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Dorman Products, Inc. - Quarter Report: 2021 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 25, 2021

OR

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

3400 East Walnut Street, Colmar, Pennsylvania

 

18915

(Address of principal executive offices)

 

(Zip Code)

(215) 997-1800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

DORM

 

NASDAQ Global Select Market

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      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No

As of October 21, 2021 the registrant had 31,623,755 shares of common stock, par value $0.01 per share, outstanding.


 

 

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 25, 2021

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

21

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

23

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

23

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

 

23

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

23

 

 

 

 

 

ITEM 5.

 

Other Information

 

23

 

 

 

 

 

ITEM 6.

 

Exhibits

 

24

 

 

 

 

 

Exhibit Index

 

 

 

25

 

 

 

 

 

Signatures

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands, except per share data)

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Net sales

 

$

348,426

 

 

$

300,620

 

 

$

947,073

 

 

$

791,532

 

Cost of goods sold

 

 

231,572

 

 

 

192,819

 

 

 

615,574

 

 

 

519,786

 

Gross profit

 

 

116,854

 

 

 

107,801

 

 

 

331,499

 

 

 

271,746

 

Selling, general and administrative expenses

 

 

72,663

 

 

 

63,028

 

 

 

205,049

 

 

 

184,288

 

Income from operations

 

 

44,191

 

 

 

44,773

 

 

 

126,450

 

 

 

87,458

 

Interest expense, net

 

 

733

 

 

 

63

 

 

 

918

 

 

 

545

 

Other income, net

 

 

(95

)

 

 

(46

)

 

 

(334

)

 

 

(2,862

)

Income before income taxes

 

 

43,553

 

 

 

44,756

 

 

 

125,866

 

 

 

89,775

 

Provision for income taxes

 

 

10,449

 

 

 

10,497

 

 

 

28,414

 

 

 

18,856

 

Net income

 

$

33,104

 

 

$

34,259

 

 

$

97,452

 

 

$

70,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.04

 

 

$

1.06

 

 

$

3.06

 

 

$

2.19

 

Diluted

 

$

1.04

 

 

$

1.06

 

 

$

3.04

 

 

$

2.19

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,692

 

 

 

32,281

 

 

 

31,895

 

 

 

32,317

 

Diluted

 

 

31,842

 

 

 

32,371

 

 

 

32,039

 

 

 

32,394

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

3


 

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

(in thousands, except for share data)

 

September 25, 2021

 

 

December 26, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,263

 

 

$

155,576

 

Accounts receivable, less allowance for doubtful accounts of $1,248 and $1,260

 

 

463,113

 

 

 

460,878

 

Inventories

 

 

475,462

 

 

 

298,719

 

Prepaids and other current assets

 

 

17,297

 

 

 

7,758

 

Total current assets

 

 

1,013,135

 

 

 

922,931

 

Property, plant and equipment, net

 

 

116,309

 

 

 

91,009

 

Operating lease right-of-use assets

 

 

57,698

 

 

 

39,002

 

Goodwill

 

 

200,026

 

 

 

91,080

 

Intangible assets, net

 

 

182,827

 

 

 

25,207

 

Deferred tax asset, net

 

 

 

 

 

12,450

 

Other assets

 

 

45,853

 

 

 

38,982

 

Total assets

 

$

1,615,848

 

 

$

1,220,661

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

149,925

 

 

$

117,878

 

Accrued compensation

 

 

21,081

 

 

 

19,711

 

Accrued customer rebates and returns

 

 

180,594

 

 

 

155,751

 

Revolving credit facility

 

 

249,360

 

 

 

 

Other accrued liabilities

 

 

21,800

 

 

 

29,305

 

Total current liabilities

 

 

622,760

 

 

 

322,645

 

Long-term operating lease liabilities

 

 

52,530

 

 

 

37,083

 

Other long-term liabilities

 

 

4,706

 

 

 

3,555

 

Deferred tax liabilities, net

 

 

31,328

 

 

 

3,819

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 50,000,000 shares authorized; 31,658,703 and

   32,168,740 shares issued and outstanding in 2021 and 2020, respectively

 

 

317

 

 

 

322

 

Additional paid-in capital

 

 

73,325

 

 

 

64,085

 

Retained earnings

 

 

830,882

 

 

 

789,152

 

Total shareholders’ equity

 

 

904,524

 

 

 

853,559

 

Total liabilities and shareholders' equity

 

$

1,615,848

 

 

$

1,220,661

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 


4


 

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

Three Months Ended September 25, 2021

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Additional Paid-In

Capital

 

 

Retained

Earnings

 

 

Total

 

Balance at June 26, 2021

 

 

31,891,890

 

 

$

319

 

 

$

71,947

 

 

$

820,719

 

 

$

892,985

 

Exercise of stock options

 

 

2,260

 

 

 

 

 

 

173

 

 

 

 

 

 

173

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

1,721

 

 

 

 

 

 

1,721

 

Purchase and cancellation of common stock

 

 

(234,044

)

 

 

(2

)

 

 

(421

)

 

 

(22,941

)

 

 

(23,364

)

Cancellation of non-vested stock, net of issuances

 

 

(537

)

 

 

 

 

 

 

 

 

 

 

 

 

Other stock-related activity, net of tax

 

 

(866

)

 

 

 

 

 

(95

)

 

 

 

 

 

(95

)

Net income

 

 

 

 

 

 

 

 

 

 

 

33,104

 

 

 

33,104

 

Balance at September 25, 2021

 

 

31,658,703

 

 

$

317

 

 

$

73,325

 

 

$

830,882

 

 

$

904,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 26, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Additional Paid-In

Capital

 

 

Retained

Earnings

 

 

Total

 

Balance at June 27, 2020

 

 

32,440,413

 

 

$

326

 

 

$

55,406

 

 

$

751,400

 

 

$

807,132

 

Exercise of stock options

 

 

2,886

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

1,248

 

 

 

 

 

 

1,248

 

Purchase and cancellation of common stock

 

 

(135,787

)

 

 

(1

)

 

 

(244

)

 

 

(11,203

)

 

 

(11,448

)

Cancellation of non-vested stock, net of issuances

 

 

(2,937

)

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Other stock-related activity, net of tax

 

 

111

 

 

 

 

 

 

483

 

 

 

(308

)

 

 

175

 

Net income

 

 

 

 

 

 

 

 

 

 

 

34,259

 

 

 

34,259

 

Balance at September 26, 2020

 

 

32,304,686

 

 

$

324

 

 

$

56,893

 

 

$

774,148

 

 

$

831,365

 

 

 

 

Nine Months Ended September 25, 2021

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Additional Paid-In

Capital

 

 

Retained

Earnings

 

 

Total

 

Balance at December 26, 2020

 

 

32,168,740

 

 

$

322

 

 

$

64,085

 

 

$

789,152

 

 

$

853,559

 

Exercise of stock options

 

 

19,606

 

 

 

 

 

 

909

 

 

 

 

 

 

909

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

6,212

 

 

 

 

 

 

6,212

 

Purchase and cancellation of common stock

 

 

(539,075

)

 

 

(5

)

 

 

(970

)

 

 

(53,638

)

 

 

(54,613

)

Issuance of non-vested stock, net of cancellations

 

 

19,984

 

 

 

 

 

 

2,493

 

 

 

 

 

 

2,493

 

Other stock related activity, net of tax

 

 

(10,552

)

 

 

 

 

 

596

 

 

 

(2,084

)

 

 

(1,488

)

Net income

 

 

 

 

 

 

 

 

 

 

 

97,452

 

 

 

97,452

 

Balance at September 25, 2021

 

 

31,658,703

 

 

$

317

 

 

$

73,325

 

 

$

830,882

 

 

$

904,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 26, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Additional Paid-In

Capital

 

 

Retained

Earnings

 

 

Total

 

Balance at December 28, 2019

 

 

32,556,263

 

 

$

326

 

 

$

52,605

 

 

$

720,653

 

 

$

773,584

 

Exercise of stock options

 

 

2,896

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

3,966

 

 

 

 

 

 

3,966

 

Purchase and cancellation of common stock

 

 

(234,116

)

 

 

(2

)

 

 

(421

)

 

 

(16,890

)

 

 

(17,313

)

Cancellation of non-vested stock, net of issuances

 

 

(14,782

)

 

 

 

 

 

504

 

 

 

 

 

 

504

 

Other stock related activity, net of tax

 

 

(5,575

)

 

 

 

 

 

239

 

 

 

(534

)

 

 

(295

)

Net income

 

 

 

 

 

 

 

 

 

 

 

70,919

 

 

 

70,919

 

Balance at September 26, 2020

 

 

32,304,686

 

 

$

324

 

 

$

56,893

 

 

$

774,148

 

 

$

831,365

 

See accompanying Notes to Condensed Consolidated Financial Statements

5


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

Nine Months Ended

 

(in thousands)

 

September 25, 2021

 

 

September 26, 2020

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

97,452

 

 

$

70,919

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

24,931

 

 

 

22,544

 

Gain on equity method investment

 

 

 

 

 

(2,498

)

Provision for doubtful accounts

 

 

61

 

 

 

197

 

Benefit for deferred income taxes

 

 

(414

)

 

 

(1,154

)

Provision for stock-based compensation

 

 

6,212

 

 

 

4,069

 

Payment of contingent consideration

 

 

(2,418

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

20,746

 

 

 

(11,685

)

Inventories

 

 

(97,156

)

 

 

3,093

 

Prepaids and other current assets

 

 

(7,216

)

 

 

1,360

 

Other assets

 

 

(3,639

)

 

 

(1,923

)

Accounts payable

 

 

20,456

 

 

 

20,334

 

Accrued customer rebates and returns

 

 

23,786

 

 

 

24,690

 

Accrued compensation and other liabilities

 

 

(5,200

)

 

 

15,773

 

Cash provided by operating activities

 

 

77,601

 

 

 

145,719

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Acquisition, net of cash acquired

 

 

(345,483

)

 

 

(14,308

)

Property, plant and equipment additions

 

 

(15,274

)

 

 

(12,061

)

Cash used in investing activities

 

 

(360,757

)

 

 

(26,369

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds of revolving credit line

 

 

252,360

 

 

 

99,000

 

Payments of revolving credit line

 

 

(3,000

)

 

 

(99,000

)

Payment of contingent consideration

 

 

(7,982

)

 

 

 

Payment of debt issuance costs

 

 

(4,215

)

 

 

 

Proceeds from exercise of stock options

 

 

909

 

 

 

 

Other stock-related activity

 

 

1,055

 

 

 

112

 

Purchase and cancellation of common stock

 

 

(54,272

)

 

 

(17,313

)

Cash provided by (used in) financing activities

 

 

184,855

 

 

 

(17,201

)

Effect of exchange rate changes on Cash and Cash Equivalents

 

 

(12

)

 

 

-

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

(98,313

)

 

 

102,149

 

Cash and Cash Equivalents, Beginning of Period

 

 

155,576

 

 

 

68,353

 

Cash and Cash Equivalents, End of Period

 

$

57,263

 

 

$

170,502

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

567

 

 

$

680

 

Cash paid for income taxes

 

$

37,500

 

 

$

19,575

 

See accompanying Notes to Condensed Consolidated Financial Statements 

6


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 25, 2021 AND SEPTEMBER 26, 2020

(UNAUDITED)

1.

Basis of Presentation

As used herein, unless the context requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc. and its subsidiaries. Our ticker symbol on the NASDAQ Global Select Market is “DORM.”

The accompanying unaudited condensed consolidated financial statements have been prepared under U.S. generally accepted accounting principles (“GAAP”) for interim financial information and under the rules and regulations of the U.S. Securities and Exchange Commission. However, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 25, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2021 or any future period. We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers. The introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020. 

2.

Business Acquisitions and Investments

DPL Holding Corporation (“Dayton Parts”)

On August 10, 2021, we acquired 100% of the equity interests of Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket for a purchase price of $345.5 million in cash (net of $8.8 million of acquired cash), subject to certain customary post-acquisition purchase price adjustments.

The acquisition was funded by cash on hand as well as through the refinancing of our revolving credit facility discussed further in Note 6.

The transaction was accounted for as a business combination under the acquisition method of accounting. We have preliminarily allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We are in the process of completing the valuation of identifiable intangible assets, current and deferred taxes, fixed assets, and pre-acquisition contingencies and, therefore, the fair values set forth below are subject to adjustment upon finalizing the valuations. We expect to complete the purchase price allocation during the fourth quarter of fiscal 2021. The table below details the estimated fair values of the assets acquired and the liabilities assumed at the acquisition date:

 

(in thousands)

 

 

 

 

Accounts receivable

 

$

23,061

 

Inventories

 

 

79,625

 

Prepaids and other current assets

 

 

2,403

 

Property, plant and equipment

 

 

29,861

 

Goodwill

 

 

108,946

 

Identifiable intangible assets

 

 

160,400

 

Operating lease right-of-use assets

 

 

21,248

 

Other assets

 

 

877

 

Accounts payable

 

 

(11,968

)

Accrued compensation

 

 

(2,784

)

Other current liabilities

 

 

(7,409

)

Long-term operating lease liabilities

 

 

(18,444

)

Deferred tax liabilities

 

 

(40,333

)

Net cash consideration

 

$

345,483

 

 

7


 

The estimated valuation of the intangible assets acquired, and related amortization periods are as follows:

 

(in thousands)

 

Fair Value

 

 

Amortization Period (in years)

 

Customer relationships

 

$

124,100

 

 

 

20

 

Product portfolio

 

 

25,300

 

 

 

20

 

Trade names

 

 

11,000

 

 

 

10

 

Total

 

$

160,400

 

 

 

 

 

 

The fair values assigned to intangible assets were estimated by discounting expected cash flows based on the relief from royalty and multiperiod excess earnings valuation methodologies. These valuation methods rely on management judgment, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, royalty rates and other factors.

The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to the Company’s and Dayton Parts’ existing automotive aftermarket businesses, the assembled workforce of Dayton Parts and other factors. The goodwill is not expected to be deductible for tax purposes.

The financial results of the acquisition have been included in the unaudited condensed consolidated financial statements since the date of acquisition. The net sales and net income of Dayton Parts included in the unaudited condensed consolidated financial statements for both the three and nine months ended September 25, 2021 were $27.4 million and $0.3 million, respectively.

The unaudited pro forma information for the periods set forth below gives effect to the Dayton Parts acquisition as if it had occurred as of December 29, 2019, the beginning of the earliest period presented in these financial statements.

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time.

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands)

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Net sales

 

$

371,408

 

 

$

345,525

 

 

$

1,070,238

 

 

$

918,874

 

Net income

 

$

37,089

 

 

$

36,085

 

 

$

108,016

 

 

$

62,832

 

Diluted earnings per share

 

$

1.16

 

 

$

1.11

 

 

$

3.37

 

 

$

1.94

 

 

Power Train Industries, Inc. (“PTI”)

On January 2, 2020, we acquired the remaining outstanding stock of PTI not already owned by the Company. The total purchase price for PTI was approximately $30.7 million, which included $18.4 million paid for the remaining 60% of the outstanding stock, subject to customary purchase price adjustments, and $12.3 million which represents the fair value of the previously held 40% equity interest in PTI that was acquired by the Company in 2016. As a result of the acquisition, we recorded a gain of $2.5 million in other (expense) income, net during the quarter ended March 28, 2020 from the increase in fair value of our original 40% interest in PTI. We previously accounted for our 40% interest as an equity-method investment.

3.

Sales of Accounts Receivable

We have entered several customer-sponsored programs administered by unrelated financial institutions that permit us to sell certain accounts receivable at discounted rates to the financial institutions. Transactions under these agreements were accounted for as sales of accounts receivable and the related accounts receivable were removed from our Condensed Consolidated Balance Sheet at the times of the sales transactions. Under these agreements, we sold $690.0 million and $568.3 million of accounts receivable during the nine months ended September 25, 2021 and September 26, 2020, respectively. All credit terms with our customers are 365 days or less. Selling, general and administrative expenses include financing costs associated with these accounts receivable sales programs of $3.1 million and $1.3 million during the three months ended September 25, 2021 and September 26, 2020, respectively, and $8.6 million and $10.9 million during the nine months ended September 25, 2021 and September 26, 2020, respectively.

8


4.

Inventories

Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of our products and are stated at the lower of cost or net realizable value. Inventories were as follows:

 

(in thousands)

 

September 25, 2021

 

 

December 26, 2020

 

Raw materials

 

$

10,467

 

 

$

 

Bulk product

 

 

198,205

 

 

 

136,726

 

Finished product

 

 

257,141

 

 

 

157,484

 

Packaging materials

 

 

9,649

 

 

 

4,509

 

Total

 

$

475,462

 

 

$

298,719

 

 

5.

Goodwill and Intangible Assets

Goodwill

Goodwill included the following:

(in thousands)

 

September 25, 2021

 

 

December 26, 2020

 

Balance at beginning of period

 

$

91,080

 

 

$

74,458

 

Goodwill acquired

 

 

108,946

 

 

 

16,622

 

Balance at end of period

 

$

200,026

 

 

$

91,080

 

Intangible Assets

Intangible assets included the following:

 

 

September 25, 2021

 

 

December 26, 2020

 

Intangible assets subject to amortization

 

Gross Carrying Value

 

 

Accumulated Amortization

 

 

Net Carrying Value

 

 

Gross Carrying Value

 

 

Accumulated Amortization

 

 

Net Carrying Value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

149,150

 

 

$

9,140

 

 

$

140,010

 

 

$

25,050

 

 

$

7,141

 

 

$

17,909

 

Trade names

 

 

17,760

 

 

 

2,075

 

 

 

15,685

 

 

 

6,760

 

 

 

1,585

 

 

 

5,175

 

Product Portfolio

 

 

25,300

 

 

 

42

 

 

 

25,258

 

 

 

 

 

 

 

 

 

 

Technology

 

 

2,167

 

 

 

508

 

 

 

1,659

 

 

 

2,167

 

 

 

323

 

 

 

1,844

 

Other

 

 

430

 

 

 

215

 

 

 

215

 

 

 

430

 

 

 

151

 

 

 

279

 

Total

 

$

194,807

 

 

$

11,980

 

 

$

182,827

 

 

$

34,407

 

 

$

9,200

 

 

$

25,207

 

Amortization expense was $1.2 million and $0.8 million during the three months ended September 25, 2021 and September 26, 2020, respectively, and $2.9 million and $2.5 million during the nine months ended September 25, 2021 and September 26, 2020, respectively. 

6.

Debt

On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a new credit agreement that provides for a $600 million revolving credit facility, including a letter of credit sub-facility of up to $60 million (the “New Facility”). The New Facility replaced our previous $100 million revolving credit facility. The New Facility matures on August 10, 2026 and is guaranteed by the Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and is supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

Borrowings under the New Facility bear interest at a rate per annum equal to, at the Company’s option, either a LIBOR rate (subject to a 0.00% floor) or a base rate, in each case plus an applicable margin of, initially (i) in the case of LIBOR rate, 1.250% or (ii) in the case of base rate loans, 0.250%. The applicable margin for (i) base rate loans ranges from 0.000% to 1.000% per annum and (ii) for LIBOR loans ranges from 1.000% to 2.000% per annum, in each case, based on the Total Net Leverage Ratio (as defined in the New Facility). The commitment fee is initially equal to 0.150% and thereafter ranges from 0.125% to 0.250% based on the Total Net Leverage Ratio. As of September 25, 2021, the interest rate on the outstanding borrowings under the New Facility was 1.33% and the commitment fee was 0.15%.

The New Facility contains affirmative and negative covenants, including, but not limited to, covenants regarding capital expenditures, share repurchases, and financial covenants related to the ratio of consolidated interest expense to

9


consolidated EBITDA and the ratio of total net indebtedness to consolidated EBITDA, each as defined by the New Facility. As of September 25, 2021, we were not in default with respect to the New Facility.

7.

Commitments and Contingencies

Acquisitions

We have contingent consideration related to certain of our prior acquisitions due to the uncertainty of the ultimate amount of payment which will become due as earnout payments if performance targets are achieved. During the nine months ended September 25, 2021, we paid $10.4 million in contingent consideration in connection with prior acquisitions based upon performance targets. If the performance targets associated with prior acquisitions are fully achieved, the maximum additional contingent payments to be made under the related acquisition agreements would be $3.6 million.

Other Contingencies

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, employment claims, competitive practices, intellectual property infringement, 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, taking into account relevant insurance coverage, would likely have a material financial impact on the Company, and we believe the range of reasonably possible losses from current matters, taking into account relevant insurance coverage, is immaterial. However, legal matters are subject to inherent uncertainties, and the possibility exists that the ultimate resolution of any of these matters could have a material adverse impact on the Company’s cash flows, financial position and results of operations in the period in which any such effects are recorded.

8.

Revenue Recognition

Our primary source of revenue is from contracts with and purchase orders from customers. In many instances, our contract with a customer is the customer’s purchase order. Upon acceptance of the purchase order, a contract exists with a customer as it indicates approval and commitment of the parties, identifies the rights of both parties, identifies the payment terms, has commercial substance, and makes it probable that we will collect the consideration to which we will be entitled in exchange for the goods transferred to the customer.

We record estimates for cash discounts, defective and slow-moving product returns, promotional rebates, core return deposits and other discounts in the period the related product revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales, and reserves for Customer Credits are shown as an increase of accrued customer rebates and returns. Customer Credits are estimated based on contractual provisions, historical experience, and our assessment of current market conditions. Actual Customer Credits have not differed materially from estimated amounts for each period presented. 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. We have concluded that our estimates of variable consideration are not constrained.

All our revenue was recognized under the point of time approach during the nine months ended September 25, 2021 and September 26, 2020. We do not have significant financing arrangements with our customers, as our credit terms are all 365 days or less. Also, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts.

Disaggregated Revenue

The following tables present our disaggregated net sales by type of major good / product line, and geography.

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands)

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Powertrain

 

$

136,770

 

 

$

120,565

 

 

$

386,732

 

 

$

323,396

 

Chassis

 

 

118,273

 

 

 

87,977

 

 

 

302,219

 

 

 

227,273

 

Automotive body

 

 

78,477

 

 

 

74,445

 

 

 

214,180

 

 

 

197,624

 

Hardware

 

 

14,906

 

 

 

17,633

 

 

 

43,942

 

 

 

43,239

 

Net sales

 

$

348,426

 

 

$

300,620

 

 

$

947,073

 

 

$

791,532

 

 

10


 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands)

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Net sales to U.S. customers

 

$

328,315

 

 

$

280,330

 

 

$

896,545

 

 

$

744,285

 

Net sales to non-U.S. customers

 

 

20,111

 

 

 

20,290

 

 

 

50,528

 

 

 

47,247

 

Net sales

 

$

348,426

 

 

$

300,620

 

 

$

947,073

 

 

$

791,532

 

 

9.

Stock-Based Compensation

Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”)

Vesting of RSA and RSU grants is conditional based on continued employment or service for a specified period and, in certain circumstances, the attainment of performance goals. We retain the shares underlying the grant, and any dividends paid thereon, until the vesting conditions have been met. For time-based RSA and RSU grants, compensation cost related to the stock is recognized on a straight-line basis over the vesting period and is calculated using the closing price per share of our common stock on the grant date. For performance-based RSA grants tied to growth in adjusted pre-tax income, compensation cost related to the award is recognized over the performance period and is calculated using the closing price per share of our common stock on the grant date and an estimate of the probable outcome of the performance conditions at each reporting date. Since March 2020, we have made performance-based RSU grants that vest based on our total shareholder return ranking relative to the total shareholder return of the companies comprising the S&P Mid-Cap 400 Growth Index over a three-year performance period. For these awards, compensation cost related to the award is recognized on a straight-line basis over the performance period and is calculated using the simulated fair value per share of our common stock based on the application of a Monte Carlo simulation model. For the nine months ended September 25, 2021, we granted 17,714 performance-based RSUs with a grant date fair value of $131.02 per share.

Compensation cost related to RSA and RSU grants was $1.4 million and $1.0 million for the three months ended September 25, 2021 and September 26, 2020, respectively, and $4.5 million and $3.0 million for the nine months ended September 25, 2021 and September 26, 2020, respectively, and were included in selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

The following table summarizes our RSA and RSU activity for the nine months ended September 25, 2021:

 

 

Shares

 

 

Weighted

Average

Fair Value

 

Balance at December 26, 2020

 

 

217,735

 

 

$

72.77

 

Granted

 

 

76,984

 

 

$

106.23

 

Vested

 

 

(36,042

)

 

$

67.05

 

Canceled

 

 

(45,451

)

 

$

74.61

 

Balance at September 25, 2021

 

 

213,226

 

 

$

85.42

 

As of September 25, 2021, there was $10.9 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.3 years.

Stock Options

We expense the grant-date fair value of stock options as compensation cost on a straight-line basis over the vesting period for which related services are performed. The compensation cost charged against income was $0.3 million for each of the three months ended September 25, 2021 and September 26, 2020, and $0.9 million and $0.8 million for the nine months ended September 25, 2021 and September 26, 2020, respectively. These costs are included as selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

We use the Black-Scholes option valuation model to estimate the fair value of stock options granted. Expected volatility and expected dividend yield are based on the actual historical experience of our common stock. The expected life represents the period that options granted are expected to be outstanding and was calculated using historical option exercise data. The risk-free rate was based on a U.S. Treasury security with terms equal to the expected time of exercise as of the grant date.

11


The following table summarizes our stock option activity for the nine months ended September 25, 2021:

 

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Term

(In years)

 

 

Aggregate

Intrinsic

Value

 

Balance at December 26, 2020

 

250,779

 

 

$

70.21

 

 

 

 

 

 

 

 

 

Granted

 

58,393

 

 

$

101.47

 

 

 

 

 

 

 

 

 

Forfeited

 

(9,457

)

 

$

79.02

 

 

 

 

 

 

 

 

 

Exercised

 

(39,794

)

 

$

66.11

 

 

 

 

 

 

 

 

 

Balance at September 25, 2021

 

259,921

 

 

$

77.54

 

 

 

5.3

 

 

$

5,228,021

 

Options exercisable at September 25, 2021

 

94,762

 

 

$

73.84

 

 

 

3.6

 

 

$

2,159,758

 

As of September 25, 2021, there was $3.0 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted average period of 2.8 years.

Employee Stock Purchase Plan

There were 31,462 shares and 10,735 shares purchased during the nine months ended September 25, 2021 and September 26, 2020, respectively. During the nine months ended September 25, 2021 and September 26, 2020, compensation costs were $0.7 million and $0.3 million, respectively.

10.

Earnings Per Share

Basic earnings per share is calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding unvested RSAs and RSUs that are considered to be contingently issuable. To calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding. Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards. Stock-based awards that were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive were 19,000 shares and 34,000 shares for the three months ended September 25, 2021 and September 26, 2020, respectively, and 16,000 shares and 141,000 shares for the nine months ended September 25, 2021 and September 26, 2020, respectively.

The following table sets forth the computation of basic and diluted earnings per share:

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands, except per share data)

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

33,104

 

 

$

34,259

 

 

$

97,452

 

 

$

70,919

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

 

31,692

 

 

 

32,281

 

 

 

31,895

 

 

 

32,317

 

Effect of stock-based compensation awards

 

 

150

 

 

 

90

 

 

 

144

 

 

 

77

 

Weighted average diluted shares outstanding

 

 

31,842

 

 

 

32,371

 

 

 

32,039

 

 

 

32,394

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.04

 

 

$

1.06

 

 

$

3.06

 

 

$

2.19

 

Diluted

 

$

1.04

 

 

$

1.06

 

 

$

3.04

 

 

$

2.19

 

 

11.

Common Stock Repurchases

We periodically repurchase, at the then-current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “401(k) Plan”). Under the 401(k) Plan, participants can no longer purchase shares of Dorman common stock as an investment option. Shares are generally purchased from the 401(k) Plan when participants sell units as permitted by the 401(k) Plan or elect to leave the 401(k) Plan upon retirement, termination or other reasons. The following table summarizes the repurchase and cancellation of common stock in the 401(k) Plan:

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Shares repurchased and canceled

 

1,426

 

 

 

8,930

 

 

 

4,568

 

 

 

15,280

 

Total cost of shares repurchased and canceled (in thousands)

$

146

 

 

$

723

 

 

$

462

 

 

$

1,123

 

Average price per share

$

102.62

 

 

$

80.95

 

 

$

101.16

 

 

$

73.49

 

12


 

 

Our Board of Directors has authorized the repurchase of up to $500 million of our common stock through December 31, 2022 under a previously announced share repurchase program. Under this program, share repurchases may be made from time to time depending on market conditions, share price, share availability and other factors at our discretion. The share repurchase program does not obligate us to acquire any specific number of shares. At September 25, 2021, $153.0 million was available for repurchase under this share repurchase program. The following table summarizes the repurchase and cancellation of common stock under the share repurchase program:

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Shares repurchased and canceled

 

232,618

 

 

 

126,857

 

 

 

534,507

 

 

 

218,836

 

Total cost of shares repurchased and canceled (in thousands)

$

23,218

 

 

$

10,726

 

 

$

54,152

 

 

$

16,191

 

Average price per share

$

99.81

 

 

$

84.55

 

 

$

101.31

 

 

$

73.99

 

 

12.

Income Taxes

At September 25, 2021, we had $1.2 million of net unrecognized tax benefits, all of which would lower our effective tax rate if recognized. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of September 25, 2021, accrued interest and penalties related to uncertain tax positions were not material.

We file income tax returns in the United States, Canada, China, India, and Mexico. All years before 2017 are closed for U.S. federal tax purposes. Tax years before 2016 are closed for the states in which we file. Tax years before 2018 are closed for tax purposes in Canada. Tax years before 2018 are closed for tax purposes in China. Tax years before 2016 are closed for tax purposes in Mexico. All tax years remain open for India.

13.

Related-Party Transactions

We lease our Colmar, PA facility and a portion of our Lewisberry, PA facility from entities in which Steven L. Berman, our Executive Chairman, and certain of his family members are owners. Each lease is a non-cancelable operating lease. Total rental payments to those entities under these lease arrangements will be $2.3 million in fiscal 2021 and were $1.8 million in fiscal 2020. The lease for our corporate headquarters in Colmar, PA was renewed during November 2016, effective as of January 1, 2018, and will expire on December 31, 2022. The lease for our Lewisberry, PA operating facility was signed in September 2020 and will expire on December 31, 2027. In the opinion of our Audit Committee, the terms and rates of these leases were no less favorable than those which could have been obtained from an unaffiliated party when the lease for our corporate headquarters in Colmar, PA was renewed during November 2016 and when the lease for our Lewisberry, PA operating facility was signed in September 2020.

We are a partner in a joint venture with one of our suppliers and own minority interests in two other suppliers. Each of these investments is accounted for under the equity method.

14.

Fair Value Disclosures

The carrying value of financial instruments such as cash, accounts receivable, accounts payable, debt under our revolving credit facility, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments.

 

13


 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the condensed consolidated financial statements and related notes thereto included in PART I, ITEM 1 of this Quarterly Report on Form 10-Q. As used herein, unless the context requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc. and its subsidiaries.

Cautionary Statement Regarding Forward-Looking Statements

This document contains certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to the COVID-19 pandemic, net sales, diluted earnings per share, gross profit, gross margin, selling, general and administrative expenses, income tax expense, income before income taxes, net income, cash and cash equivalents, indebtedness, liquidity, the Company’s share repurchase program, the Company’s outlook and distribution facility costs and productivity initiatives. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “should,” “will” and “likely” and similar expressions identify forward-looking statements. However, the absence of these words does not mean the statements are not forward-looking. In addition, statements that are not historical should also be considered forward-looking statements.

Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors (many of which are outside of our control) which may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to (i) the age, condition and number of vehicles that need servicing; (ii) competition in the automotive aftermarket industry; (iii) the loss or decrease in sales among one of our top customers; (iv) price competition; (v) limited customer shelf space; (vi) customer consolidation; (vii) widespread public health epidemics, including COVID-19; (viii) failure to maintain sufficient inventory or anticipate changes in customer demand; (ix) excess overstock inventory-related returns; (x) the inability to purchase raw materials, components and other items from our suppliers; (xi) the availability and cost of third-party transportation providers; (xii) reliance on new product development; (xiii) changes in, or restrictions on access to, automotive technology; (xiv) quality problems with our products; (xv) inability to protect our intellectual property; (xvi) claims of intellectual property infringement; (xvii) failure to maintain the value of our brands; (xviii) cyber-attacks; (xix) foreign currency fluctuations and dependence on foreign suppliers; (xx) exposure to risks related to accounts receivable; (xxi) changes in U.S. trade policy, including the imposition of tariffs; (xxii) the level of our indebtedness; (xxiii) risks related to accounts receivable sales agreements; (xxiv) the phaseout of LIBOR or the impact of the imposition of a new reference rate; (xxv) our executive chairman and his family owning a significant portion of the Company; (xxvi) unfavorable economic conditions; (xxvii) quarterly fluctuations and disruptions from events beyond our control; (xxviii) unfavorable results of legal proceedings; (xxix) volatility in the market price of our common stock and potential securities class action litigation; (xxx) losing the services of our executive officers or other highly qualified and experienced Contributors; (xxxi) the inability to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully; (xxxii) changes in tax laws; (xxxiii) global climate change and related regulations; (xxxiv) violations of anti-bribery laws; and (xxxv) import and export control and economic sanctions laws and regulations. Should one or more of any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

See the “Statement Regarding Forward Looking Statements,” PART I, ITEM 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020 and the Company’s other filings with the U.S. Securities and Exchange Commission (“SEC”) for additional information regarding forward-looking statements and the factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. The Company is under no obligation to, and expressly disclaims any such obligation to, update any of the information in this document, including but not limited to any situation where any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise.

Introduction

The following discussion and analysis, as well as other sections in this Quarterly Report on Form 10-Q, should be read in conjunction with the unaudited condensed consolidated financial statements and footnotes thereto of Dorman Products, Inc. and its subsidiaries included in “ITEM 1. Financial Statements” of this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited

14


consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020.

This Quarterly Report on Form 10-Q contains the registered and unregistered trademarks or service marks of Dorman and are the property of Dorman Products, Inc. and/or its affiliates. This Quarterly Report on Form 10-Q also may contain additional trade names, trademarks or service marks belonging to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with or endorsement or sponsorship of us by these parties.

Overview

We are one of the leading suppliers of replacement parts and fasteners for passenger cars, light trucks, and heavy-duty trucks in the automotive aftermarket industry. As of December 26, 2020, we marketed approximately 81,000 distinct parts, many of which we designed and engineered. This number excludes private label stock keeping units and other variations in how we market, package and distribute our products, includes distinct parts of acquired companies and reflects distinct parts that have been discontinued at the end of their lifecycle. We are one of the leading aftermarket suppliers of original equipment (“OE”) “dealer exclusive” parts. Original equipment “dealer exclusive” parts are those which were traditionally available to consumers only from original equipment manufacturers or used parts from salvage yards and include, among other parts, intake manifolds, exhaust manifolds, window regulators, radiator fan assemblies, tire pressure monitor sensors, exhaust gas recirculation (EGR) coolers and complex electronics modules. Fasteners include such items as oil drain plugs, wheel bolts, and wheel lug nuts. For the year ended December 26, 2020, approximately 75% of our products were sold under brands that we own, and the remainder of our products were 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 Advance Auto Parts, Inc., AutoZone, Inc., and O'Reilly Automotive, Inc.), including through their online platforms; national, regional and local warehouse distributors (such as Genuine Parts Co. – NAPA); and specialty markets, and salvage yards. We also distribute automotive aftermarket parts internationally, with sales primarily into Canada and Mexico, and to a lesser extent, Europe, the Middle East, and Australia.

We operate on a fifty-two or fifty-three-week period ending on the last Saturday of the calendar year. Our 2021 fiscal year will be a fifty-two-week period that will end on December 25, 2021 (“fiscal 2021”). Our fiscal 2020 was a fifty-two-week period that ended on December 26, 2020 (“fiscal 2020”).

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies as described in the Annual Report on Form 10-K for the year ended December 26, 2020.

COVID-19

While COVID-19 did not have a material adverse effect on our business operations for the nine months ended September 25, 2021, during the period we did observe pandemic-related pressures on the global supply network that caused logistical issues, including higher freight costs and inflation with respect to materials costs, which impacted our results. We currently expect those pressures to continue to exist for the remainder of the fiscal year. As countries continue to combat COVID-19, and as government-imposed regulations regarding, among other things, COVID-19 testing, vaccine mandates and related workplace restrictions change around the world, there is still a risk that the pandemic may impact the overall demand environment as well as our ability to maintain staffing at our facilities, to source parts and other materials to meet demand levels, to maintain inventory levels and to fulfill contractual requirements. We will continue to closely monitor updates regarding the spread of COVID-19 and its variants, the distribution of vaccines developed to combat COVID-19, and applicable vaccine mandates, and we will adjust our operations according to guidelines from local, state and federal officials. In light of the foregoing, we may take actions that alter our business operations or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

New Product Development

New product development is an important success factor for us and traditionally has been our primary vehicle for growth. We have made incremental investments to increase our new product development efforts to grow our business and strengthen our relationships with our customers. The investments primarily have been in the form of increased product development resources, increased customer and end-user awareness programs, and customer service improvements. These investments historically have enabled us to provide an expanding array of new product offerings and grow revenues at levels that generally have exceeded market growth rates.

15


In the nine months ended September 25, 2021, excluding Dayton Parts, we introduced 3,345 new distinct parts to our customers and end-users, including 649 “New-to-the-Aftermarket parts. We introduced 3,479 distinct parts to our customers and end-users in the fiscal year ended December 26, 2020, including 1,433 “New-to-the-Aftermarket parts.

One area of expanded development focus has been our complex electronics program, which we believe will help us capitalize on the increase of advanced computing and sensing components being utilized on today’s OE platforms. Current generation vehicles now contain an average of approximately 100 electronic modules, with some high-end luxury vehicles containing over 200 modules. Our complex electronics products are designed and developed in-house and tested using proprietary equipment that simulates the on-vehicle operating environment to verify performance. We continue to make investments in technology and people to enhance our electronics design capabilities, expand our complex electronics product portfolio and further develop our leadership position in the category.

Another area of focus has been on products we market for the medium- and heavy-duty truck sector of the automotive aftermarket industry. Our recent acquisition of Dayton Parts, a manufacturer of chassis and other parts for medium- and heavy-duty vehicles, is one of the ways in which we have sought to further our strategy of expansion in this sector. We believe that this sector provides many of the same opportunities for growth that the passenger car and light truck sector of the automotive aftermarket industry has provided us. For example, through Dorman® HD Solutions™, we specialize in what formerly were “dealer exclusive” parts similar to how we have approached the passenger car and light-duty truck sector. During the nine months ended September 25, 2021, excluding Dayton Parts, we introduced 74 distinct parts in this product line.

Acquisitions

Our growth is also impacted by acquisitions. For example, on August 10, 2021, we acquired Dayton Parts. See Note 2, Business Acquisitions and Investments under Notes to Condensed Consolidated Financial Statements for additional information. We may acquire businesses in the future to supplement our financial growth, increase our customer base, add to our distribution capabilities or enhance our product development resources, among other reasons.

Economic Factors

The Company’s financial results are also impacted by various economic and industry factors, including, but not limited to the labor market and inflationary costs, the number, age and condition of vehicles in operation at any one time, and miles driven by those vehicles.

Impact of Labor Market and Inflationary Costs

We have experienced broad-based inflationary impacts during the nine months ended September 25, 2021, due primarily to: global transportation and logistics constraints, which have resulted in significantly higher transportation costs; tariffs; and wage inflation from an increasingly competitive labor market. We expect increased freight, higher labor costs and material inflation costs to continue to negatively impact our results for the remainder of the fiscal year. We attempt to offset inflationary pressures with price increases to customers and the use of alternative suppliers. However, there can be no assurance that we will be successful in these efforts.

Vehicles in Operation

The Company’s products are primarily purchased and installed on a subsegment of the passenger and light-duty vehicles in operation in the United States (“VIO”), specifically weighted towards vehicles aged 8 to 13 years old. Each year, the United States seasonally adjusted annual rate (“US SAAR”) of new vehicles purchased adds a new year to the VIO. According to data from the Auto Care Association (“Auto Care”), the US SAAR experienced a decline from 2008 to 2011 as consumers purchased fewer new vehicles as a result of the Great Recession of 2008. We believe that the declining US SAAR during that period resulted in a follow-on decline in our primary VIO subsegment (8 to 13-year-old vehicles) commencing in 2016. However, following 2011 and the impact of the Great Recession of 2008, U.S. consumers began to increase their purchases of new vehicles which over time caused the US SAAR to recover and return to more historical levels. Consequently, subject to any potential impacts from COVID-19, we expect the VIO for vehicles aged 8 to 13 years old to continue to recover over the next several years.

In addition, we believe that vehicle owners generally are operating their current vehicles longer than they did several years ago, performing necessary repairs and maintenance to keep those vehicles well maintained. We believe this trend has resulted in an increase in VIO. According to data published by Polk, a division of IHS Automotive, the average age of VIO increased to 12.0 years as of October 2020 from 11.9 years as of October 2019 despite increasing new car sales.

16


Additionally, while the number of VIO in the United States decreased 4% in 2020 to 279.8 million from 290.0 million in 2019, the number of VIO that are 11 years old or older increased from 57% in 2019 to 60% in 2020. Vehicle scrappage rates have also decreased over the last several years.

Miles Driven

The COVID-19 pandemic in general, as well as restrictions imposed by certain states in response to the COVID-19 pandemic, adversely impacted work-related and personal travel throughout 2020 and into early 2021. However, as a result of easing restrictions, the number of miles driven has shown a recent increase compared to prior year levels. In fact, according the U.S. Department of Transportation, the number of miles driven through July 2021 has increased 12.8% year over year. We believe that demand for our products generally correlates to miles driven, as the more miles a vehicle is driven, the more likely it is that parts will fail.

The combination of the factors above has accounted for a portion of our sales growth and is expected to impact our future results.

Discounts, Allowances and Incentives

We offer a variety of customer discounts, rebates, defective and slowing moving product returns and other incentives. We may offer cash discounts for paying invoices in accordance with the specified discount terms of the invoice. In addition, we may offer pricing discounts based on volume purchased from us or other pricing discounts related to programs under a customer’s agreement. These discounts can be in the form of “off-invoice” discounts and are immediately deducted from sales at the time of sale. For those customers that choose to receive a payment on a quarterly or annual basis instead of “off-invoice,” we accrue for such payments as the related sales are made and reduce sales accordingly. Finally, rebates and discounts are provided to customers to support promotional activities such as advertising and sales force allowances.

Our customers, particularly our larger retail customers, regularly seek more favorable pricing and product return provisions and extended payment terms when negotiating with us. We attempt to avoid or minimize these concessions as much as possible, but we have granted pricing concessions, indemnification rights, extended customer payment terms, and allowed a higher level of product returns in certain cases. These concessions impact net sales as well as our profit levels and may require additional capital to finance the business. We expect our customers to continue to exert pressure on our margins.

New Customer Acquisition Costs

New customer acquisition costs refer to arrangements under which we incur change-over costs to induce a customer to switch from a competitor’s brand. Change-over costs include the costs related to removing the new customer’s existing inventory (purchased from their previous supplier) and replacing it with Dorman inventory, which is commonly referred to as a stock-lift. New customer acquisition costs are recorded as a reduction to revenue when incurred.

Product Warranty and Overstock Returns

Many of our products carry a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet specifications. In addition to warranty returns, we also may permit our customers to return new, undamaged products to us within customer-specific limits if they have overstocked their inventories. At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return. Significant judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims.

Foreign Currency

Our products are purchased from suppliers in the United States and a variety of non-U.S. countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, we generally do not have exposure to fluctuations in the relationship between the U.S. dollar and various foreign currencies between the time of execution of the purchase order and payment for the product.

To the extent that the U.S. dollar changes in value relative to those foreign currencies in the future, the prices charged by our suppliers for products under new purchase orders may change in equivalent U.S. dollars. The largest portion of our overseas purchases comes from China. The Chinese yuan to U.S. dollar exchange rate has fluctuated over the past

17


several years. Any future changes in the value of the Chinese yuan relative to the U.S. dollar may result in a change in the cost of products that we purchase from China in the future. However, the cost of the products we procure is also affected by other factors including raw material availability, labor cost, and transportation costs.

Since our consolidated financial statements are denominated in U.S. dollars, the assets, liabilities, net sales, and expenses which are denominated in currencies other than the U.S. dollar must be converted into U.S. dollars using exchange rates for the current period. As a result, fluctuations in foreign currency exchange rates may impact our financial results.

Impact of Tariffs

In the third quarter of 2018, the Office of the United States Trade Representative (USTR) began imposing additional tariffs on products imported from China, including many of our products, ranging from 7.5% to 25%. The tariffs enacted to date increase the cost of many of the products that are manufactured for us in China. We have taken several actions to mitigate the impact of the tariffs including, but not limited to, price increases to our customers and cost concessions from our suppliers. We expect to continue mitigating the impact of tariffs in fiscal 2021 primarily through selling price increases to offset the higher tariffs incurred. Tariffs are not expected to have a material impact on our net income but are expected to increase net sales and lower our gross and operating profit margins to the extent that these additional costs are passed through to customers.

In January 2020, the USTR granted temporary tariff relief for certain categories of products being imported from China. The tariff relief granted by the USTR expired on most categories of products being imported from China at the end of 2020. However, the USTR has stated it is considering reinstating temporary tariff relief on certain categories of products imported after October 12, 2021 following its review of comments submitted to the USTR prior to December 1, 2021. We expect that we will reverse tariff-related price increases previously passed along to our customers and cost concessions previously received from our suppliers as tariffs are reduced or tariff relief is granted.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in our Condensed Consolidated Statements of Operations:

 

 

Three Months Ended*

 

 

Nine Months Ended*

 

(in millions)

 

September 25, 2021

 

 

September 26, 2020

 

 

September 25, 2021

 

 

September 26, 2020

 

Net sales

 

$

348,426

 

 

 

100.0

%

 

$

300,620

 

 

 

100.0

%

 

$

947,073

 

 

 

100.0

%

 

$

791,532

 

 

 

100.0

%

Cost of goods sold

 

 

231,572

 

 

 

66.5

%

 

 

192,819

 

 

 

64.1

%

 

 

615,574

 

 

 

65.0

%

 

 

519,786

 

 

 

65.7

%

Gross profit

 

 

116,854

 

 

 

33.5

%

 

 

107,801

 

 

 

35.9

%

 

 

331,499

 

 

 

35.0

%

 

 

271,746

 

 

 

34.3

%

Selling, general and administrative expenses

 

 

72,663

 

 

 

20.9

%

 

 

63,028

 

 

 

21.0

%

 

 

205,049

 

 

 

21.7

%

 

 

184,288

 

 

 

23.3

%

Income from operations

 

 

44,191

 

 

 

12.7

%

 

 

44,773

 

 

 

14.9

%

 

 

126,450

 

 

 

13.4

%

 

 

87,458

 

 

 

11.0

%

Interest expense, net

 

 

733

 

 

 

0.2

%

 

 

63

 

 

 

0.0

%

 

 

918

 

 

 

0.1

%

 

 

545

 

 

 

0.1

%

Other income, net

 

 

(95

)

 

 

-0.0

%

 

 

(46

)

 

 

-0.0

%

 

 

(334

)

 

 

-0.0

%

 

 

(2,862

)

 

 

-0.4

%

Income before income taxes

 

 

43,553

 

 

 

12.5

%

 

 

44,756

 

 

 

14.9

%

 

 

125,866

 

 

 

13.3

%

 

 

89,775

 

 

 

11.3

%

Provision for income taxes

 

 

10,449

 

 

 

3.0

%

 

 

10,497

 

 

 

3.5

%

 

 

28,414

 

 

 

3.0

%

 

 

18,856

 

 

 

2.4

%

Net income

 

$

33,104

 

 

 

9.5

%

 

$

34,259

 

 

 

11.4

%

 

$

97,452

 

 

 

10.3

%

 

$

70,919

 

 

 

9.0

%

* Percentage of sales information may not add due to rounding

Three Months Ended September 25, 2021 Compared to Three Months Ended September 26, 2020

Net sales increased 16% to $348.4 million for the three months ended September 25, 2021 from $300.6 million for the three months ended September 26, 2020. The increase in net sales reflected the addition of Dayton Parts as well as robust customer demand across all our product channels. Year-over-year net sales growth for the three months ended September 25, 2021 excluding Dayton Parts was 7%.

Gross profit margin was 33.5% of net sales for the three months ended September 25, 2021 compared to 35.9% of net sales for the three months ended September 26, 2020. Dayton Parts had a 150 basis points dilutive impact on gross margin in the three months ended September 25, 2021, primarily due to higher costs in the three months ended September 25, 2021 from fair value adjustments to inventory recorded in connection with the Dayton Parts acquisition. We also experienced broad-based inflationary impacts due to global transportation and logistics constraints. Although pass-through price increases we have implemented are expected to largely offset these inflationary impacts on a go-forward basis, we did not experience a full quarter of these price increases for the three months ended September 25, 2021. Pricing

18


increases implemented to pass through the increased costs had no added profit and consequently resulted in a lower gross margin.

Selling, general and administrative expenses (“SG&A”) were $72.7 million, or 20.9% of net sales, for the three months ended September 25, 2021 compared to $63.0 million, or 21.0% of net sales, for the three months ended September 26, 2020. The decrease in SG&A expenses as a percentage of net sales was primarily due to leverage from the increase in net sales, partially offset by wage and benefits inflation and costs related to the completion of the Dayton Parts acquisition and subsequent integration activities in the three months ended September 25, 2021.

Our effective tax rate was 24.0% for the three months ended September 25, 2021 compared to 23.5% for the three months ended September 26, 2020. The lower effective tax rate for the three months ended September 26, 2020 was the result of lower state tax expense and a nontaxable book gain associated with the PTI acquisition. Nondeductible transaction costs related to the Dayton Parts acquisition also contributed to the higher effective tax rate for the three months ended September 25, 2021.

Nine Months Ended September 25, 2021 Compared to Nine Months Ended September 26, 2020

Net sales increased 20% to $947.1 million for the nine months ended September 25, 2021 from $791.5 million for the nine months ended September 26, 2020. The increase in net sales reflected the addition of Dayton Parts as well as robust customer demand across all our product channels. Year-over-year net sales growth excluding Dayton Parts for the nine months ended September 25, 2021 was 16%. The absence of the government imposed shut-downs that negatively impacted the nine months ended September 26, 2020 was also a significant contributor to the year-over-year growth.

Gross profit margin was 35.0% of net sales for the nine months ended September 25, 2021 compared to 34.3% of net sales for the nine months ended September 26, 2020. Gross margin expansion was driven by fixed cost leverage from higher sales volume and improved efficiencies as we continued to drive productivity savings in our end-to-end supply chain processes. Additionally, we benefitted from the absence of out-of-pocket costs incurred due to the COVID-19 pandemic in the nine months ended September 26, 2020. These benefits were partially offset by broad-based inflationary impacts due to global transportation and logistics constraints and higher costs from fair value adjustments to inventory recorded in connection with the Dayton Parts acquisition in the nine months ended September 25, 2021.

Selling, general and administrative expenses were $205.0 million, or 21.7% of net sales, for the nine months ended September 25, 2021 compared to $184.3 million, or 23.3% of net sales, for the nine months ended September 26, 2020. The decrease in SG&A as a percentage of net sales was due to the operating leverage from the $155.6 million increase in net sales for the nine months ended September 25, 2021 as compared to the nine months ended September 26, 2020. Additionally, we saw benefits in SG&A as a percentage of net sales from the absence of out-of-pocket costs related to the COVID-19 pandemic incurred in the nine months ended September 26, 2020. These benefits were partially offset by wage and benefits inflation and costs related to the completion of the Dayton Parts acquisition and subsequent integration activities in the nine months ended September 25, 2021.

Our effective tax rate was 22.6% for the nine months ended September 25, 2021 compared to 21.0% for the nine months ended September 26, 2020. The lower effective tax rate for the nine months ended September 26, 2020 was the result of lower state tax expense, a tax benefit related to a nontaxable book gain and the write-off of a deferred tax liability associated with PTI upon our acquisition of the controlling interest in January 2020, and a foreign tax credit carry-back claim. Nondeductible transaction costs related to the Dayton Parts acquisition also contributed to the higher effective tax rate for the nine months ended September 25, 2021.

Liquidity and Capital Resources

Historically, our primary sources of liquidity have been our invested cash and the cash flow we generate from our operations, including accounts receivable sales programs sponsored by our customers. Additionally, we have utilized borrowings under revolving lines of credit, as needed, to fund Company objectives.

Cash and cash equivalents were $57.3 million at September 25, 2021 compared to $155.6 million at December 26, 2020. During the nine months ended September 25, 2021, strong cash provided from operating activities was more than offset by cash used to fund the Dayton Parts acquisition, share repurchases under our publicly announced repurchase program and capital expenditures. Working capital was $390.4 million at September 25, 2021 compared to $600.3 million at December 26, 2020. Based on our current operating plan, we believe that our sources of available capital are adequate to meet our ongoing cash needs for at least the next twelve months. However, our liquidity could be

19


negatively affected by extending payment terms to customers, a decrease in demand for our products, the outcome of contingencies or other factors, including the impact of the COVID-19 pandemic.

Payment Terms and Accounts Receivable Sales Programs

Over the past several years we have continued to extend 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 flows. We participate in accounts receivable sales programs with several customers that allow us to sell our accounts receivable to financial institutions to offset the negative cash flow impact of these payment terms extensions. However, any sales of accounts receivable through these programs ultimately result in us receiving a lesser amount of cash upfront than if we collected those accounts receivable ourselves in due course. Moreover, to the extent that any of these accounts receivable sales programs bear interest rates tied to the London Inter-Bank Offered Rate (“LIBOR”) or other reference rates, increases in these applicable rates increase our cost to sell our receivable. See ITEM 3. Quantitative and Qualitative Disclosures about Market Risk for more information. Further extensions of customer payment terms would result in additional uses of cash flow or increased costs associated with the sales of accounts receivable.

During the nine months ended September 25, 2021 and September 26, 2020, we sold $690.0 million and $568.3 million of accounts receivable, respectively, under these programs. If receivables had not been sold over the previous twelve months, approximately $381 million and $505 million of additional accounts receivable would have been outstanding at September 25, 2021 and December 26, 2020, respectively, based on our standard payment terms. We can sell increased levels of accounts receivable under our available programs if liquidity needs arise, whether due to the continued impacts of COVID-19 or other factors.

Credit Agreement

On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a new credit agreement that provides for a $600 million revolving credit facility, including a letter of credit sub-facility of up to $60 million (the “New Facility”). The New Facility replaced our previous $100 million revolving credit facility. The New Facility matures on August 10, 2026 and is guaranteed by the Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and is supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

Borrowings under the New Facility bear interest at a rate per annum equal to, at the Company’s option, either a LIBOR rate (subject to a 0.00% floor) or a base rate, in each case plus an applicable margin of, initially (i) in the case of LIBOR rate, 1.250% or (ii) in the case of base rate loans, 0.250%. The applicable margin for (i) base rate loans ranges from 0.000% to 1.000% per annum and (ii) for LIBOR loans ranges from 1.000% to 2.000% per annum, in each case, based on the Total Net Leverage Ratio (as defined in the New Facility). The interest rate at September 25, 2021 was LIBOR plus 125 basis points (1.33%). The commitment fee is initially equal to 0.150% and thereafter ranges from 0.125% to 0.250% based on the Total Net Leverage Ratio.

The New Facility contains affirmative and negative covenants, including, but not limited to, covenants regarding capital expenditures, share repurchases, and financial covenants related to the ratio of consolidated interest expense to consolidated EBITDA and the ratio of total net indebtedness to consolidated EBITDA, each as defined by the New Facility.

As of September 25, 2021, we were not in default with respect to the credit agreement. As of September 25, 2021, there was $249.4 million in outstanding borrowings under the New Facility and two outstanding letters of credit for $0.8 million in the aggregate which were issued to secure ordinary course of business transactions. Net of outstanding borrowings and letters of credit, we had $349.8 million available under the New Facility at September 25, 2021.

Cash Flows

The following summarizes the activities included in the Condensed Consolidated Statements of Cash Flows:

 

 

Nine Months Ended

 

(in thousands)

 

September 25, 2021

 

 

September 26, 2020

 

Cash provided by operating activities

 

$

77,601

 

 

$

145,719

 

Cash used in investing activities

 

 

(360,757

)

 

 

(26,369

)

Cash provided by (used in) financing activities

 

 

184,855

 

 

 

(17,201

)

Net (decrease) increase in cash and cash equivalents

 

$

(98,301

)

 

$

102,149

 

20


 

 During the nine months ended September 25, 2021, cash provided by operating activities was $77.6 million compared to $145.7 million during the nine months ended September 26, 2020. The $68.1 million decrease was driven by higher inventory purchases to maintain customer fill rates, as compared to the prior year, partially offset by higher proceeds from accounts receivable due to higher sales of accounts receivable in the nine months ended September 25, 2021.

Investing activities used cash of $360.8 million and $26.4 million during the nine months ended September 25, 2021 and September 26, 2020, respectively. During the nine months ended September 25, 2021, we used $345.5 million to acquire Dayton Parts, net of cash acquired and during the nine months ended September 26, 2020 we used $14.3 million to acquire the remaining 60% of the outstanding equity of PTI, net of cash acquired.

Financing activities used $184.9 million of cash during the nine months ended September 25, 2021, compared to $17.2 million of cash provided during the nine months ended September 26, 2020.

During the nine months ended September 25, 2021, we borrowed $252.4 million under the New Facility to help fund the acquisition of Dayton Parts in August 2021, and subsequently repaid $3.0 million of that borrowing during the nine months ended September 25, 2021. Additionally, during the nine months ended September 25, 2021, we paid $54.2 million to repurchase 534,507 common shares under our share repurchase plan. During the nine months ended September 26, 2020, we paid $16.2 million to repurchase 218,836 common shares under the share repurchase plan.

The remaining uses of cash from financing activities in each period result primarily from the repurchase of our common stock from our 401(k) Plan.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risk is the potential loss arising from adverse changes in interest rates. All our available credit and accounts receivable sales programs bear interest at rates tied to LIBOR or other reference rates. Under the terms of our credit agreement and customer-sponsored programs to sell accounts receivable, a change in either the lender’s base rate, LIBOR or discount rates under the accounts receivable sale programs would affect the rate at which we could borrow funds thereunder. A one-percentage-point increase in the discount rates under the accounts receivable sales programs would increase our interest expense on our variable rate debt, if any, and our financing costs associated with our sales of accounts receivable by approximately $4 million annually. This estimate assumes that our variable rate debt balance and the level of sales of accounts receivable remains constant for an annual period and the interest rate change occurs at the beginning of the period. The hypothetical changes and assumptions may be different from what occurs in the future.

Historically we have not used, and currently do not intend to use, derivative financial instruments for trading or to speculate on changes in interest rates or commodity prices. We are not exposed to any significant market risks, foreign currency exchange risks, or interest rate risks from the use of derivative instruments.

ITEM 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, 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 have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as defined in Rule 13a-15(e), were effective at the reasonable assurance level.

On August 10, 2021, we completed our acquisition of DPL Holding Corporation (“Dayton Parts”). We are in the process of evaluating the existing controls and procedures of Dayton Parts and integrating Dayton Parts into our internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for a period of one year following the date on which the acquisition is completed, we have excluded Dayton Parts from our assessment of the effectiveness of internal control over financial reporting as of September 25, 2021. Refer to Note 2 to the Condensed Consolidated Financial Statements for additional information.

Changes in Internal Control Over Financial Reporting

Except for the acquisition of Dayton Parts noted above, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), that occurred during the three months ended

21


September 25, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well-conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

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PART II. OTHER INFORMATION

The information set forth under Note 7, “Commitments and Contingencies,” to the Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this report is incorporated herein by reference.

ITEM 1A. Risk Factors

There have been no material changes in our risk factors from the risks previously reported in PART 1, ITEM 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 26, 2020. You should carefully consider the factors discussed in PART I, ITEM 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 26, 2020, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K 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 adversely affect our business, financial condition and/or operating results.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

During the three months ended September 25, 2021, we purchased shares of our common stock as follows:

  

Period

 

Total Number

of Shares

Purchased

 

 

Average

Price Paid

per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs (3)

 

 

Maximum

Number

(or Approximate

Dollar Value)

of Shares that

May Yet Be Purchased

Under the Plans or Programs (3)

 

June 27, 2021 through July 24, 2021

 

 

64,000

 

 

$

104.52

 

 

 

64,000

 

 

$

169,526,376

 

July 25, 2021 through August 21, 2021 (1)

 

 

101,467

 

 

$

99.80

 

 

 

99,368

 

 

$

159,613,310

 

August 22, 2021 through September 25, 2021 (2)

 

 

69,443

 

 

$

95.54

 

 

 

69,250

 

 

$

152,997,179

 

Total

 

 

234,910

 

 

 

 

 

 

 

232,618

 

 

$

152,997,179

 

(1)

Includes 673 shares of our common stock withheld from participants for income tax withholding purposes in connection with the vesting of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) during the period. The RSAs were granted to participants in prior periods pursuant to our 2018 Stock Option and Stock Incentive Plan (the “2018 Plan”) and our 2008 Stock Option and Stock Incentive Plan (the “2008 Plan”). The RSU’s were granted to participants in prior periods pursuant to the 2018 Plan. Also includes 1,426 shares purchased from the Dorman Products, Inc. 401(k) Plan and Trust (as described in Note 9, Common Stock Repurchases, to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q).

(2)

Includes 193 shares of our common stock withheld from participants for income tax withholding purposes in connection with the vesting of RSAs and RSUs during the period. The RSAs and RSUs were granted to participants in prior periods pursuant to the 2018 Plan.

(3)

On December 12, 2013 we announced that our Board of Directors authorized a share repurchase program, authorizing the repurchase of up to $10 million of our outstanding common stock by the end of 2014. Through several expansions and extensions, our Board of Directors has expanded the program to $500 million and extended the program through December 31, 2022. Amounts shown assume that the program expansion was effective at the beginning of the period indicated. Under this program, share repurchases may be made from time to time depending on market conditions, share price, share availability and other factors at our discretion.

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Mine Safety Disclosures

Not Applicable

ITEM 5. Other Information

None

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ITEM 6. Exhibits

 

(a)

Exhibits

The Exhibits included in this report are listed in the Exhibit Index on page 25, which is incorporated herein by reference.

24


EXHIBIT INDEX

 

 

 

2.1

 

Agreement and Plan of Merger, dated June 25, 2021, by and among Dorman Products, Inc., Senators Merger Sub, Inc., DPL Holding Corporation and SBF II Representative Corp., solely in its capacity as Equityholder Representative. Incorporated by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K filed on June 28, 2021. +

 

 

 

10.1

 

Credit Agreement, dated August 10, 2021 by and among Dorman Products, Inc., the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent. +

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished with this report). **

 

 

 

101

 

The following financial statements from the Dorman Products, Inc. Quarterly Report on Form 10-Q as of and for the quarter ended September 25, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Shareholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

 

 

 

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q as of and for the quarter ended September 25, 2021, formatted in Inline XBRL (included as Exhibit 101).

 

+

 

The schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a copy of such schedules and exhibits, or any section thereof, to the SEC upon request.

 

 

 

*

 

Filed herewith

 

 

 

**

 

Furnished herewith

  

 

25


 

SIGNATURES

Pursuant to the requirements 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.

October 25, 2021

 

/s/ Kevin M. Olsen

Kevin M. Olsen

President, Chief Executive Officer

(principal executive officer)

 

 October 25, 2021

 

/s/ David M. Hession

David M. Hession

Senior Vice President and

Chief Financial Officer

(principal financial and accounting officer)


 

26