Dorman Products, Inc. - Annual Report: 2007 (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
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For the
fiscal year ended December 29, 2007
OR
o
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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.)
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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.
1
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and “smaller
reporting company in Rule 12b-2 of the Exchange Act:
Large
accelerated filer o
|
Accelerated
filer x
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)
Yes o No
x
As of
March 3, 2008 the registrant had 17,692,140 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 27, 2007 was
$142,701,083.
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 29, 2007, are incorporated by
reference into Part III of this Annual Report on Form 10-K
2
DORMAN
PRODUCTS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER
29, 2007
Part
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Part
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3
PART
I
Item 1.
Business.
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 92,000 different automotive replacement parts (including brake
parts), fasteners and service line products manufactured to our specifications.
Approximately 37% of our parts and 59% 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
$210.0 billion in 2007, and parts for heavy duty trucks, which accounted for
sales of approximately $76.0 billion in 2007. We currently market products
primarily for passenger 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 market 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.
We sell
over 92,000 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 balancers
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, battery hold-down bolts and repair kits,
valve train parts and power steering filler caps
|
|
DORMAN®
AutoGrade™
|
- 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!®
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-
Extensive selection of electrical connectors, wire, tools, testers, and
accessories.
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DORMAN® FirstStop™
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-
Value priced technician quality brake and clutch program containing more
than 8,500 SKU's.
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DORMAN®
Pik-A-Nut®
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- A
specialized and highly efficient line of home hardware and home
organization products specifically designed for retail
merchandisers.
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DORMAN®
Scan-Tech®
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-
Based in Stockholm, Sweden, DORMAN Scan-Tech sells a complete line of
Volvo and Saab 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 2007, 2006, and 2005, 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 existing 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 43% 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 34% 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 23%) 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’ representative 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 2,400 active accounts. During 2007 and 2006, three
customers (AutoZone, Advance and O’Reilly) each accounted for more than 10% of
net sales and in the aggregate accounted for 38% and 40% of net sales,
respectively. During 2005 two customers (AutoZone and Advance) each accounted
for more than 10% of net sales and in the aggregate accounted for 31% of net
sales.
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 2007, as a percentage of our total dollar volume of purchases,
approximately 27% 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.
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 service. 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 29, 2007, we had 1005 employees worldwide, of whom 993 were employed
full-time and 12 were employed part-time. Of these employees, 674 were engaged
in production, inventory, or quality control, 92 were involved in engineering,
product development and brand management, 85 were employed in sales and order
entry, and the remaining 154, including our 5 executive officers, were devoted
to administration, finance, legal, and strategic planning.
No
domestic employees are covered by any collective bargaining agreement.
Approximately 36 employees at 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.
Item 1A.
Risk Factors
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 2007 and 2006, three customers (AutoZone, Advance,
and O’Reilly) each accounted for more than 10% of net sales and in the aggregate
accounted for 38% and 40% of net sales, respectively. During 2005, two customers
(AutoZone and Advance) each accounted for more than 10% of net sales and in the
aggregate accounted for 31% of net sales. 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 71% and 73% of total accounts receivable as of December 29, 2007
and December 30, 2006, 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 2007, 73% 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 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 and Chief Executive
Officer and Steven L. Berman, President, Chief Operating Officer,
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 3, 2008, 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.
Product
Quality. We have experienced, and in the future may experience,
reliability, quality, or compatibility problems in products after their
production and sale to customers. Product quality problems could
result in damage to reputation, loss of customers, a decrease in revenue,
unexpected expenses, and a loss of market share. We have invested and will
continue to invest in our engineering, design, and quality infrastructure in an
effort to reduce and eventually eliminate these problems.
Item 1B.
Unresolved Staff Comments.
There are
no unresolved comments from the Commission staff regarding our periodic or
current reports under the Securities Act.
Item 2.
Properties.
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)(2)
|
|
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)
(3)
|
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, Chief Executive Officer of the Company, and
Steven L. Berman, President and Chief Operating Officer 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 $4.00 per square foot ($1.3 million per year) in 2007. 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 December, 2007, we executed a new five year lease for
the Colmar facility under substantially the same terms and conditions. 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
January, 2008, we executed an amended lease under which our landlord agreed to
expand the premises by adding 145,790 square feet of rental space and we agreed
to rent the premises, including the expanded premises, for a period of 10 years
beginning with our occupancy of the expanded premises.
(3) 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 $126,000 Canadian in 2007. The term of the lease
was for a period of 2 years beginning June 1, 2005 and ending May 31,
2007. In 2007 the lease term was extended for a period of one year
ending May 31, 2008. 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.
Item 3. Legal Proceedings.
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 2007.
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
|
48
|
Senior
Vice President, Chief Financial Officer
|
Joseph M. Beretta
|
53
|
Senior
Vice President, Product
|
Richard N. Berman
|
51
|
Chief
Executive Officer, Chairman of the Board of Directors, and
Director
|
Steven L. Berman
|
48
|
President,
Chief Operating Officer, Secretary-Treasurer, and
Director
|
Fred V. Frigo
|
51
|
Senior
Vice President, Operations
|
Thomas J. Knoblauch
|
52
|
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 re-manufacturer 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 inception in October 1978. He is a graduate of the University of
Pennsylvania. Effective October 25, 2007, Steven Berman assumed
the role of President of Dorman.
Steven L. Berman
is President, Chief Operating Officer, Secretary-Treasurer and a Director of the
Company. Since the inception of the Company in October 1978 until
October 25, 2007, Steven served as Executive Vice President. 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.
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 3, 2008 there were 148 holders of record of common
stock, representing more than 1,400 beneficial owners. The last price for our
common stock on March 3, 2008, as reported by NASDAQ, was $10.55 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 2007 and 2006 are as follows:
2007
|
2006
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
First
Quarter
|
$ | 12.95 | $ | 9.90 | $ | 11.36 | $ | 9.15 | ||||||||
Second
Quarter
|
14.75 | 11.36 | 11.78 | 9.90 | ||||||||||||
Third
Quarter
|
14.97 | 13.17 | 12.81 | 9.99 | ||||||||||||
Fourth
Quarter
|
15.00 | 12.20 | 10.83 | 9.95 |
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 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 for the period from December 28,
2002 to December 31, 2007. The Automotive Parts & Accessories Peer
Group is comprised of 38 public companies and the information was furnished by
Hemscott Inc. The graph assumes $100 invested on December 28, 2002 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.
COMPARISON OF 5 YEAR CUMLATIVE TOTAL
RETURN
AMONG DORMAN PRODUCTS,
INC.,
NASDAQ MARKET INDEX AND HEMSCOTT
GROUP INDEX
![Graph](https://www.sec.gov/Archives/edgar/data/0000868780/000114036108006048/graph.jpg)
ASSUMES $100 INVESTED ON DEC. 28, 2002
ASSUMES DIVIDEN REINVESTED
FISCAL YEAR ENDING DEC. 31, 2007
Stock
Repurchases
During
the last three months of fiscal year ended December 29, 2007, 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
|
||||||||||||
September
30, 2007 through October 27, 2007
|
9,826 | $ | 13.90 | - | - | |||||||||||
October
28, 2007 through November 24, 2007
|
3,841 | $ | 14.61 | - | - | |||||||||||
November
25, 2007 through December 29, 2007
|
- | - | - | - | ||||||||||||
Total
|
13,667 | $ | 14.10 | - | - |
(1) In February, 2008, our Board of
Directors authorized the repurchase of up to 500,000 shares of our outstanding
common stock. Under this program, share repurchases may be made from
time to time depending on market conditions, share price and availability and
other factors at our discretion. All of the shares indicated in the
above table were purchased from our 401(k) Plan prior to, and not as a part of,
the stock repurchase plan announced in February, 2008.. 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.
(in
thousands, except per share data)
|
2007(a)
|
2006
(b)
|
2005
|
2004
|
|
2003
|
||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||
Net
sales
|
$ | 327,725 | $ | 295,825 | $ | 278,117 | $ | 249,526 | $ | 222,083 | ||||||||||
Income
from operations
|
33,972 | 26,770 | 29,776 | 29,638 | 24,052 | |||||||||||||||
Net
income
|
19,193 | 13,799 | 17,077 | 17,081 | 13,304 | |||||||||||||||
Earnings
per share
|
||||||||||||||||||||
Basic
(c)
|
$ | 1.08 | $ | 0.78 | $ | 0.95 | $ | 0.97 | $ | 0.77 | ||||||||||
Diluted
(c)
|
$ | 1.06 | $ | 0.76 | $ | 0.93 | $ | 0.93 | $ | 0.73 | ||||||||||
Balance
Sheet Data:
|
||||||||||||||||||||
Total
assets
|
230,655 | 217,758 | 212,156 | 195,404 | 176,606 | |||||||||||||||
Working
capital
|
138,288 | 126,804 | 115,812 | 101,585 | 98,452 | |||||||||||||||
Long-term
debt
|
8,942 | 20,596 | 27,243 | 25,714 | 35,213 | |||||||||||||||
Shareholders'
equity
|
173,858 | 153,843 | 138,542 | 125,227 | 105,985 |
(a)
Results for 2007 include a $1.8 million reduction ($1.1 million after tax or
$0.06 per share) in our vacation liability as a result of a change in our
policy, a $0.4 million write down for goodwill impairment ($0.02 per share), and
establishment of a valuation reserve of deferred tax assets totaling $0.6
million ($0.03 per share).
(b)
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).
(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 92,000 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 three
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 29, 2007, December 30, 2006
and December 31, 2005 were fifty-two, fifty-two, and fifty-three weeks,
respectively.
Acquisitions
In
September 2007, we acquired certain assets of the Consumer Products Division of
Rockford Products Corporation (Consumer Division) for $3.4
million. The consolidated results for the period ended December 29,
2007 include the results of the Consumer Division effective September 10,
2007. We have not presented pro forma results of operations as these
results would not have been materially different than actual results for the
periods. In connection with the purchase, we recorded $1.1 million in
contract rights which are included in other assets, and are being amortized over
a 10 year period.
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 a pro forma result of operations for the year ended December 31,
2005, assuming the acquisition had occurred at the beginning of the fiscal year,
as this result would not have been materially different than actual results for
the period.
Change in
Vacation Policy
Effective
December 31, 2006, we changed our vacation policy so that vacation is earned
ratably throughout the year rather than at the end of the preceding
year. This change resulted in a reduction in our vacation accrual and
vacation expense of $1.8 million in 2007. Results for the year ended
December 29, 2007 include vacation expense reductions of $0.4 million in cost of
goods sold and $1.4 million in selling, general and administrative
expenses.
Asset
Write Downs and Valuation Allowances
During
the fourth quarter of 2007, we wrote down the value of the goodwill with respect
to our Canadian subsidiary (Hermoff) as a result of a strategic review of the
business. As a result we recorded an impairment charge of
approximately $0.4 million, which represented the remaining goodwill balance at
the subsidiary, in the consolidated statements of operations. In addition, we
recorded a $0.6 million charge to our provision for income taxes to provide a
valuation allowance for deferred tax assets of the subsidiary.
During
the second quarter of 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.
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. 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 each of the years ended December 29, 2007 and 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
29, 2007
|
December
30, 2006
|
December
31, 2005
|
||||||||
Net
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of goods sold
|
65.7
|
65.0
|
64.5
|
|||||||
Gross
profit
|
34.3
|
35.0
|
35.5
|
|||||||
Selling,
general and administrative expenses
|
23.8
|
25.0
|
24.8
|
|||||||
Goodwill
impairment
|
0.1
|
1.0
|
-
|
|||||||
Income
from operations
|
10.4
|
9.0
|
10.7
|
|||||||
Interest
expense, net
|
0.6
|
0.7
|
0.9
|
|||||||
Income
before taxes
|
9.8
|
8.3
|
9.8
|
|||||||
Provision
for taxes
|
3.9
|
3.6
|
3.7
|
|||||||
Net
Income
|
5.9
|
%
|
4.7
|
%
|
6.1
|
%
|
Fiscal
Year Ended December 29, 2007 Compared to Fiscal Year Ended December 30,
2006
Net sales
increased 10.8% to $327.7 million in 2007 from $295.8 million in
2006. Revenues increased primarily as a result of higher new product
sales and further penetration of existing automotive lines. The
favorable effect of foreign currency exchange and the acquisition of the
Consumer Division accounted for approximately 1% of the 2007 net sales
increase.
Cost of
goods sold, as a percentage of sales, increased to 65.7% in 2007 from 65.0% in
the same period last year. The increase is primarily the result of a
less favorable product mix, an increase in costs related to replacement and
rework of defective products and higher product expediting costs. A
$1.6 million decrease in our provision for excess and slow moving
inventory partially offset the cost increases and the impact of the
mix shift.
Selling,
general and administrative expenses in 2007 increased 5.8% to $78.1 million from
$73.8 million in 2006. The increase is the result of higher variable
costs related to our 10.8% sales growth as well as our decision to invest more
resources in engineering and new product development in 2007. Results
for 2007 also include a $1.4 million reduction in vacation expense due to the
vacation policy change mentioned above.
As noted
above, we recorded charges of $0.4 million and $2.9 million in 2007 and 2006,
respectively, to write off goodwill of our Canadian and Swedish
subsidiaries.
Interest
expense, net, decreased to $1.9 million in 2007 from $2.3 million in 2006 due to
lower overall borrowing levels.
Our
effective tax rate decreased to 40.2% from 43.7% in the prior
year. The decrease is primarily the result of lower goodwill
impairment charges which were not tax deductible and, therefore, had no
associated tax benefit.
Fiscal
Year Ended December 30, 2006 Compared to Fiscal Year Ended December 31,
2005
Net sales
increased 6.4% 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 6.8% 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 6.4% 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.
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 29, 2007, working capital was $138.3 million,
total long-term debt (including the current portion and revolving credit
borrowings) was $17.6 million and shareholders=
equity was $173.9 million. Cash and cash equivalents as of December
29, 2007 was $6.9 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 29, 2007 and
December 30, 2006, we had sold $39.4 million and $18.5 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
December 2007 we extended our $30.0 million revolving credit facility (“Revolving Credit
Facility”). The
facility now expires in June 2010. 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 29, 2007 was LIBOR plus 65 basis points
(5.28%). Borrowings under the facility were $8.5 million as of
December 29, 2007. We have approximately $19.8 million available
under the facility at December 29, 2007. The loan agreement also
contains covenants, the most restrictive of which pertain to net worth and the
ratio of debt to EBITDA.
At
December 29, 2007, current portion of long-term debt includes $8.6 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. The notes are due in August 2008. The Notes
require, among other things, that we maintain certain financial covenants
relating to debt to capital ratios and minimum net worth. We were in compliance
with all financial covenants contained in the Notes and Revolving Credit
Facility at December 29, 2007.
We have
also borrowed $0.6 million 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 of $0.5 million at December 29, 2007 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 as of
December 29, 2007 are summarized in the tables below (in
thousands):
Payments
Due by Period
|
||||||||||||||||||||
Less
than
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
1
year
|
1-3
years
|
4-5
years
|
After
5 years
|
|||||||||||||||
Long-term
borrowings
|
$ | 17,596 | $ | 8,654 | $ | 8,675 | $ | 267 | $ | - | ||||||||||
Estimated
interest payments (1)
|
1,550 | 833 | 702 | 15 | - | |||||||||||||||
Operating
leases
|
15,606 | 3,246 | 5,903 | 4,170 | 2,287 | |||||||||||||||
$ | 34,752 | $ | 12,733 | $ | 15,280 | $ | 4,452 | $ | 2,287 |
(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 29, 2007. The
amounts do not assume the refinancing or replacement of such
debt.
|
Amount
of Commitment Expiration Per Period
|
||||||||||||||||||||
Total
|
||||||||||||||||||||
Amount
|
Less
than
|
|||||||||||||||||||
Other
Commercial Commitments
|
Committed
|
1
year
|
1-3
years
|
4-5
years
|
Over
5 years
|
|||||||||||||||
Letters
of credit
|
$ | 1,690 | $ | 1,690 | $ | - | $ | - | $ | - | ||||||||||
$ | 1,690 | $ | 1,690 | $ | - | $ | - | $ | - |
Foreign
Currency Fluctuations
In 2007,
approximately 73% of our products were purchased from vendors 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, recent declines in the U.S. dollar have
resulted in a number of material price increases. 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 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 we purchase 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 believe 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 President, are partners. Total
rental payments each year to the partnership under the lease arrangement were
$1.3 million in 2007, 2006 and 2005. During 2007, we amended the
lease with the partnership, which will now expire on December 28,
2012.
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 71% and 73% of net accounts receivable as of December 29, 2007 and
December 30, 2006, 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 6.25 to 6.5 times EBITDA was used when conducting
these tests in 2007. As a result of the impairment tests performed in 2007 and
2006, we wrote-off the goodwill of our Canadian subsidiary (Hermoff)
and our Swedish subsidiary (Scan-Tech), respectively. 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
December 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) changes the requirements for
an acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. SFAS No. 141(R) is effective for
annual periods beginning after December 15, 2008 and should be applied
prospectively for all business combinations entered into after the date of
adoption.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No.
160”). SFAS No. 160 requires (i) that noncontrolling (minority) interests be
reported as a component of shareholders’ equity, (ii) that net income
attributable to the parent and to the noncontrolling interest be separately
identified in the consolidated statement of operations, (iii) that changes in a
parent’s ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, (iv) that any retained noncontrolling
equity investment upon the deconsolidation of a subsidiary be initially measured
at fair value, and (v) that sufficient disclosures are provided that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for annual periods
beginning after December 15, 2008 and should be applied prospectively. However,
the presentation and disclosure requirements of the statement shall be applied
retrospectively for all periods presented. The adoption of the provisions of
SFAS No. 160 is not expected to impact the Company’s consolidated financial
position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. The objective is to improve financial reporting
by providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 is
effective for fiscal years beginning after November 15,
2007. Companies are not allowed to adopt SFAS No. 159 on a
retrospective basis unless they choose early adoption. We do not
believe the adoption of SFAS No. 159 will have a material impact on our results
of operations and financial position.
In
September 2006, the 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.
The FASB has agreed to a one-year deferral of SFAS No. 157’s fair value
measurement requirements for non-financial assets and liabilities that are not
required or permitted to be measured at fair value on a recurring
basis. We do not believe adoption of SFAS No. 157 will have a
material impact on the Company’s consolidated results of operations and
financial position.
In June
2006, the FASB issued Interpretation No. 48, (“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 were effective
beginning January 1, 2007 with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The adoption
of this pronouncement did not have a material impact on the Company’s
consolidated financial condition or results of operation.
Item 7A.
Quantitative and Qualitative Disclosures 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.
and subsidiaries (the “Company”) as of December 29, 2007 and December 30, 2006,
and the related consolidated statements of operations, shareholders’ equity and
cash flows for each of the years in the three-year period ended December 29,
2007. 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 29, 2007 and December 30, 2006, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 29, 2007, 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), Dorman Products, Inc.’s internal control over
financial reporting as of December 29, 2007, 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 4,
2008 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
As
discussed in Notes 11 and 8, effective January 1, 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, applying
the modified prospective method and effective December 31, 2006, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
(FIN) No. 48, Accounting for
Uncertainty in Income Taxes.
KPMG
LLP
Philadelphia,
Pennsylvania
March 4,
2008
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Year Ended
|
||||||||||||
Decmeber
29,2007
|
December
30, 2006
|
December
31, 2005
|
||||||||||
(in thousands, except share data) | ||||||||||||
Net
Sales
|
$ | 327,725 | $ | 295,825 | $ | 278,117 | ||||||
Cost
of goods sold
|
215,256 | 192,348 | 179,253 | |||||||||
Gross
profit
|
112,469 | 103,477 | 98,864 | |||||||||
Selling,
general and administrative expenses
|
78,083 | 73,810 | 69,088 | |||||||||
Goodwill
impairment
|
414 | 2,897 | - | |||||||||
Income
from operations
|
33,972 | 26,770 | 29,776 | |||||||||
Interest
expense, net
|
1,856 | 2,267 | 2,615 | |||||||||
Income
before income taxes
|
32,116 | 24,503 | 27,161 | |||||||||
Income
taxes
|
12,923 | 10,704 | 10,084 | |||||||||
Net
Income
|
$ | 19,193 | $ | 13,799 | $ | 17,077 | ||||||
Earnings
Per Share:
|
||||||||||||
Basic
|
$ | 1.08 | $ | 0.78 | $ | 0.95 | ||||||
Diluted
|
$ | 1.06 | $ | 0.76 | $ | 0.93 | ||||||
Weighted
Average Shares Outstanding:
|
||||||||||||
Basic
|
17,693 | 17,722 | 17,914 | |||||||||
Diluted
|
18,132 | 18,139 | 18,437 |
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share data)
|
December
29,
2007
|
December
30,
2006
|
||||||
Assets
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 6,918 | $ | 5,080 | ||||
Accounts
receivable, less allowance for doubtful accounts and customer credits of
$28,705 and $27,601
|
76,897 | 77,187 | ||||||
Inventories
|
80,565 | 67,768 | ||||||
Deferred
income taxes
|
10,111 | 10,330 | ||||||
Prepaids
and other current assets
|
1,921 | 1,443 | ||||||
Total
current assets
|
176,412 | 161,808 | ||||||
Property,
Plant and Equipment, net
|
25,680 | 27,963 | ||||||
Goodwill
|
26,662 | 26,958 | ||||||
Other
Assets
|
1,901 | 1,029 | ||||||
Total
|
$ | 230,655 | $ | 217,758 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Current
Liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 8,654 | $ | 8,651 | ||||
Accounts
payable
|
18,752 | 12,822 | ||||||
Accrued
compensation
|
6,520 | 6,949 | ||||||
Other
accrued liabilities
|
4,198 | 6,582 | ||||||
Total
current liabilities
|
38,124 | 35,004 | ||||||
Other
Long-Term Liabilities
|
1,869 | - | ||||||
Long-Term
Debt
|
8,942 | 20,596 | ||||||
Deferred
Income Taxes
|
7,862 | 8,315 | ||||||
Commitments
and Contingencies (Note 10)
|
||||||||
Shareholders'
Equity:
|
||||||||
Common
stock, par value $.01; authorized 25,000,000 shares; issued and
outstanding 17,702,948
and 17,705,499 shares
|
177 | 177 | ||||||
Additional
paid-in capital
|
32,591 | 32,956 | ||||||
Cumulative
translation adjustments
|
4,141 | 2,954 | ||||||
Retained
earnings
|
136,949 | 117,756 | ||||||
Total
shareholders' equity
|
173,858 | 153,843 | ||||||
Total
|
$ | 230,655 | $ | 217,758 |
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 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 | ||||||||||||||||||
Other
stock related activity
|
- | - | 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 | ||||||||||||||||||
Other
stock related activity
|
- | - | 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 | |||||||||||||
Common
stock issued to Employee Stock Purchase Plan
|
186 | - | 2 | - | - | 2 | ||||||||||||||||||
Shares
issued under Incentive Stock Plan
|
87,468 | 1 | 120 | - | - | 121 | ||||||||||||||||||
Other
stock related activity
|
- | - | 135 | - | - | 135 | ||||||||||||||||||
Purchase
and cancellation of common stock
|
(90,205 | ) | (1 | ) | (1,078 | ) | - | - | (1,079 | ) | ||||||||||||||
Compensation
expense on stock option issuance
|
- | - | 456 | - | - | 456 | ||||||||||||||||||
Comprehensive
Income:
|
||||||||||||||||||||||||
Net
income
|
- | - | - | - | 19,193 | 19,193 | ||||||||||||||||||
Currency
translation adjustments
|
- | - | - | 1,187 | - | 1,187 | ||||||||||||||||||
Total
comprehensive income
|
20,380 | |||||||||||||||||||||||
Balance
at December 29, 2007
|
17,702,948 | $ | 177 | $ | 32,591 | $ | 4,141 | $ | 136,949 | $ | 173,858 |
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Year Ended
|
||||||||||||
(in
thousands)
|
December
29,
2007
|
December
30,
2006
|
December
31,
2005
|
|||||||||
Cash
Flows from Operating Activities:
|
||||||||||||
Net
income
|
$ | 19,193 | $ | 13,799 | $ | 17,077 | ||||||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
7,744 | 6,824 | 5,774 | |||||||||
Goodwill
impairment
|
414 | 2,897 | - | |||||||||
Provision
for doubtful accounts
|
302 | 1,164 | 233 | |||||||||
Provision
for deferred income tax
|
436 | 365 | (473 | ) | ||||||||
Provision
for non-cash stock compensation
|
456 | 488 | - | |||||||||
Changes
in assets and liabilities, net of business acquisitions:
|
||||||||||||
Accounts
receivable
|
359 | (13,096 | ) | (4,192 | ) | |||||||
Inventories
|
(9,685 | ) | 8,667 | (12,261 | ) | |||||||
Prepaids
and other current assets
|
(425 | ) | 152 | 9 | ||||||||
Other
assets
|
91 | (380 | ) | 8 | ||||||||
Accounts
payable
|
5,765 | (1,941 | ) | (888 | ) | |||||||
Accrued
compensation and other liabilities
|
(1,577 | ) | (2,288 | ) | (91 | ) | ||||||
Cash
provided by operating activities
|
23,073 | 16,651 | 5,196 | |||||||||
Cash
Flows from Investing Activities:
|
||||||||||||
Property,
plant and equipment additions
|
(5,371 | ) | (7,278 | ) | (7,220 | ) | ||||||
Business
acquisition, net of cash acquired
|
(3,392 | ) | - | (1,680 | ) | |||||||
Cash
used in investing activities
|
(8,763 | ) | (7,278 | ) | (8,900 | ) | ||||||
Cash
Flows from Financing Activities:
|
||||||||||||
Repayment
of long-term debt obligations
|
(8,651 | ) | (8,592 | ) | (9,071 | ) | ||||||
Proceeds
from promissory note
|
- | 625 | - | |||||||||
Net
(repayment) proceeds from revolving credit facility
|
(3,000 | ) | 1,400 | 10,100 | ||||||||
Proceeds
from exercise of stock options
|
123 | 159 | 93 | |||||||||
Other
stock related activity
|
135 | - | - | |||||||||
Purchase
and cancellation of common stock
|
(1,079 | ) | (829 | ) | (1,626 | ) | ||||||
Cash
used in financing activities
|
(12,472 | ) | (7,237 | ) | ( 504 | ) | ||||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
1,838 | 2,136 | (4,208 | ) | ||||||||
Cash
and Cash Equivalents, Beginning of Year
|
5,080 | 2,944 | 7,152 | |||||||||
Cash
and Cash Equivalents, End of Year
|
$ | 6,918 | $ | 5,080 | $ | 2,944 | ||||||
Supplemental
Cash Flow Information
|
||||||||||||
Cash
paid for interest expense
|
$ | 2,001 | $ | 2,287 | $ | 2,569 | ||||||
Cash
paid for income taxes
|
$ | 13,093 | $ | 10,558 | $ | 9,246 |
See
accompanying notes to consolidated financial statements.
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
29, 2007
|
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 products are marketed under the OE
Solutions™, HELP!®,
AutoGrade™, First Stop™, Conduct-Tite®, Pik-A-
Nut®
and Scan-Tech® 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 29, 2007, December 30, 2006,
and December 31, 2005 are fifty-two, fifty-two, and fifty-three weeks,
respectively.
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, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities - a Replacement of FASB
Statement 125.” At December 29, 2007 and December 30, 2006,
approximately $39.4 million and $18.5 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
$1.9 million, $1.7 million, and $1.2 million in 2007, 2006 and 2005,
respectively, in financing costs associated with these accounts receivable sales
programs. During 2007, 2006, and 2005, we sold $104.0 million, $80.8
million and $82.1 million, respectively, under these 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 2007, 2006 or 2005.
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 6.25 to 6.50 times EBITDA was used when conducting
these tests in 2007.
During
the fourth quarter of 2007, we assessed the value of the goodwill with respect
to our Canadian subsidiary as a result of a strategic review of the business
given our continued losses since the acquisition. After completing the required
analyses, we concluded that the goodwill balance of the subsidiary was
impaired. Accordingly an impairment charge of approximately $0.4
million was recorded in the consolidated statements of operations. We
have completed the impairment tests for the remaining goodwill during the fourth
quarter, which did not result in an impairment charge.
During
the second quarter of fiscal year 2006, we assessed the value of the goodwill
recorded at our 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 of 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 our provision for income taxes to
write off deferred tax assets of the subsidiary which were deemed
unrealizable.
Other
Assets. Other assets consist of contract rights; 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.
Change in
Vacation Policy. Effective December 31, 2006, we changed our vacation
policy so that vacation is earned ratably throughout the year rather than at the
end of the preceding year. This change resulted in a reduction in our
vacation accrual of approximately $1.8 million in 2007. Results for
2007 include vacation expense reductions of $0.4 million in cost of goods sold
and $1.4 million in selling, general and administrative expenses.
Research
and Development. Research and development costs are expensed as incurred.
Research and development costs totaling $2.6 million in 2007, $2.2 million in
2006 and $1.9 million in 2005 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.
Comprehensive
Income. Pursuant to the provisions of SFAS No. 130, “Reporting Comprehensive
Income,” comprehensive income includes all changes to shareholders’ equity
during a period, except those resulting from investment by and distributions to
shareholders. Components of comprehensive income include net income
and changes in foreign currency translation adjustments.
Concentrations
of 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 71% and 73% of net
accounts receivable as of December 29, 2007 and December 30, 2006, respectively.
We continually monitor the credit terms and credit limits to these and other
customers. In 2007, 73% of our products were purchased from suppliers
located in a variety of foreign countries, with the largest portion coming from
China.
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,
including the current portion, was $18.1 million and $29.7 million at December
29, 2007 and December 30, 2006, 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.
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 29,
2007:
2007
|
2006
|
2005
|
||||||||||
Numerator:
|
(in
thousands, except per share data)
|
|||||||||||
Net
income
|
$ | 19,193 | $ | 13,799 | $ | 17,077 | ||||||
Denominator:
|
||||||||||||
Weighted
average shares outstanding used in basic earnings per share
calculation
|
17,693 | 17,722 | 17,914 | |||||||||
Effect
of dilutive stock options
|
439 | 417 | 523 | |||||||||
Adjusted
weighted average shares outstanding diluted earnings per
share
|
18,132 | 18,139 | 18,437 | |||||||||
Basic
earnings per share
|
$ | 1.08 | $ | 0.78 | $ | 0.95 | ||||||
Diluted
earnings per share
|
$ | 1.06 | $ | 0.76 | $ | 0.93 |
Options
to purchase 213,500, 163,500 and 103,500 shares were outstanding at December 29,
2007, 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.
Stock-Based
Compensation. At December 29, 2007, 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 2007, 2006 and 2005 was $0.5
million, $0.4 million and $0.2 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
29, 2007
|
December
30, 2006
|
||||||
Bulk
product
|
$ | 34,493 | $ | 27,555 | ||||
Finished
product
|
43,212 | 37,407 | ||||||
Packaging
materials
|
2,860 | 2,806 | ||||||
Total
|
$ | 80,565 | $ | 67,768 |
Included
in finished product is $0.4 million and $1.0 million in inventory held on
consignment as of December 29, 2007 and December 30, 2006,
respectively.
3.
|
Property,
Plant and Equipment
|
Property,
plant and equipment consists of the following:
(in
thousands)
|
December
29, 2007
|
December
30, 2006
|
||||||
Property
under capitalized leases
|
$ | 2,302 | $ | 2,302 | ||||
Buildings
|
11,515 | 11,159 | ||||||
Machinery,
equipment and tooling
|
34,171 | 31,494 | ||||||
Furniture,
fixtures and leasehold improvements
|
4,014 | 3,969 | ||||||
Computer
and other equipment
|
29,204 | 27,408 | ||||||
Total
|
81,206 | 76,332 | ||||||
Less-accumulated
depreciation
|
(55,526 | ) | (48,369 | ) | ||||
Property,
plant and equipment, net
|
$ | 25,680 | $ | 27,963 |
4.
|
Acquisitions
|
In
September 2007, we acquired certain assets of the Consumer Products Division of
Rockford Products Corporation (Consumer Division) for $3.4
million. The consolidated results for the period ended December 29,
2007 include the results of the Consumer Division effective September 10,
2007. We have not presented pro forma results of operations as these
results would not have been materially different than actual results for the
periods. In connection with the purchase, we recorded $1.1 million in
contract rights which are included in other assets, and are being amortized over
a 10 year period.
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 a pro forma result of operations for the year ended
December 31, 2005, assuming the acquisition had occurred at the beginning of the
fiscal year, as this result would not have been materially different than actual
result for the period.
Goodwill
activity during the two years ended December 29, 2007 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
|
|||
Goodwill
impairment
|
(414)
|
|||
Translation
|
118
|
|||
Balance,
December 29, 2007
|
$
|
26,662
|
5.
|
Long-Term
Debt
|
Long-term
debt consists of the following:
(in
thousands)
|
December
29, 2007
|
December
30, 2006
|
||||||
Senior
notes
|
$ | 8,571 | $ | 17,143 | ||||
Bank
credit facility
|
8,500 | 11,500 | ||||||
Promissory
note
|
525 | 604 | ||||||
Total
|
17,596 | 29,247 | ||||||
Less:
Current portion
|
(8,654 | ) | (8,651 | ) | ||||
Total
long-term debt
|
$ | 8,942 | $ | 20,596 |
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 December, 2007, we amended our existing Revolving Credit
Facility. The amendment extended the expiration date from June 2008 to June
2010. 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 29, 2007 was LIBOR plus 65 basis
points (5.28%). 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 $12.6 million
and 9.1 million during 2007 and 2006, respectively. The maximum amount
outstanding in 2007 and 2006 was $23.3 million and $17.8 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 29, 2007 are as follows:
(in
thousands)
|
||||
2008
|
$
|
8,654
|
||
2009
|
86
|
|||
2010
|
8,589
|
|||
2011
|
94
|
|||
Thereafter
|
173
|
|||
Total
|
$
|
17,596
|
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 as of
December 29, 2007 under these leases are summarized as follows:
(in
thousands)
|
||||
2008
|
$
|
3,246
|
||
2009
|
3,180
|
|||
2010
|
2,723
|
|||
2011
|
2,080
|
|||
2012
|
2,090
|
|||
Thereafter
|
2,287
|
|||
Total
|
$
|
15,606
|
Rent
expense was $4.0 million in 2007, $4.3 million in 2006, and $3.1 million in
2005.
Subsequent
to the end of the year, we amended the lease at our Portland, TN
facility. Under the terms of the amended lease, the landlord has
agreed to expand the leased facility by 145,790 square feet. In
exchange, we have agreed to lease the expanded facility for a 10 year period
from the date the expansion is complete. The amendment will result in
an increase in annual rental expense of approximately $0.5 million.
7.
|
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 President are partners. Total rental payments each year to the
partnership under the lease arrangement were $1.3 million in 2007, 2006 and
2005. During 2007, we amended the lease with the partnership, which
was due to expire in December 2007, to extend the expiration to December 28,
2012.
8.
|
Income
Taxes
|
The
components of the income tax provision (benefit) are as follows:
(in
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Current:
|
||||||||||||
Federal
|
$ | 10,561 | $ | 9,118 | $ | 9,327 | ||||||
State
|
1,290 | 1,015 | 893 | |||||||||
Foreign
|
636 | 206 | 337 | |||||||||
12,487 | 10,339 | 10,557 | ||||||||||
Deferred:
|
||||||||||||
Federal
|
160 | 285 | (354 | ) | ||||||||
State
|
13 | (84 | ) | (34 | ) | |||||||
Foreign
|
263 | 164 | (85 | ) | ||||||||
436 | 365 | (473 | ) | |||||||||
Total
|
$ | 12,923 | $ | 10,704 | $ | 10,084 |
The
following is a reconciliation of income taxes at the statutory tax rate to the
Company's effective tax rate:
2007
|
2006
|
2005
|
||||||||||
Federal
taxes at statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State
taxes, net of Federal tax benefit
|
2.6 | % | 2.5 | % | 2.1 | % | ||||||
Goodwill
impairment
|
0.4 | % | 4.1 | % | - | |||||||
Deferred
tax write-off
|
1.8 | % | 1.3 | % | - | |||||||
Stock-based
compensation
|
0.4 | % | 0.5 | % | - | |||||||
Other
|
- | 0.3 | % | - | ||||||||
Effective
tax rate
|
40.2 | % | 43.7 | % | 37.1 | % |
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
29,
2007
|
December
30,
2006
|
||||||
Assets:
|
||||||||
Inventories
|
$ | 4,837 | $ | 4,593 | ||||
Accounts
receivable
|
4,369 | 4,203 | ||||||
Accrued
expenses
|
1,520 | 1,401 | ||||||
Other
|
690 | - | ||||||
Gross
deferred tax assets
|
11,416 | 10,197 | ||||||
Liabilities:
|
||||||||
Depreciation
|
552 | 1,141 | ||||||
Goodwill
|
8,004 | 7,041 | ||||||
Gross
deferred tax liabilities
|
8,556 | 8,182 | ||||||
Net
deferred tax assets before valuation allowance
|
2,860 | 2,015 | ||||||
Valuation
allowance
|
(611 | ) | - | |||||
Net
deferred tax assets
|
$ | 2,249 | $ | 2,015 |
In 2007,
we recorded a valuation allowance totaling $0.6 million against certain foreign
tax loss carry forwards.
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 remaining net deferred tax
assets.
As of
December 29, 2007, we have not provided taxes on unremitted foreign earnings
from our foreign affiliate of approximately $12.4 million that are intended to
be indefinitely reinvested in operations and expansion outside the United
States. An estimated $1.5 million in U.S. income and foreign withholding taxes
would be due if the earnings were remitted as dividends.
We
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109” (“FIN 48”) effective December 31,
2006. As a result of the implementation of FIN 48, we recognized no
material adjustment in the liability for unrecognized income tax
benefits. At December 29, 2007, we have $1.5 million of
unrecognized tax benefits, $1.0 million of which would affect our effective tax
rate if recognized.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
Balance
at December 31, 2006
|
$
|
1,683
|
||
Reductions
based on tax positions taken during a prior period
|
(368)
|
|||
Reductions
due to lapses in statutes of limitations
|
(37)
|
|||
Additions
based on tax positions taken during the current period
|
226
|
|||
Balance
at December 29, 2007
|
$ 1,504
|
We
recognize interest and penalties related to uncertain tax positions in income
tax expense. As of December 29, 2007, we have approximately $0.3 million of
accrued interest related to uncertain tax positions.
The last
year examined by the IRS was 2004, and all years up through and including that
year are closed by examination. The tax year 2005 is currently
under examination by the IRS. We are currently under examination for
tax years 2003 - 2006 by one state tax authority to which we are subject to tax.
The tax years 2004-2007 remain open to examination by the remaining major taxing
jurisdictions in the United States to which we are subject. The tax years
2003-2007 remain open to examination in Sweden for our Swedish
subsidiary.
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
2007 and 2006, three customers each accounted for more than 10% of net sales and
in the aggregate accounted for 38% and
40% of net sales, respectively. During 2005, two customers each accounted for
more than 10% of net sales and in the aggregate accounted for 31% and of net
sales. Net sales to countries outside the US, primarily to Europe and Canada in
2007, 2006 and 2005 were $29.7 million, $25.6 million and $22.8 million,
respectively.
10.
|
Commitments
and Contingencies
|
Shareholder
Agreement. 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
|
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
2007 and 2006, our board of directors approved the cancellation of 90,205 and
79,053 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 3, 2008,
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 29, 2007, options to acquire 295,636 shares were available for grant
under the Plan.
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. 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), 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 29, 2007 and December 30, 2006 was $456,000
and $488,000 before taxes, respectively. The compensation cost recognized is
classified as selling, general and administrative expense in the consolidated
statement of operations. No cost was capitalized during fiscal 2007 or
2006. We included a forfeiture assumption of 3.5% and 2.6% in the
calculation of expense in 2007 and 2006, respectively.
The fair
value of options granted 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.
2007
|
2006
|
|||||
Expected
dividend yield
|
0%
|
|
0%
|
|||
Expected
stock price volatility
|
36%
|
45%
|
||||
Risk
-free interest rate
|
3.8%
|
4.5%
|
||||
Expected
life of options
|
6.5
years
|
6.5
years
|
The
weighted-average grant-date fair value of options granted during 2007 and 2006
was $5.96 and $4.95 per option, respectively.
Transactions
under the Plan for the three years ended December 29, 2007 were as
follows:
Shares
|
Option
Price per share
|
Weighted
Average Price
|
Weighted
Average Remaining Term (years)
|
Aggregate
Intrinsic Value
|
||||||||||
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 | |||||||||||
Granted
|
55,000 | 13.79 | 13.79 | |||||||||||
Exercised
|
(109,800 | ) | 0.50 -7.14 | 1.21 | ||||||||||
Cancelled
|
(24,000 | ) | 7.14 -12.48 | 10.60 | ||||||||||
Balance
at December 29, 2007
|
903,150 | $ | 0.50 - 13.79 | $ | 5.80 |
5.3
|
$7,854,000 | |||||||
Options
exercisable at December 29, 2007
|
622,084 | $ | 0.50 -12.48 | $ | 3.69 |
4.3
|
$6,724,000 |
The total
intrinsic value of stock options exercised during 2007 was
$1,293,000.
As of
December 29, 2007, there was approximately $1.0 million of unrecognized
compensation cost related to non-vested stock options, which is expected to be
recognized over a weighted-average period of approximately 3.1
years.
Cash
received from option exercises during 2007 was $121,000. The total tax benefit
generated from options which were exercised during 2007 and 2006 was
approximately $409,000 and $26,000, respectively, and was credited to additional
paid in capital.
The
following table summarizes information concerning currently outstanding and
exercisable options at December 29, 2007:
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
|
360,900 | 3.3 | $ | 1.38 | 360,900 | $ | 1.38 | |||||||||||||||
$4.00
- $5.08
|
138,000 | 5.1 | $ | 4.66 | 121,000 | $ | 4.60 | |||||||||||||||
$7.14
- $8.01
|
180,750 | 6.0 | $ | 7.62 | 97,784 | $ | 7.43 | |||||||||||||||
$9.15
- $11.10
|
75,000 | 8.0 | $ | 10.64 | 5,000 | $ | 9.72 | |||||||||||||||
$12.48
- $13.79
|
148,500 | 8.1 | $ | 12.97 | 37,400 | $ | 12.48 | |||||||||||||||
903,150 | $ | 5.80 | 622,084 | $ | 3.69 |
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
|
|||
Net
income:
|
||||
Net
income, as reported
|
$
|
17,077
|
||
Less:
Stock-based employee compensation expense, net of related tax effects,
determined under fair value method for all awards
|
(281
|
)
|
||
Net
income, pro forma
|
$
|
16,796
|
||
Earnings
per share:
|
||||
Basic
- as reported
|
$
|
0.95
|
||
Basic
- pro forma
|
$
|
0.94
|
||
Diluted
- as reported
|
$
|
0.93
|
||
Diluted
- pro forma
|
$
|
0.91
|
The
weighted average fair value of options granted in 2005 was $6.54. 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
|
||||
Expected
dividend yield
|
0%
|
|||
Expected
stock price volatility
|
46%
|
|||
Risk-free
interest rate
|
3.9%
|
|||
Expected
life of option
|
|
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 2007, optionees had exercised
rights to purchase186 shares at prices from $11.65 to $12.32 per share for total
net proceeds of $2,000.
401(k)
Retirement Plan. We maintain a defined contribution profit sharing and 401(k)
plan covering substantially all of our employees as of December 29, 2007. Annual
contributions under the plan are determined by our Board of Directors.
Consolidated expense related to the plan was $1,223,000, $1,095,000, and
$665,000 in fiscal 2007, 2006 and 2005, respectively. At December 29,
2007, the plan held 556,727 shares of our stock.
Share
Repurchase Program. On February 22, 2008, we announced that our Board
of Directors authorized the repurchase of up to 500,000 shares of our
outstanding common stock. Under this program, share repurchases may
be made from time to time depending upon market conditions, share price and
availability, and other factors at our discretion. Repurchases will
take place in open market transactions or in privately negotiated transactions
in accordance with applicable laws.
13. Accounting
Pronouncements
In
December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations”
(“SFAS No. 141(R)”). SFAS No. 141(R) changes the requirements for an acquirer’s
recognition and measurement of the assets acquired and the liabilities assumed
in a business combination. SFAS No. 141(R) is effective for annual periods
beginning after December 15, 2008 and should be applied prospectively for all
business combinations entered into after the date of adoption.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No.
160”). SFAS No. 160 requires (i) that noncontrolling (minority) interests be
reported as a component of shareholders’ equity, (ii) that net income
attributable to the parent and to the noncontrolling interest be separately
identified in the consolidated statement of operations, (iii) that changes in a
parent’s ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, (iv) that any retained noncontrolling
equity investment upon the deconsolidation of a subsidiary be initially measured
at fair value, and (v) that sufficient disclosures are provided that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for annual periods
beginning after December 15, 2008 and should be applied prospectively. However,
the presentation and disclosure requirements of the statement shall be applied
retrospectively for all periods presented. The adoption of the provisions of
SFAS No. 160 is not expected to impact the Company’s consolidated financial
position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. The objective is to improve financial reporting
by providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 is
effective for fiscal years beginning after November 15,
2007. Companies are not allowed to adopt SFAS No. 159 on a
retrospective basis unless they choose early adoption. We do not
believe the adoption of SFAS No. 159 will have a material impact on our results
of operations and financial position.
In
September 2006, the 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. The FASB has agreed to a one-year deferral of SFAS No. 157’s
fair value measurement requirements for non-financial assets and liabilities
that are not required or permitted to be measured at fair value on a recurring
basis. We do not believe the adoption of SFAS No. 157 will have a
material impact on the Company’s consolidated results of operations and
financial position.
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 29, 2007 and December 30, 2006:
(in
thousands, except per share amounts)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
||||||||||||
2007
|
||||||||||||||||
Net
sales
|
$ | 74,293 | $ | 85,796 | $ | 83,174 | $ | 84,462 | ||||||||
Income
from operations
|
6,991 | 9,845 | 9,651 | 7,485 | ||||||||||||
Net
income
|
4,062 | 5,768 | 5,679 | 3,684 | ||||||||||||
Diluted
earnings per share
|
0.22 | 0.32 | 0.31 | 0.20 |
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 |
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 29, 2007, 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 29, 2007,
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 29, 2007, 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
internal control over financial reporting as of December 29, 2007 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 29, 2007 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 29, 2007.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors
Dorman
Products, Inc.:
We have
audited Dorman Products, Inc.’s internal control over financial reporting as of
December 29, 2007, 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,
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express 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, assessing the risk that material misstatement exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. 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, Dorman Products, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 29, 2007, 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 29, 2007 and December 30, 2006,
and the related consolidated statements of operations, shareholders’ equity, and
cash flows for each of the years in the three-year period ended December 29,
2007, and the related financial statement schedule, and our report dated March
4, 2008 expressed an unqualified opinion on those consolidated financial
statements and the related financial statement schedule.
KPMG
LLP
Philadelphia,
Pennsylvania
March 4,
2008
PART
III
Item 10.
Directors, Executive Officers and Corporate
Governance.
The
required information is incorporated by reference from our definitive proxy
statement for our 2008 Annual Meeting of Shareholders to be filed with the SEC
within 120 days of the Company's fiscal year ended December 29,
2007.
Information
concerning our executive officers who are not also directors is presented in
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 2008 Annual Meeting of Shareholders to be filed with the SEC
within 120 days of our fiscal year ended December 29, 2007.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters.
The
required information is incorporated by reference from our definitive proxy
statement for its 2008 Annual Meeting of Shareholders to be filed with the SEC
within 120 days of our fiscal year ended December 29, 2007.
Equity
Compensation Plan Information
The
following table details information regarding our existing equity compensation
plans as of December 29, 2007:
(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
|
903,150 | $ | 5.80 | 295,636 | ||||||||
Equity
compensation plans not approved by security holders
|
- | - | - | |||||||||
Total
|
903,150 | $ | 5.80 | 295,636 |
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
The
required information is incorporated by reference from our definitive proxy
statement for our 2008 Annual Meeting of Shareholders to be filed with the SEC
within 120 days of our fiscal year ended December 29, 2007.
Item 14.
Principal Accounting Fees and Services.
The
required information is incorporated by reference from our definitive proxy
statement for its 2008 Annual Meeting of Shareholders to be filed with the SEC
within 120 days of our fiscal year ended December 29, 2007.
PART
IV
Item 15.
Exhibits, 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 29, 2007, December 30,
2006 and December 31, 2005.
Consolidated
Balance Sheets as of December 29, 2007 and December 30, 2006.
Consolidated
Statements of Shareholders' Equity for the years ended December 29, 2007,
December 30, 2006, and December 31, 2005.
Consolidated
Statements of Cash Flows for the years ended December 29, 2007, December 30,
2006, and December 31, 2005.
Notes to
Consolidated Financial Statements
(a)(2)
Consolidated Financial Statement Schedules. The following consolidated financial
statement schedule of the Company and related documents are filed with this
Report on Form 10-K:
Schedule
II - Valuation and Qualifying Accounts at Page 43
|
(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.
|
|
4.1
(1)
|
Specimen
Common Stock Certificate of the Company.
|
|
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.
|
|
3.1.1
(2 )
|
Amendment,
dated May 23, 2007, to the Amended and Restated Articles of Incorporation
of the Company, permitting the issuance of uncertificated
shares.
|
|
3.2
(3)
|
Amended
and Restated Bylaws of the Company.
|
|
10.1.1
(4)
|
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.
|
|
4.2
|
Amended
and Restated Shareholders' Agreement dated July 1,
2006.
|
|
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
(6)
|
Amendment
to Lease, dated April 1, 2002, between the Company and BREP I, for
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
amending 10.1.
|
10.1.4
(7)
|
Amendment
to Lease, dated December 12, 2007, between the Company and BREP I, for
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
amending 10.1.
|
|
10.1.5
(8)
|
Lease,
dated January 31, 2006, between the Company and First Industrial, LP, for
premises located at 3150 Barry Drive, Portland,
Tennessee.
|
|
10.1.6
(9)
|
Amendment
to Lease, dated January 28, 2008, between the Company and First
Industrial, LP, for premises located at 3150 Barry Drive, Portland,
Tennessee.
|
|
10.1.7
(10)
|
Third
Amended and Restated Credit Agreement dated as of July 24, 2006, between
the Company and Wachovia Bank, N.A.
|
|
10.1.8
(11 )
|
Amendment
to Amended and Restated Credit Agreement, dated December 24, 2007, between
the Company and Wachovia Bank N.A., amending 10.1.5.
|
|
10.1.9
(12)
|
Commercial
Loan Agreement, dated September 27, 2006, between the Company and the
Tennessee Valley Authority.
|
|
10.3
(13)†
|
Dorman
Products, Inc. Amended and Restated Incentive Stock
Plan.
|
|
10.4
(14)†
|
Dorman
Products, Inc. 401(k) Retirement Plan and Trust.
|
|
10.4.1
(15)†
|
Amendment
No. 1 to the Dorman Products, Inc. 401(k) Retirement Plan and
Trust.
|
|
10.5
(16) †
|
Dorman
Products, Inc. Employee Stock Purchase Plan.
|
|
14.1
(17)
|
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 Current Report on Form 8-K
dated May 24, 2007.
(3)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated February 23, 2007.
(4)
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).
(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 Quarterly
Report on Form 10-Q for the quarter ended June 29, 2002.
(7)
Incorporated by reference to the Exhibits filed with the Company's Current
Report on form 8-K dated December 12, 2007.
(8)
Incorporated by reference to the Exhibits filed with the Company's Current
Report of Form 8-K dated February 2, 2006.
(9)
Incorporated by reference to the Exhibit filed with the Company's Current Report
on Form 8-K dated January 29, 2008.
(10)
Incorporated by reference to the Exhibit filed with the Company's Current Report
on Form 8-K dated May 24. 2005.
(11)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated January 2, 2008.
(12)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated September 28, 2006.
(13)
Incorporated by reference to the Exhibits filed with the Company’s Proxy
Statement for the fiscal year ended December 27, 1997.
(14)
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.
(15)
Incorporated by reference to the Exhibits filed with the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 25, 1994.
(16)
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.
(17)
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 6, 2008
|
Richard N. Berman,
Chairman 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
|
Chief
Executive Officer and
|
March
6, 2008
|
|||
Chairman
of the Board of Directors
|
|||||
(principal
executive officer)
|
|||||
\s\
Mathias J. Barton
|
|||||
Mathias J. Barton
|
Chief
Financial Officer
|
March
6, 2008
|
|||
(principal
financial and accounting officer)
|
|||||
\s\
Steven L. Berman
|
|||||
Steven L. Berman
|
President,
Chief Operating Officer,
|
March
6, 2008
|
|||
Secretary-Treasurer,
Director
|
|||||
\s\
George L. Bernstein
|
|||||
George L. Bernstein
|
Director
|
March
6, 2008
|
|||
\s\
John F. Creamer, Jr.
|
|||||
John F. Creamer,
Jr.
|
Director
|
March
6, 2008
|
|||
\s\
Paul R. Lederer
|
|||||
Paul R. Lederer
|
Director
|
March
6, 2008
|
|||
\s\
Edgar W. Levin
|
|||||
Edgar W. Levin
|
Director
|
March
6, 2008
|
SCHEDULE II: Valuation and Qualifying
Accounts
|
||||||||||||
(in
thousands)
|
For
the Year Ended
|
|||||||||||
December 29,
2007
|
December 30,
2006
|
December 31,
2005
|
||||||||||
Allowance
for doubtful accounts:
|
||||||||||||
Balance,
beginning of period
|
$ | 2,056 | $ | 1,114 | $ | 1,106 | ||||||
Provision
|
302 | 1,164 | 233 | |||||||||
Charge-offs
|
(1,070 | ) | (222 | ) | ( 225 | ) | ||||||
Balance,
end of period
|
$ | 1,288 | $ | 2,056 | $ | 1,114 | ||||||
Allowance
for customer credits:
|
||||||||||||
Balance,
beginning of period
|
$ | 25,545 | $ | 21,614 | $ | 19,469 | ||||||
Provision
|
64,230 | 53,201 | 42,633 | |||||||||
Charge-offs
|
(62,358 | ) | (49,270 | ) | (40,488 | ) | ||||||
Balance,
end of period
|
$ | 27,417 | $ | 25,545 | $ | 21,614 | ||||||
Allowance
for excess and obsolete inventory:
|
||||||||||||
Balance,
beginning of period
|
$ | 12,224 | $ | 9,628 | $ | 8,210 | ||||||
Provision
|
2,507 | 3,908 | 3,828 | |||||||||
Charge-offs
|
(2,952 | ) | (1,312 | ) | (2,410 | ) | ||||||
Balance,
end of period
|
$ | 11,779 | $ | 12,224 | $ | 9,628 |
43