
|||||
Cumulative
translation adjustments
|
2,954
|
1,270
|
|||||
Retained
earnings
|
117,756
|
103,957
|
|||||
Total
shareholders' equity
|
153,843
|
138,542
|
|||||
Total
|
$
|
217,758
|
$
|
212,156
|
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
(in
thousands, except share data)
|
Common
Stock
|
Additional
|
Cumulative
|
||||||||||||||||
Shares
Issued
|
Par
Value
|
Paid-In
Capital
|
Translation
Adjustments
|
Retained
Earnings
|
Total
|
||||||||||||||
Balance
at December 27, 2003
|
17,525,988
|
$
|
175
|
$
|
33,863
|
$
|
2,148
|
$
|
69,799
|
$
|
105,985
|
||||||||
Common
stock issued to Employee
Stock Purchase Plan
|
1,108
|
-
|
10
|
-
|
-
|
10
|
|||||||||||||
Appreciation
on shares redistributed to 401(k) plan
|
-
|
-
|
96
|
-
|
-
|
96
|
|||||||||||||
Shares
issued under Incentive Stock Plan
|
344,832
|
4
|
62
|
-
|
-
|
66
|
|||||||||||||
Tax
benefit of stock option exercises
|
-
|
-
|
628
|
-
|
-
|
628
|
|||||||||||||
Comprehensive
Income:
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
17,081
|
17,081
|
|||||||||||||
Currency
translation adjustments
|
-
|
-
|
-
|
1,361
|
-
|
1,361
|
|||||||||||||
Total
comprehensive income
|
18,442
|
||||||||||||||||||
Balance
at December 25, 2004
|
17,871,928
|
179
|
34,659
|
3,509
|
86,880
|
125,227
|
|||||||||||||
Common
stock issued to Employee Stock Purchase Plan
|
709
|
-
|
7
|
-
|
-
|
7
|
|||||||||||||
Appreciation
on shares redistributed to 401(k) plan
|
-
|
-
|
191
|
-
|
-
|
191
|
|||||||||||||
Shares
issued under Incentive Stock Plan
|
66,955
|
-
|
105
|
-
|
-
|
105
|
|||||||||||||
Tax
benefit of stock option exercises
|
-
|
-
|
247
|
-
|
-
|
247
|
|||||||||||||
Purchase
and cancellation of common stock
|
(190,009
|
)
|
(2
|
)
|
(2,071
|
)
|
-
|
-
|
(2,073
|
)
|
|||||||||
Comprehensive
Income:
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
17,077
|
17,077
|
|||||||||||||
Currency
translation adjustments
|
-
|
-
|
-
|
(2,239
|
)
|
-
|
(2,239
|
)
|
|||||||||||
Total
comprehensive income
|
14,838
|
||||||||||||||||||
Balance
at December 31, 2005
|
17,749,583
|
177
|
33,138
|
1,270
|
103,957
|
138,542
|
|||||||||||||
Common
stock issued to Employee Stock Purchase Plan
|
952
|
-
|
8
|
-
|
-
|
8
|
|||||||||||||
Shares
issued under Incentive Stock Plan
|
34,017
|
-
|
134
|
-
|
-
|
134
|
|||||||||||||
Tax
benefit of stock option exercises
|
-
|
-
|
17
|
-
|
-
|
17
|
|||||||||||||
Purchase
and cancellation of common stock
|
(79,053
|
)
|
-
|
(829
|
)
|
-
|
-
|
(829
|
)
|
||||||||||
Compensation
expense on stock option issuance
|
-
|
-
|
488
|
-
|
-
|
488
|
|||||||||||||
Comprehensive
Income:
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
13,799
|
13,799
|
|||||||||||||
Currency
translation adjustments
|
-
|
-
|
-
|
1,684
|
-
|
1,684
|
|||||||||||||
Total
comprehensive income
|
15,483
|
||||||||||||||||||
Balance
at December 30, 2006
|
17,705,499
|
$
|
177
|
$
|
32,956
|
$
|
2,954
|
$
|
117,756
|
$
|
153,843
|
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Year Ended
|
||||||||||
(in
thousands)
|
December
30,
2006
|
December
31,
2005
|
December
25,
2004
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||||
Net
income
|
$
|
13,799
|
$
|
17,077
|
$
|
17,081
|
||||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||||
Depreciation
and amortization
|
6,824
|
5,774
|
4,545
|
|||||||
Goodwill
impairment
|
2,897
|
-
|
-
|
|||||||
Provision
for doubtful accounts
|
1,164
|
233
|
110
|
|||||||
Provision
for deferred income tax
|
365
|
(473
|
)
|
916
|
||||||
Provision
for non-cash stock compensation
|
488
|
-
|
-
|
|||||||
Changes
in assets and liabilities:
|
||||||||||
Accounts
receivable
|
(13,096
|
)
|
(4,192
|
)
|
(16,391
|
)
|
||||
Inventories
|
8,667
|
(12,261
|
)
|
(9,669
|
)
|
|||||
Prepaids
and other current assets
|
152
|
9
|
(148
|
)
|
||||||
Other
assets
|
(380
|
)
|
8
|
66
|
||||||
Accounts
payable
|
(1,941
|
)
|
(888
|
)
|
5,380
|
|||||
Accrued
compensation and other liabilities
|
(2,288
|
)
|
(91
|
)
|
1,976
|
|||||
Cash
provided by operating activities
|
16,651
|
5,196
|
3,866
|
|||||||
Cash
Flows from Investing Activities:
|
||||||||||
Property,
plant and equipment additions
|
(7,278
|
)
|
(7,220
|
)
|
(12,801
|
)
|
||||
Purchase
of short-term investments
|
-
|
-
|
(4,821
|
)
|
||||||
Proceeds
from maturities of short-term investments
|
-
|
-
|
14,726
|
|||||||
Business
acquisition, net of cash acquired
|
-
|
(1,680
|
)
|
-
|
||||||
Cash
used in investing activities
|
(7,278
|
)
|
(8,900
|
)
|
(2,896
|
)
|
||||
Cash
Flows from Financing Activities:
|
||||||||||
Repayment
of long-term debt obligations
|
(8,592
|
)
|
(9,071
|
)
|
(9,071
|
)
|
||||
Proceeds
from promissory note
|
625
|
-
|
-
|
|||||||
Net
proceeds from revolving credit facility
|
1,400
|
10,100
|
-
|
|||||||
Proceeds
from exercise of stock options
|
159
|
93
|
76
|
|||||||
Purchase
and cancellation of common stock
|
(829
|
)
|
(1,626
|
)
|
-
|
|||||
Cash
used in financing activities
|
(7,237
|
)
|
(504
|
)
|
(
8,995
|
)
|
||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
2,136
|
(4,208
|
)
|
(8,025
|
)
|
|||||
Cash
and Cash Equivalents, Beginning of Year
|
2,944
|
7,152
|
15,177
|
|||||||
Cash
and Cash Equivalents, End of Year
|
$
|
5,080
|
$
|
2,944
|
$
|
7,152
|
||||
Supplemental
Cash Flow Information
|
||||||||||
Cash
paid for interest expense
|
$
|
2,287
|
$
|
2,569
|
$
|
2,994
|
||||
Cash
paid for income taxes
|
$
|
10,558
|
$
|
9,246
|
$
|
8,418
|
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
30, 2006
1.
Summary of Significant Accounting Policies
Dorman
Products, Inc. ("Dorman", the "Company", “we”, “us”, or “our”) is a leading
supplier of OE Dealer "Exclusive" automotive replacement parts, automotive
hardware, brake products and household hardware to the Automotive Aftermarket
and Mass Merchandise markets. Dorman automotive parts and hardware are marketed
under the OE Solutions™, HELP!®,
AutoGrade™, First Stop™, Conduct-Tite®,
and
Pik-A- Nut®
brand
names.
We
operate on a fifty-two, fifty-three week period ending on the last Saturday
of
the calendar year. The fiscal years ended December 30, 2006, December 31,
2005,
and December 25, 2004 are fifty-two, fifty-three, and fifty-two weeks,
respectively.
Certain
prior year amounts have been reclassified to conform with current year
presentation.
Principles
of Consolidation. The consolidated financial statements include our accounts
and
the accounts of our wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Use
of
Estimates in the Preparation of Financial Statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and
Cash Equivalents. We consider all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Sales
of
Accounts Receivable. We have entered into several customer sponsored programs
administered by unrelated financial institutions that permit us to sell,
without
recourse, certain accounts receivable at discounted rates to the financial
institutions. We do not retain any servicing requirements for these accounts
receivable. Transactions under these agreements are accounted for as sales
of
accounts receivable following the provisions of Statement of Financial
Accounting Standards (SFAS) No. 140, AAccounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a Replacement of FASB Statement 125.@
At
December 30, 2006 and December 31, 2005, approximately $18.5 million and
$23.2
million of accounts receivable were sold and removed from the consolidated
balance sheets, respectively, based upon standard payment terms. Selling,
general and administrative expenses include $1.7 million, $1.2 million, and
$0.3
million in 2006, 2005 and 2004, respectively, in financing costs associated
with
these accounts receivable sales programs.
Inventories.
Inventories are stated at the lower of average cost or market. We provide
reserves for discontinued and excess inventory based upon historical demand,
forecasted usage, estimated customer requirements and product line updates.
Property
and Depreciation. Property, plant and equipment are recorded at cost and
depreciated over their estimated useful lives, which range from three to
thirty-nine years, using the straight-line method for financial statement
reporting purposes and accelerated methods for income tax purposes.
Estimated
useful lives by major asset category areas follows:
Buildings
|
3
to 39 years
|
Machinery,
equipment and tooling
|
3
to 10 years
|
Furniture,
fixtures and leasehold improvements
|
3
to 15 years
|
The
costs
of maintenance and repairs are expensed as incurred. Renewals and betterments
are capitalized. Gains and losses on disposals are included in operating
results.
Long-lived
assets, such as property, plant and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of
an asset may not be recoverable. Recoverability of assets to be held and
used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If
the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount
of
the asset exceeds the fair value of the asset. Assets to be disposed of would
be
separately presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposal group classified as held for sale
would
be presented separately in the appropriate asset and liability sections of
the
balance sheet. We did not record any asset impairment charges in fiscal 2006,
2005, or 2004.
Goodwill.
We follow the provisions of SFAS No. 142, "Goodwill
and Other Intangible Assets". We employ a discounted cash flow analysis and
a
market comparable approach in conducting our impairment tests. Cash flows
were
discounted at 12% and an earnings multiple of 5.6 to 5.85 times EBITDA was
used
when conducting these tests.
During
the second quarter of fiscal year 2006, we assessed the value of the goodwill
recorded at its Swedish subsidiary, Scan-Tech Sweden AB (Scan-Tech) as a
result
of a review of the Scan-Tech business in response to bad debt charge offs
at two
large customers and the resulting loss of those customers in the first half
of
the year. After completing the required analyses, we concluded that the goodwill
balance existing at the subsidiary was impaired. Accordingly, an impairment
charge of approximately $2.9 million, which represents the entire goodwill
balance at the subsidiary, was recorded in the consolidated statements of
operations. In addition, we recorded a $0.3 million charge to its provision
for
income taxes to write off deferred tax assets of the subsidiary which it
deemed
unrealizable. We have completed the impairment tests for the remaining goodwill
during the fourth quarter, which did not result in an impairment charge.
Other
Assets. Other assets consist of deposits; costs incurred for the preparation
and
printing of product catalogs, which are capitalized and amortized upon
distribution; and deferred financing costs, which are capitalized and amortized
over the term of the related financing agreement.
Research
and Development. Research and development costs are expensed as incurred.
Research and development costs totaling $2.2 million in 2006, $1.9 million
in
2005 and $1.5 million in 2004 have been recorded in selling, general and
administrative expenses.
Foreign
Currency Translation. Assets and liabilities of our foreign subsidiaries
are
translated into U.S. dollars at the rate of exchange prevailing at the end
of
the year. Income statement accounts are translated at the average exchange
rate
prevailing during the year. Translation adjustments resulting from this process
are recorded directly in shareholders' equity.
Concentrations
of Credit Risk. Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable. All cash equivalents are managed within established guidelines
which
limit the amount which may be invested with one issuer. A significant percentage
of our accounts receivable have been, and will continue to be, concentrated
among a relatively small number of automotive retailers and warehouse
distributors in the United States. Our five largest customers accounted for
73%
and 77% of net accounts receivable as of December 30, 2006 and December 31,
2005, respectively. We continually monitor the credit terms and credit limits
to
these and other customers.
Fair
Value Disclosures. The carrying value of financial instruments such as cash,
accounts receivable, accounts payable, and other current assets and liabilities
approximate their fair value based on the short-term nature of these
instruments. Based on borrowing rates currently available to us for loans
with
similar terms and average maturities, the fair value of total long-term debt
was
$29.7 million and $36.6 million at December 30, 2006 and December 31, 2005,
respectively.
Income
Taxes. We follow the liability method of accounting for deferred income taxes.
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the tax rate expected to be in effect when taxes are actually paid
or
recovered.
Stock
Dividend. All prior period common stock and applicable share and per share
amounts have been retroactively adjusted to reflect a two-for-one split of
our
Common Stock effective March 28, 2005.
Revenue
Recognition. Revenue is recognized from product sales when goods are shipped,
title and risk of loss have been transferred to the customer and collection
is
reasonably assured. We record estimates for cash discounts, product returns
and
warranties, discounts and promotional rebates in the period of the sale
("Customer Credits"). The provision for Customer Credits is recorded as a
reduction from gross sales and reserves for Customer Credits are shown as
a
reduction of accounts receivable. Amounts billed to customers for shipping
and
handling are included in net sales. Costs associated with shipping and handling
are included in cost of goods sold. Actual Customer Credits have not differed
materially from estimated amounts for each period presented.
Earnings
Per Share. The following table sets forth the computation of basic earnings
per
share and diluted earnings per share for the three years ended December 30,
2006:
2006
|
2005
|
2004
|
||||||||
Numerator:
|
(in
thousands, except per share data)
|
|||||||||
Net
income
|
$
|
13,799
|
$
|
17,077
|
$
|
17,081
|
||||
Denominator:
|
||||||||||
Weighted
average shares outstanding used in basic earnings per share
calculation
|
17,722
|
17,914
|
17,690
|
|||||||
Effect
of dilutive stock options
|
417
|
523
|
678
|
|||||||
Adjusted
weighted average shares outstanding diluted earnings per
share
|
18,139
|
18,437
|
18,368
|
|||||||
Basic
earnings per share
|
$
|
0.78
|
$
|
0.95
|
$
|
0.97
|
||||
Diluted
earnings per share
|
$
|
0.76
|
$
|
0.93
|
$
|
0.93
|
Options
to purchase 163,500 and 103,500 shares were outstanding at December 30, 2006
and
December 31, 2005, respectively, but were not included in the computation
of
diluted earnings per share, as their effect would have been antidilutive.
No
outstanding options at December 25, 2004 were excluded from the computation
of
diluted earnings per share.
Stock-Based
Compensation. At December 30, 2006, we had one stock-based employee compensation
plan, which is described more fully in Note 11. Effective January 1, 2006,
we
adopted SFAS No. 123 (R) “Share-Based Payment” and related interpretations using
the modified prospective transition method, and therefore, have not restated
prior periods. Under the modified prospective method, we are required to
record
equity-based compensation expense for all awards granted after the date of
adoption and for the unvested portion of previously granted awards outstanding
as of the date of adoption. The fair values of all stock options granted
by the
Company are determined using the Black-Scholes model.
Product
Warranties. We warrant our products against certain defects in material and
workmanship when used as designed on the vehicle on which it was originally
installed. We offer a one year, two year, or limited lifetime warranty depending
on the product type. All warranties limit the customer’s remedy to the repair or
replacement of the part that is defective. We record estimates for product
warranty costs in the period of sale. Estimated warranty costs are based
upon
actual experience and forecasts using the best historical and current claim
information available. Warranty expense for fiscal 2006, 2005 and 2004 was
$ 0.4
million, $0.2 million and $0.1 million, respectively.
2.
Inventories
Inventories
include the cost of material, freight, direct labor and overhead utilized
in the
processing of our products. Inventories were as follows:
(in
thousands)
|
December
30, 2006
|
December
31, 2005
|
|||||
Bulk
product
|
$
|
27,555
|
$
|
30,548
|
|||
Finished
product
|
37,407
|
42,317
|
|||||
Packaging
materials
|
2,806
|
2,670
|
|||||
Total
|
$
|
67,768
|
$
|
75,535
|
Included
in finished product is $1.0 million and $2.0 million in inventory held on
consignment as of December 30, 2006 and December 31, 2005,
respectively.
3.
Property, Plant and Equipment
Property,
plant and equipment consists of the following:
(in
thousands)
|
December
30, 2006
|
December
31, 2005
|
|||||
Property
under capitalized leases
|
$
|
2,302
|
$
|
2,302
|
|||
Buildings
|
11,159
|
11,165
|
|||||
Machinery,
equipment and tooling
|
31,494
|
28,279
|
|||||
Furniture,
fixtures and leasehold improvements
|
3,969
|
3,626
|
|||||
Computer
and other equipment
|
27,408
|
27,195
|
|||||
Total
|
76,332
|
72,567
|
|||||
Less-accumulated
depreciation
|
(48,369
|
)
|
(45,094
|
)
|
|||
Property,
plant and equipment, net
|
$
|
27,963
|
$
|
27,473
|
4.
Goodwill
In
June
2005, we acquired The Automotive Edge/Hermoff (Hermoff) for approximately
$1.7
million. The consolidated results include Hermoff since June 1, 2005. The
Company has not presented pro forma results of operations for the years ended
December 31, 2005 and December 25, 2004, assuming the acquisition had occurred
at the beginning of the respective periods, as these results would not have
been
materially different than actual results for the periods.
Goodwill
activity during the year ended December 30, 2006 is as follows: (in
thousands)
Balance,
December 31, 2005
|
$
|
29,617
|
||
Goodwill
impairment
|
(2,897
|
)
|
||
Acquisition
adjustments
|
125
|
|||
Translation
|
113
|
|||
Balance,
December 30, 2006
|
$
|
26,958
|
5.
Long-Term Debt
Long-term
debt consists of the following:
(in
thousands)
|
December
30, 2006
|
December
31, 2005
|
|||||
Senior
notes
|
$
|
17,143
|
$
|
25,714
|
|||
Bank
credit facility
|
11,500
|
10,100
|
|||||
Promissory
note
|
604
|
-
|
|||||
Total
|
29,247
|
35,814
|
|||||
Less:
Current portion
|
(8,651
|
)
|
(8,571
|
)
|
|||
Total
long-term debt
|
$
|
20,596
|
$
|
27,243
|
Senior
Notes. The Senior Notes bear a 6.81% fixed interest rate, payable quarterly.
Annual principal repayments at the rate of $8.6 million are due each August
through 2008. Terms of the Note Purchase Agreement require, among other things,
that we maintain certain financial covenants relating to debt to capital
ratios
and minimum net worth.
Bank
Credit Facility. In July 2006, we amended our existing Revolving Credit
Facility. The amendment increased the size of the total credit facility from
$20
million to $30 million and extended the expiration date from June 2007 to
June
2008. Borrowings under the facility are on an unsecured basis with interest
at
rates ranging from LIBOR plus 65 basis points to LIBOR plus 150 basis points
based upon the achievement of certain benchmarks related to the ratio of
funded
debt to EBITDA. The interest rate at December 30, 2006 was LIBOR plus 85
basis
points (6.17%). The loan agreement also contains covenants, the most restrictive
of which pertain to net worth and the ratio of debt to EBITDA.
The
average amount outstanding under the Revolving Credit Facility was $9.1 million
and 5.6 million during 2006 and 2005, respectively. The maximum amount
outstanding in 2006 and 2005 was $17.8 million and $13.7 million,
respectively.
Promissory
Note. In September 2006, we borrowed $625,000 under a commercial loan agreement
in connection with the opening of a new distribution facility. The principal
balance is paid in monthly installments through September 2013. The outstanding
balance bears interest at an annual rate of 4% payable monthly. The loan
is
secured by a letter of credit issued under our Revolving Credit
Facility.
We
are in
compliance with all financial covenants contained in the Senior Notes and
Revolving Credit Facility.
Aggregate
annual principal payments applicable to long-term debt obligations as of
December 30, 2006 are as follows:
(in
thousands)
|
||||
2007
|
$
|
8,651
|
||
2008
|
20,154
|
|||
2009
|
86
|
|||
2010
|
90
|
|||
Thereafter
|
266
|
|||
Total
|
$
|
29,247
|
6.
Operating Lease Commitments and Rent Expense
We
lease
certain equipment, automobiles and operating facilities, including our primary
operating facility which is leased from a partnership described in Note 7,
under
noncancelable operating leases. Approximate future minimum rental payments
under
these leases are summarized as follows:
(in
thousands)
|
||||
2007
|
$
|
3,088
|
||
2008
|
1,274
|
|||
2009
|
1,267
|
|||
2010
|
801
|
|||
2011
|
614
|
|||
Thereafter
|
2,502
|
|||
Total
|
$
|
9,546
|
Rent
expense was $4.3 million in 2006, $3.1 million in 2005, and $2.9 million
in
2004.
7.
Related Party Transactions
We
have a
noncancelable operating lease for our primary operating facility from a
partnership in which our Chief Executive Officer and Executive Vice President
are partners. Total rental payments each year to the partnership under the
lease
arrangement were $1.3 million in 2006 and 2005, and $1.2 million in 2004.
The
lease is due to expire on December 31, 2007. We are currently pursuing renewal
of the lease agreement.
8.
Income Taxes
The
components of the income tax provision (benefit) are as follows:
(in
thousands)
|
2006
|
2005
|
2004
|
|||||||
Current:
|
||||||||||
Federal
|
$
|
9,118
|
$
|
9,327
|
$
|
7,621
|
||||
State
|
1,015
|
893
|
517
|
|||||||
Foreign
|
206
|
337
|
650
|
|||||||
10,339
|
10,557
|
8,788
|
||||||||
Deferred:
|
||||||||||
Federal
|
285
|
(354
|
)
|
857
|
||||||
State
|
(84
|
)
|
(34
|
)
|
59
|
|||||
Foreign
|
164
|
(85
|
)
|
-
|
||||||
365
|
(473
|
)
|
916
|
|||||||
Total
|
$
|
10,704
|
$
|
10,084
|
$
|
9,704
|
The
following is a reconciliation of income taxes at the statutory tax rate to
the
Company's effective tax rate:
2006
|
2005
|
2004
|
||||||||
Federal
taxes at statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||
State
taxes, net of Federal tax benefit
|
2.5
|
%
|
2.1
|
%
|
1.4
|
%
|
||||
Goodwill
impairment
|
4.1
|
%
|
-
|
-
|
||||||
Deferred
tax write-off
|
1.3
|
%
|
-
|
-
|
||||||
Stock-based
compensation
|
0.5
|
%
|
-
|
-
|
||||||
Other
|
0.3
|
%
|
-
|
(0.2
|
%)
|
|||||
Effective
tax rate
|
43.7
|
%
|
37.1
|
%
|
36.2
|
%
|
Deferred
income taxes result from timing differences in the recognition of revenue
and
expense for tax and financial statement purposes. The sources of temporary
differences are as follows:
(in
thousands)
|
December
30,
2006
|
December
31,
2005
|
|||||
Assets:
|
|||||||
Inventories
|
$
|
4,593
|
$
|
3,985
|
|||
Accounts
receivable
|
4,203
|
3,476
|
|||||
Accrued
expenses and other
|
1,401
|
2,082
|
|||||
Gross
deferred tax assets
|
10,197
|
9,543
|
|||||
Liabilities:
|
|||||||
Depreciation
|
1,141
|
1,381
|
|||||
Goodwill
|
7,041
|
5,797
|
|||||
Gross
deferred tax liabilities
|
8,182
|
7,178
|
|||||
Net
deferred tax assets
|
$
|
2,015
|
$
|
2,365
|
Based
on
our history of taxable income and our projection of future earnings, we believe
that it is more likely than not that sufficient taxable income will be generated
in the foreseeable future to realize the net deferred tax assets.
As
of
December 30, 2006, we have not provided taxes on unremitted foreign earnings
from our foreign affiliate of approximately $10 million that are intended
to be
indefinitely reinvested in operations and expansion outside the United States.
An estimated $1.3 million in U.S. income and foreign withholding taxes
would be due if the earnings were remitted as dividends.
9.
Business Segments
In
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and
Related Information," we have determined that our business comprises a single
reportable operating segment, namely, the sale of replacement parts for the
automotive aftermarket.
During
2006, three customers each accounted for more than 10% of net sales and in
the
aggregate accounted for 40% of net sales. During 2005 and 2004, two customers
each accounted for more than 10% of net sales and in the aggregate accounted
for
31% and 34% of net sales, respectively. Net sales to countries outside the
US,
primarily to Europe and Canada in 2006, 2005 and 2004 were $25.6 million,
$22.8
million and $23.1 million, respectively.
10.
Commitments and Contingencies
ShareholderAgreement.
A shareholder agreement was entered into in September 1990 and amended and
restated on July 1, 2006. Under the agreement, each of Richard Berman, Steven
Berman, Jordan Berman, Marc Berman and Fred Berman has granted the others
of
them rights of first refusal, exercisable on a pro rata basis or in such
other
proportions as the exercising shareholders may agree, to purchase shares
of our
common stock which any of them, or upon their deaths their respective estates,
proposes to sell to third parties. We have agreed with these shareholders
that,
upon their deaths, to the extent that any of their shares are not purchased
by
any of these surviving shareholders and may not be sold without registration
under the Securities Exchange Act of 1933, as amended (the "1933 Act"), we
will
use our best efforts to cause those shares to be registered under the 1933
Act.
The expenses of any such registration will be borne by the estate of the
deceased shareholder.
Legal
Proceedings. We are party to certain legal proceedings and claims arising
in the
normal course of business. We believe that the disposition of these matters
will
not have a material adverse effect on our consolidated financial position
or
results of operations.
11.
Capital Stock
Stock
Dividend. On February 24, 2005, our Board of Directors approved a two-for-one
split of our common stock, payable in the form of a stock dividend of one
share
for each share held. The Board set March 15, 2005 as the record date for
the
determination of the shareholders entitled to receive the additional shares.
The
shares were distributed to the shareholders of record on March 28, 2005.
All
earnings per share and common stock information is presented as if the stock
split occurred prior to the earliest year included in these consolidated
financial statements.
Purchase
and cancellation of common stock. We periodically repurchase and cancel common
stock issued to our defined contribution profit sharing and 401(k) plan.
During
2006 and 2005, our board of directors approved the cancellation of 79,053
and
190,009 shares of common stock, respectively.
Undesignated
Stock. We have 75,000,000 shares authorized of undesignated capital stock
for
future issuance. The designation, rights and preferences of such shares will
be
determined by our Board of Directors.
Control
by Officers, Directors and Family Members. As of March 1, 2007, Richard N.
Berman and Steven L. Berman, who are officers and directors of the Company,
their father and their brothers beneficially own 42% of the outstanding our
Common Stock and are able to elect our Board of Directors, determine the
outcome
of most corporate actions requiring shareholder approval and control our
policies.
Incentive
Stock Option Plan. Effective on May 18, 2000, we amended and restated our
Incentive Stock Option Plan (the "Plan"). Under the terms of the Plan, our
Board
of Directors may grant incentive stock options and non-qualified stock options
or combinations thereof to purchase up to 2,345,000 shares of common stock
to
officers, directors and employees. Grants under the Plan must be made within
10
years of the plan amendment date and are exercisable at the discretion of
the
Board of Directors but in no event more than 10 years from the date of grant.
At
December 30, 2006, options to acquire 275,760 shares were available for grant
under the Plan.
Effective
January 1, 2006, the Company adopted SFAS No. 123(R) and related interpretations
and began expensing the grant-date fair value of employee stock options.
Prior
to January 1, 2006, the Company applied Accounting Principles Board Option
No.
25, “Accounting for Stock Issued to Employees,” and related interpretations in
accounting for the Plan. Accordingly, no compensation expense was recognized
in
net income for employee stock options for those options granted which had
an
exercise price equal to the market value of the underlying common stock on
the
date of grant.
The
Company adopted SFAS No. 123(R) using the modified prospective transition
method
and therefore has not restated prior periods. Under this transition method,
compensation cost associated with employee stock options recognized in 2006
includes amortization related to the remaining unvested portion of stock
option
awards granted prior to January 1, 2006, and amortization related to new
awards
granted after January 1, 2006. Prior to the adoption of SFAS No. 123(R),
the
Company presented tax benefits resulting from stock-based compensation as
operating cash flows in the consolidated statements of cash flows. SFAS No.
123(R) requires that cash flows resulting from tax deductions in excess of
compensation cost recognized in the financial statements be classified as
financing cash flows.
Compensation
cost is recognized on a straight-line basis over the vesting period during
which
employees perform related services. The compensation cost charged against
income
for the year ended December 30, 2006 was $488,000 before taxes. The compensation
cost recognized is classified as selling, general and administrative expense
in
the consolidated statement of operations. No cost was capitalized during
fiscal
2006. The Company included a forfeiture assumption of 2.6% in the calculation
of
expense.
The
fair
value of options granted in 2006 was estimated using the Black-Scholes option
valuation model that used the weighted average assumptions noted in the table
below. Expected volatility and expected dividend yield are based on the actual
historical experience of the Company’s common stock. The expected life
represents the period of time that options granted are expected to be
outstanding and was calculated using the simplified method prescribed by
the
Securities and Exchange Commission Staff Accounting Bulletin No. 107. The
risk-free rate is based on the U.S. Treasury security with terms equal to
the
expected time of exercise as of the grant date.
Expected
dividend yield
|
0%
|
Expected
stock price volatility
|
45%
|
Risk
-free interest rate
|
4.5%
|
Expected
life of options
|
6.5
years
|
The
weighted-average grant-date fair value of options granted during 2006 was
$4.95
per option.
Transactions
under the Plan for the three years ended December 30, 2006 were as
follows:
Shares
|
Option
Price per share
|
Weighted
Average Price
|
Weighted
Average Remaining Term (years)
|
Aggregate
Intrinsic Value
|
||||||||||||
Balance
at December 27, 2003
|
1,297,292
|
$
|
0.50
- 7.14
|
$
|
2.48
|
|||||||||||
Granted
|
120,000
|
8.01
- 9.73
|
8.23
|
|||||||||||||
Exercised
|
(386,692
|
)
|
0.50
- 5.08
|
1.39
|
||||||||||||
Cancelled
|
(108,000
|
)
|
5.08
|
5.08
|
||||||||||||
Balance
at December 25, 2004
|
922,600
|
0.50
- 9.73
|
3.39
|
|||||||||||||
Granted
|
153,500
|
11.10
- 12.48
|
12.03
|
|||||||||||||
Exercised
|
(71,884
|
)
|
0.50
- 7.14
|
2.14
|
||||||||||||
Cancelled
|
(9,000
|
)
|
0.50
- 6.36
|
4.41
|
||||||||||||
Balance
at December 31, 2005
|
995,216
|
0.50
- 12.48
|
4.80
|
|||||||||||||
Granted
|
45,000
|
9.15
- 10.10
|
9.68
|
|||||||||||||
Exercised
|
(35,066
|
)
|
0.50
- 9.73
|
3.83
|
||||||||||||
Cancelled
|
(23,200
|
)
|
0.94
- 9.73
|
8.94
|
||||||||||||
Balance
at December 30, 2006
|
981,950
|
$
|
0.50
- 12.48
|
$
|
4.96
|
5.8
|
$
|
5,764,000
|
||||||||
Options
exercisable at December 30, 2006
|
626,350
|
$
|
0.50
- 12.48
|
$
|
2.61
|
4.8
|
$
|
5,149,000
|
The
total
intrinsic value of stock options exercised during 2006 was
$231,000.
As
of
December 30, 2006, there was approximately $1.2 million of unrecognized
compensation cost related to non-vested stock options, which is expected
to be
recognized over a weighted-average period of approximately 2.9
years.
Cash
received from option exercises during 2006 was $134,000. The total tax benefit
generated from options which were exercised during 2006 was approximately
$26,000 and was credited to additional paid in capital.
The
following table summarizes information concerning currently outstanding and
exercisable options at December 30, 2006:
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Range
of Exercise Price
|
Number
Outstanding
|
Weighted-Average
Remaining Contractual Life (years)
|
Weighted-Average
Exercise Price
|
Number
Exercisable
|
Weighted-Average
Exercise Price
|
|||||||||||
$0.50
- $1.50
|
456,500
|
4.1
|
$
|
1.24
|
456,500
|
$
|
1.24
|
|||||||||
$2.85
- $4.00
|
64,000
|
5.4
|
$
|
3.93
|
46,800
|
$
|
3.90
|
|||||||||
$5.08
- $7.14
|
172,950
|
6.7
|
$
|
6.13
|
102,350
|
$
|
6.13
|
|||||||||
$8.01
- $9.73
|
135,000
|
8.5
|
$
|
7.77
|
-
|
-
|
||||||||||
$11.10
- $12.48
|
153,500
|
8.2
|
$
|
12.03
|
20,700
|
$
|
12.48
|
|||||||||
981,950
|
$
|
4.96
|
626,350
|
$
|
2.61
|
Prior
to
January 1, 2006. We applied Accounting Principles Board Opinion No. 25 (APB
No.
25), "Accounting for Stock Issued to Employees", and related interpretations
in
accounting for the plan. Under APB No. 25, compensation expense is based
on the
difference, if any, on the date of the grant between the fair value of our
stock
and the exercise price of the option. The following table illustrates the
effect
on net income and earnings per share if the Company had applied the fair
value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation.
(in
thousands, except per share data)
|
2005
|
2004
|
|||||
Net
income:
|
|||||||
Net
income, as reported
|
$
|
17,077
|
$
|
17,081
|
|||
Less:
Stock-based employee compensation expense, net of related tax effects,
determined under fair value fair value method for all
awards
|
(281
|
)
|
(148
|
)
|
|||
Net
income, pro forma
|
$
|
16,796
|
$
|
16,933
|
|||
Earnings
per share:
|
|||||||
Basic
- as reported
|
$
|
0.95
|
$
|
0.97
|
|||
Basic
- pro forma
|
$
|
0.94
|
$
|
0.96
|
|||
Diluted
- as reported
|
$
|
0.93
|
$
|
0.93
|
|||
Diluted
- pro forma
|
$
|
0.91
|
$
|
0.92
|
The
weighted average fair value of options granted in 2005 and 2004 was $6.54
and
$4.67, respectively. The fair value of each option grant was estimated on
the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
2005
|
2004
|
||
Expected
dividend yield
|
0%
|
0%
|
|
Expected
stock price volatility
|
46%
|
51%
|
|
|
|||
Risk-free
interest rate
|
3.9%
|
3.6%
|
|
|
|||
Expected
life of option
|
7.5
years
|
7.5
years
|
Employee
Stock Purchase Plan. In March 1992, our Board of Directors adopted the Employee
Stock Purchase Plan which was subsequently approved by the shareholders.
The
Plan permits the granting of options to purchase up to 600,000 shares of
common
stock by our employees. In any given year, employees may purchase up to 4%
of
their annual compensation, with the option price set at 85% of the fair market
value of the stock on the date of exercise. All options granted during any
year
expire on the last day of the fiscal year. During 2006, optionees had exercised
rights to purchase 952 shares at prices from $8.63 to $9.38 per share for
total
net proceeds of $8,000.
401(k)
Retirement Plan. We maintain a defined contribution profit sharing and 401(k)
plan covering substantially all of our employees as of December 30, 2006.
Annual
contributions under the plan are determined by our Board of Directors.
Consolidated expense related to the plan was $1,095,000, $665,000, and $865,000
in fiscal 2006, 2005 and 2004, respectively.
12.
Accounting Pronouncements
In
September 2006, the SEC Office of the Chief Accountant and divisions of
Corporation Finance and Investment Management released SAB No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements,” that provides interpretive guidance on how
the effects of the carryover or reversal of prior year misstatements should
be
considered in quantifying a current year misstatement. The SEC staff believes
that registrants should quantify errors using both a balance sheet and an
income
statement approach and evaluate whether either approach results in quantifying
a
misstatement that, when all relevant quantitative and qualitative factors
are
considered, is material. This pronouncement is effective for fiscal year
2006.
This pronouncement had no effect on our Consolidated Financial
Statements.
In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No.
157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements
that
require or permit fair value measurements. Accordingly, SFAS No. 157 does
not
require any new fair value measurements. The provisions of SFAS No. 157 are
to
be applied prospectively and are effective for financial statements issued
for
fiscal years beginning after November 15, 2007. We are currently evaluating
what
effect, if any, adoption of SFAS No. 157 will have on the Company’s consolidated
results of operations and financial position.
In
June
2006, FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109, Accounting for Income Taxes”, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits
of
the position. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure. The
provisions of FIN 48 are effective beginning January 1, 2007 with the
cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. We have performed a preliminary
assessment of the impact of adopting FIN 48, and do not believe that adoption
of
this pronouncement will have a material impact on the Company’s consolidated
financial condition or results of operations.
Supplementary
Financial Information
Quarterly
Results of Operations (Unaudited):
The
following is a summary of the unaudited quarterly results of operations for
the
fiscal years ended December 30, 2006 and December 31, 2005:
(in
thousands, except per share amounts)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||
2006
|
|||||||||||||
Net
sales
|
$
|
68,865
|
$
|
74,187
|
$
|
74,891
|
$
|
77,882
|
|||||
Income
from operations
|
6,030
|
4,457
|
7,807
|
8,476
|
|||||||||
Net
income
|
3,420
|
916
|
4,549
|
4,914
|
|||||||||
Diluted
earnings per share
|
0.19
|
0.05
|
0.25
|
0.27
|
|
2005
|
||||||||||||
Net
sales
|
$
|
61,231
|
$
|
68,611
|
$
|
73,783
|
$
|
74,492
|
|||||
Income
from operations
|
6,070
|
8,018
|
8,009
|
7,679
|
|||||||||
Net
income
|
3,454
|
4,628
|
4,613
|
4,382
|
|||||||||
Diluted
earnings per share
|
0.19
|
0.25
|
0.25
|
0.24
|
Item
9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item
9A.
Controls and Procedures.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Our
management, with the participation of our chief executive officer and chief
financial officer, conducted an evaluation, as of December 30, 2006, of the
effectiveness of our disclosure controls and procedures, as such term is
defined
in Exchange Act Rule 13a-15(e). Based on this evaluation, our chief executive
officer and our chief financial officer concluded that, as of the end of
the
period covered by this annual report, our disclosure controls and procedures
were effective in reaching a reasonable level of assurance that management
is
timely alerted to material information related to us during the period when
our
periodic reports are being prepared.
Management's
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule
13a-15(f). Our management, with the participation of our chief executive
officer
and chief financial officer, conducted an evaluation, as of December 30,
2006,
of the effectiveness of our internal control over financial reporting based
on
the framework in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation
under the framework in Internal Control - Integrated Framework, our management
concluded that, as of December 30, 2006, our internal control over financial
reporting was effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
Our
management's assessment of the effectiveness of our internal control over
financial reporting as of December 30, 2006 has been audited by KPMG LLP,
an
independent registered public accounting firm, as stated in their report
which
is included herein.
Changes
in Internal Control Over Financial Reporting
Our
management, with the participation of our chief executive officer and chief
financial officer, also conducted an evaluation of our internal control over
financial reporting, to determine whether any changes occurred during the
quarter ended December 30, 2006 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Based on that evaluation, there was no such change during the quarter ended
December 30, 2006.
Report
of
Independent Registered Public Accounting Firm
The
Board
of Directors
Dorman
Products, Inc.:
We
have
audited management's assessment, included in the accompanying Management's
Report on Internal Control Over Financial Reporting that Dorman Products,
Inc.
maintained effective internal control over financial reporting as of December
30, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Dorman Products, Inc.'s management is responsible for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed
to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's
internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of
the company; (2) provide reasonable assurance that transactions are recorded
as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's
assets
that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management's assessment that the Company maintained effective internal
control over financial reporting as of December 30, 2006, is fairly stated,
in
all material respects, based on criteria established in Internal Control
-
Integrated Framework issued by the Committee of Sponsoring Organizations
of the
Treadway Commission (COSO). Also, in our opinion, Dorman Products,, Inc.
maintained, in all material respects, effective internal control over financial
reporting as of December 30, 2006 based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Dorman
Products, Inc. and subsidiaries as of December 30, 2006 and December 31,
2005,
and the related consolidated statements of operations, shareholders' equity,
and
cash flows for each of the years in the three-year period ended December
30,
2006, and the related financial statement schedule, and our report dated
March
7, 2007 expressed an unqualified opinion on those consolidated financial
statements and the related financial statement schedule.
KPMG
LLP
Philadelphia,
Pennsylvania
March
7,
2007
PART
III
Item
10.
Directors and Executive Officers of the
Registrant.
The
required information is incorporated by reference from our definitive proxy
statement for our 2007 Annual Meeting of Shareholders to be filed with the
SEC
within 120 days of the Company's fiscal year ended December 30,
2006.
Information
concerning our executive officers who are not also directors is presented
in
Item 4.1, Part I of this Report on Form 10-K.
We
have
adopted a written code of ethics, "Our Values and Standards of Business
Conduct," which is applicable to all of our directors, officers and employees,
including our chief executive officer, chief financial officer, and principal
accounting officer and controller and other executive officers identified
pursuant to this Item 10 (collectively, the "Selected Officers"). In accordance
with the SEC's rules and regulations a copy of the code is posted on our
website
www.dormanproducts.com. We intend to disclose any changes in or waivers from
our
code of ethics applicable to any Selected Officer or director on our website
at
www.dormanproducts.com.
Item
11.
Executive Compensation.
The
required information is incorporated by reference from our definitive proxy
statement for our 2007 Annual Meeting of Shareholders to be filed with the
SEC
within 120 days of our fiscal year ended December 30, 2006.
Item
12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The
required information concerning is incorporated by reference from our definitive
proxy statement for its 2007 Annual Meeting of Shareholders to be filed with
the
SEC within 120 days of our fiscal year ended December 30, 2006.
The
following table details information regarding our existing equity compensation
plans as of December 30, 2006:
|
|
(c)
|
||||
Plan
Category
|
(a)
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
(b)
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
|
|||
Equity
compensation plans approved by security holders
|
981,950
|
$4.96
|
275,760
|
|||
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|||
Total
|
981,950
|
$4.96
|
275,760
|
Item
13. Certain Relationships and Related
Transactions.
The
required information is incorporated by reference from our definitive proxy
statement for our 2007 Annual Meeting of Shareholders to be filed with the
SEC
within 120 days of our fiscal year ended December 30, 2006.
Item
14. Principal Accountant Fees and
Services.
The
required information is incorporated by reference from our definitive proxy
statement for its 2007 Annual Meeting of Shareholders to be filed with the
SEC
within 120 days of our fiscal year ended December 30, 2006.
PART
IV
Item
15. Exhibits and Financial Statement
Schedules.
(a)(1)
Consolidated Financial Statements. Our consolidated financial statements
and
related documents are provided in Item 8, Part II, of this Report on Form
10-K.
Report
of
Independent Registered Public Accounting Firm
Consolidated
Statements of Operations for the years ended December 30, 2006, December
31,
2005, and December 25, 2004.
Consolidated
Balance Sheets as of December 30, 2006 and December 31, 2005.
Consolidated
Statements of Shareholders' Equity for the years ended December 30, 2006,
December 31, 2005, December 25, 2004.
Consolidated
Statements of Cash Flows for the years ended December 30, 2006, December
31,
2005, and December 25, 2004.
Notes
to
Consolidated Financial Statements
(a)(2)
Consolidated Financial Statement Schedules. The following consolidated financial
statement schedule of the Company and re-lated documents are filed with this
Report on Form 10-K:
Schedule
II - Valuation and Qualifying Accounts at Page 42
|
|
(a)(3)
Exhibits that are filed as a part of this Form 10-K and required by Item 601
of
Regulation S-K and Item 15(c) of this Form 10-K are listed below:
Item
601
Exhibit-Number
|
Title
|
3.1
(1)
|
Amended
and Restated Articles of Incorporation of the Company.
|
3.2
(11)
|
Amended
and Restated Bylaws of the Company.
|
4.1
(1)
|
Specimen
Common Stock Certificate of the Company.
|
4.2
|
Amended
and Restated Shareholders' Agreement dated July 1, 2006.
|
10.1
(1)
|
Lease,
dated December 1, 1990, between the Company and the Berman Real
Estate
Partnership, for premises located at 3400 East Walnut Street, Colmar,
Pennsylvania.
|
10.1.1
(3)
|
Amendment
to Lease, dated September 10, 1993, between the Company and the
Berman
Real Estate Partnership, for premises located at 3400 East Walnut
Street,
Colmar, Pennsylvania, amending 10.1.
|
10.1.2
(5)
|
Assignment
of Lease, dated February 24, 1997, between the Company, the Berman
Real
Estate Partnership and BREP I, for the premises located at 3400
East
Walnut Street, Colmar, Pennsylvania, assigning 10.1.
|
10.1.3
(8)
|
Amendment
to Lease, dated April 1, 2002, between the Company and the BREP
I, for
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
amending 10.1.
|
10.1.4
(9)
|
Third
Amended and Restated Credit Agreement dated as of July 24, 2006,
between
the Company and Wachovia Bank, N.A.
|
10.1.5
(10)
|
Commercial
Loan Agreement, dated September 27, 2006, between the Company and
the
Tennessee Valley Authority.
|
10.3
(6)†
|
Dorman
Products, Inc. Amended and Restated Incentive Stock
Plan.
|
10.4
(2)†
|
Dorman
Products, Inc. 401(k) Retirement Plan and Trust.
|
10.4.1
(7)†
|
Amendment
No. 1 to the Dorman Products, Inc. 401(k) Retirement Plan and
Trust.
|
10.5
(2) †
|
Dorman
Products, Inc. Employee Stock Purchase Plan.
|
14.1
(12)
|
Code
of Ethics
|
Subsidiaries
of the Company (filed with this report)
|
|
Consent
of Independent Registered Public Accounting Firm (filed with this
report)
|
|
Certification
of Chief Executive Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002 (filed with this report).
|
|
Certification
of Chief Financial Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002 (filed with this report).
|
|
|
|
Certification
of Chief Executive and Chief Financial Officer as required by Section
906
of the Sarbanes-Oxley Act of 2002 (filed with this
report).
|
†
Management
Contracts and Compensatory Plans, Contracts or Arrangements.
(1)
Incorporated by reference to the Exhibits filed with the Company's Registration
Statement on Form S-1 and Amendments No. 1, No. 2, and No. 3 thereto
(Registration No. 33-37264).
(2)
Incorporated by reference to the Exhibits filed with the Company’s Annual Report
on Form 10-K for the fiscal year ended December 26, 1992.
(3)
Incorporated by reference to the Exhibits filed with the Company's Registration
Statement on Form S-1 and Amendment No. 1 thereto (Registration No.
33-68740).
(4)
Incorporated by reference to the Exhibits filed with the Company's Annual
Report
on Form 10-K for the fiscal year ended December 25, 1993.
(5)
Incorporated by reference to the Exhibits filed with the Company's Annual
Report
on Form 10-K for the fiscal year ended December 28, 1996.
(6)
Incorporated by reference to the Exhibits filed with the Company's
Proxy
Statement for the fiscal year ended December 27, 1997.
(7)
Incorporated by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended June 25, 1994.
(8)
Incorporated by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended June 29, 2002.
(9)
Incorporated
by reference to the Exhibit filed with the Company's
Current
Report on Form 8-K dated
May 24,
2005.
(10)
Incorporated by reference to the Exhibit filed with the Company's
Current
Report on Form 8-K dated September 28, 2006.
(11)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated February 23, 2007.
(12)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated August 3, 2006.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned thereunto duly authorized.
Dorman
Products, Inc.
|
|||
By:
\s\ Richard N. Berman
|
|||
Date:
March 7, 2007
|
Richard
N. Berman, Chairman, President and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
Capacity
|
Date
|
||
|
||||
\s\
Richard N. Berman
|
||||
Richard
N. Berman
|
President,
Chief Executive
|
March
7, 2007
|
||
|
Officer,
and Chairman of the Board of Directors
|
|||
(principal
executive officer)
|
||||
\s\
Mathias J. Barton
|
||||
Mathias
J. Barton
|
Chief
Financial Officer
|
March
7, 2007
|
||
|
(principal
financial and accounting officer)
|
|||
\s\
Steven L. Berman
|
||||
Steven
L. Berman
|
Executive
Vice President,
|
March
7, 2007
|
||
|
Secretary-Treasurer,
Director
|
|||
\s\
George L. Bernstein
|
|
|||
George
L. Bernstein
|
Director
|
March
7, 2007
|
||
|
||||
\s\
John F. Creamer, Jr.
|
||||
John
F. Creamer, Jr.
|
Director
|
March
7, 2007
|
||
|
||||
\s\
Paul R. Lederer
|
||||
Paul
R. Lederer
|
Director
|
March
7, 2007
|
||
|
||||
\s\ Edgar W. Levin | ||||
Edgar
W. Levin
|
Director
|
March
7, 2007
|
SCHEDULE
II:
Valuation and Qualifying
Accounts
|
||||||||||
|
|
|||||||||
(in
thousands)
|
For
the Year Ended
|
|||||||||
|
December
30, 2006
|
December
31, 2005
|
December
25, 2004
|
|||||||
Allowance
for doubtful accounts:
|
|
|
||||||||
Balance,
beginning of period
|
$
|
1,114
|
$
|
1,106
|
$
|
1,191
|
||||
Provision
|
1,164
|
233
|
110
|
|||||||
Charge-offs
|
(222
|
)
|
(225
|
)
|
(
195
|
)
|
||||
Balance,
end of period
|
$
|
2,056
|
$
|
1,114
|
$
|
1,106
|
||||
Allowance
for customer credits:
|
||||||||||
Balance,
beginning of period
|
$
|
21,614
|
$
|
19,469
|
$
|
16,530
|
||||
Provision
|
53,201
|
42,633
|
40,375
|
|||||||
Charge-offs
|
(49,270
|
)
|
(40,488
|
)
|
(37,436
|
)
|
||||
Balance,
end of period
|
$
|
25,545
|
$
|
21,614
|
$
|
19,469
|
||||
Allowance
for excess and obsolete inventory:
|
||||||||||
Balance,
beginning of period
|
$
|
9,628
|
$
|
8,210
|
$
|
8,473
|
||||
Provision
|
3,908
|
3,828
|
1,993
|
|||||||
Charge-offs
|
(1,312
|
)
|
(2,410
|
)
|
(2,256
|
)
|
||||
Balance,
end of period
|
$
|
12,224
|
$
|
9,628
|
$
|
8,210
|
42