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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 March 26, 2022

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 April 21, 2022 the registrant had 31,448,214 shares of common stock, par value $0.01 per share, outstanding.


 

 

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 26, 2022

 

 

 

 

 

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

 

20

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

20

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

22

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

22

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

 

22

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

22

 

 

 

 

 

ITEM 5.

 

Other Information

 

23

 

 

 

 

 

ITEM 6.

 

Exhibits

 

23

 

 

 

 

 

Exhibit Index

 

 

 

24

 

 

 

 

 

Signatures

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

Three Months Ended

 

(in thousands, except per share data)

 

March 26, 2022

 

 

March 27, 2021

 

Net sales

 

$

401,579

 

 

$

288,012

 

Cost of goods sold

 

 

268,339

 

 

 

183,492

 

Gross profit

 

 

133,240

 

 

 

104,520

 

Selling, general and administrative expenses

 

 

86,528

 

 

 

62,869

 

Income from operations

 

 

46,712

 

 

 

41,651

 

Interest expense, net

 

 

1,231

 

 

 

121

 

Other income, net

 

 

(84

)

 

 

(85

)

Income before income taxes

 

 

45,565

 

 

 

41,615

 

Provision for income taxes

 

 

10,358

 

 

 

8,885

 

Net income

 

$

35,207

 

 

$

32,730

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

$

1,696

 

 

$

 

Comprehensive Income

 

$

36,903

 

 

$

32,730

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.12

 

 

$

1.02

 

Diluted

 

$

1.11

 

 

$

1.02

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

31,499

 

 

 

32,048

 

Diluted

 

 

31,601

 

 

 

32,184

 

 

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)

 

March 26, 2022

 

 

December 25, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,427

 

 

$

58,782

 

Accounts receivable, less allowance for doubtful accounts of $1,357 and $1,326

 

 

456,070

 

 

 

472,764

 

Inventories

 

 

565,200

 

 

 

531,988

 

Prepaids and other current assets

 

 

13,507

 

 

 

13,048

 

Total current assets

 

 

1,088,204

 

 

 

1,076,582

 

Property, plant and equipment, net

 

 

116,225

 

 

 

114,864

 

Operating lease right-of-use assets

 

 

98,149

 

 

 

59,029

 

Goodwill

 

 

198,110

 

 

 

197,332

 

Intangible assets, net

 

 

176,088

 

 

 

178,809

 

Other assets

 

 

47,525

 

 

 

46,503

 

Total assets

 

$

1,724,301

 

 

$

1,673,119

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

165,840

 

 

$

177,389

 

Accrued compensation

 

 

16,616

 

 

 

26,636

 

Accrued customer rebates and returns

 

 

195,289

 

 

 

188,080

 

Revolving credit facility

 

 

229,360

 

 

 

239,360

 

Other accrued liabilities

 

 

45,513

 

 

 

33,583

 

Total current liabilities

 

 

652,618

 

 

 

665,048

 

Long-term operating lease liabilities

 

 

88,881

 

 

 

52,443

 

Other long-term liabilities

 

 

5,450

 

 

 

4,916

 

Deferred tax liabilities, net

 

 

17,952

 

 

 

17,976

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 50,000,000 shares authorized; 31,479,916 and

   31,607,509 shares issued and outstanding in 2022 and 2021, respectively

 

 

315

 

 

 

316

 

Additional paid-in capital

 

 

78,906

 

 

 

77,451

 

Retained earnings

 

 

879,923

 

 

 

856,409

 

Accumulated other comprehensive income (loss)

 

 

256

 

 

 

(1,440

)

Total shareholders’ equity

 

 

959,400

 

 

 

932,736

 

Total liabilities and shareholders' equity

 

$

1,724,301

 

 

$

1,673,119

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 


4


 

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

Three Months Ended March 26, 2022

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Additional Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total

 

Balance at December 25, 2021

 

 

31,607,509

 

 

$

316

 

 

$

77,451

 

 

$

856,409

 

 

$

(1,440

)

 

$

932,736

 

Exercise of stock options

 

 

2,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

2,152

 

 

 

 

 

 

 

 

 

2,152

 

Purchase and cancellation of common stock

 

 

(111,114

)

 

 

(1

)

 

 

(200

)

 

 

(10,716

)

 

 

 

 

 

(10,917

)

Cancellation of non-vested stock, net of issuances

 

 

(2,511

)

 

 

 

 

 

377

 

 

 

 

 

 

 

 

 

377

 

Other stock-related activity, net of tax

 

 

(16,446

)

 

 

 

 

 

(874

)

 

 

(977

)

 

 

 

 

 

(1,851

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,696

 

 

 

1,696

 

Net income

 

 

 

 

 

 

 

 

 

 

 

35,207

 

 

 

 

 

 

35,207

 

Balance at March 26, 2022

 

 

31,479,916

 

 

$

315

 

 

$

78,906

 

 

$

879,923

 

 

$

256

 

 

$

959,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 27, 2021

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Additional Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total

 

Balance at December 26, 2020

 

 

32,168,740

 

 

$

322

 

 

$

64,085

 

 

$

789,152

 

 

$

 

 

$

853,559

 

Exercise of stock options

 

 

11,614

 

 

 

 

 

 

316

 

 

 

 

 

 

 

 

 

316

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

2,111

 

 

 

 

 

 

 

 

 

2,111

 

Purchase and cancellation of common stock

 

 

(38,160

)

 

 

(1

)

 

 

(69

)

 

 

(3,904

)

 

 

 

 

 

(3,974

)

Cancellation of non-vested stock, net of issuances

 

 

(17,599

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other stock-related activity, net of tax

 

 

(9,067

)

 

 

 

 

 

1,153

 

 

 

(2,084

)

 

 

 

 

 

(931

)

Net income

 

 

 

 

 

 

 

 

 

 

 

32,730

 

 

 

 

 

 

32,730

 

Balance at March 27, 2021

 

 

32,115,528

 

 

$

321

 

 

$

67,596

 

 

$

815,894

 

 

$

 

 

$

883,811

 

See accompanying Notes to Condensed Consolidated Financial Statements

5


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

Three Months Ended

 

(in thousands)

 

March 26, 2022

 

 

March 27, 2021

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

35,207

 

 

$

32,730

 

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

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

9,743

 

 

 

7,267

 

Provision for doubtful accounts

 

 

29

 

 

 

18

 

Provision for stock-based compensation

 

 

2,152

 

 

 

2,111

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

16,727

 

 

 

8,338

 

Inventories

 

 

(33,034

)

 

 

(38,978

)

Prepaids and other current assets

 

 

(853

)

 

 

(2,017

)

Other assets

 

 

(1,976

)

 

 

(1,270

)

Accounts payable

 

 

(12,392

)

 

 

737

 

Accrued customer rebates and returns

 

 

7,202

 

 

 

8,215

 

Accrued compensation and other liabilities

 

 

409

 

 

 

3,869

 

Cash provided by operating activities

 

 

23,214

 

 

 

21,020

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Proceeds from purchase price adjustment

 

 

595

 

 

 

 

Property, plant and equipment additions

 

 

(7,247

)

 

 

(6,207

)

Cash used in investing activities

 

 

(6,652

)

 

 

(6,207

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Payments of revolving credit line

 

 

(10,000

)

 

 

 

Other stock-related activity

 

 

(1,211

)

 

 

(932

)

Proceeds from exercise of stock options

 

 

 

 

 

289

 

Purchase and cancellation of common stock

 

 

(10,752

)

 

 

(3,143

)

Cash used in financing activities

 

 

(21,963

)

 

 

(3,786

)

Effect of exchange rate changes on Cash and Cash Equivalents

 

 

46

 

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

(5,355

)

 

 

11,027

 

Cash and Cash Equivalents, Beginning of Period

 

 

58,782

 

 

 

155,576

 

Cash and Cash Equivalents, End of Period

 

$

53,427

 

 

$

166,603

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

999

 

 

$

77

 

Cash paid for income taxes

 

$

712

 

 

$

167

 

See accompanying Notes to Condensed Consolidated Financial Statements 

6


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 26, 2022 AND MARCH 27, 2021

(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 months ended March 26, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 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 25, 2021. 

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 $344.9 million in cash (net of $8.8 million of acquired cash) after certain customary post-acquisition purchase price adjustments. In the three months ended March 26, 2022, we received $0.6 million in cash as proceeds from the closing net working capital adjustments. The acquisition was funded by cash on hand and borrowings under our revolving credit facility.

The transaction was accounted for as a business combination under the acquisition method of accounting. We have allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.

During the year ended December 25, 2021, we recorded measurement period adjustments of approximately $2.1 million to decrease goodwill, $0.6 million to decrease the purchase price due to customary net working capital adjustments, $0.1 million to increase other current liabilities, and $1.6 million to decrease deferred tax liabilities. Our measurement period adjustments for Dayton Parts were complete as of December 25, 2021.

The table below details the fair values of the assets acquired and the liabilities assumed at the acquisition date, including applicable measurement period adjustments:

 

(in thousands)

 

 

 

 

Accounts receivable

 

$

23,216

 

Inventories

 

 

79,625

 

Prepaids and other current assets

 

 

2,302

 

Property, plant and equipment

 

 

29,900

 

Goodwill

 

 

106,816

 

Identifiable intangible assets

 

 

160,400

 

Operating lease right-of-use assets

 

 

21,248

 

Other assets

 

 

848

 

Accounts payable

 

 

(11,970

)

Accrued compensation

 

 

(2,784

)

Other current liabilities

 

 

(7,604

)

Long-term operating lease liabilities

 

 

(18,444

)

Deferred tax liabilities

 

 

(38,665

)

Net cash consideration

 

$

344,888

 

 

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The fair values assigned to intangible assets were estimated by discounting expected cash flows based on the relief from royalty and multi-period 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.

3.

Sales of Accounts Receivable

We have entered several customer-sponsored programs administered by unrelated financial institutions that permit us to sell (factor) 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 $275.2 million and $209.9 million of accounts receivable during the three months ended March 26, 2022 and March 27, 2021, respectively. All credit terms with our customers are 365 days or less. Selling, general and administrative expenses include factoring costs associated with these accounts receivable sales programs of $4.9 million and $2.6 million during the three months ended March 26, 2022 and March 27, 2021, respectively.

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)

 

March 26, 2022

 

 

December 25, 2021

 

Raw materials

 

$

16,918

 

 

$

12,746

 

Bulk product

 

 

203,158

 

 

 

225,879

 

Finished product

 

 

338,014

 

 

 

287,415

 

Packaging materials

 

 

7,110

 

 

 

5,948

 

Total

 

$

565,200

 

 

$

531,988

 

 

5.

Leases

During the three months ended March 26, 2022, we entered into a warehouse and distribution services agreement with a third-party. In connection with the services agreement, we have agreed to reimburse the service provider for substantially all of its facility costs applicable to the warehouse in which services are provided. This agreement resulted in a deemed new lease for the company for accounting purposes. The lease commenced on March 1, 2022 and runs through February 28, 2034. The lease includes fixed rental payments as well as variable payments for operating expenses that will be billed based on actual costs.

Upon the lease commencement date, we recorded an operating lease right of use asset of $35.1 million, a short-term operating lease liability (included in other accrued liabilities in the consolidated balance sheet) of $2.0 million, and a long-term operating lease liability of $33.1 million.

The following table summarizes the maturities of the lease liability for our new deemed lease as of March 26, 2022:

 

(in thousands)

 

March 26, 2022

 

Remainder of 2022

 

$

2,321

 

2023

 

 

3,160

 

2024

 

 

3,239

 

2025

 

 

3,320

 

2026

 

 

3,403

 

2027 and thereafter

 

 

27,001

 

Total fixed lease payments

 

$

42,444

 

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6.

Goodwill and Intangible Assets

Goodwill

Goodwill included the following:

(in thousands)

 

Three Months Ended

 

Balance at December 25, 2021

 

$

197,332

 

Foreign currency translation

 

 

778

 

Balance at March 26, 2022

 

$

198,110

 

 

Intangible Assets

Intangible assets included the following:

 

 

 

March 26, 2022

 

 

December 25, 2021

 

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

 

 

$

14,033

 

 

$

135,117

 

 

$

149,150

 

 

$

12,139

 

 

$

137,011

 

Trade names

 

 

17,760

 

 

 

3,019

 

 

 

14,741

 

 

 

17,760

 

 

 

2,592

 

 

$

15,168

 

Product Portfolio

 

 

25,300

 

 

 

777

 

 

 

24,523

 

 

 

25,300

 

 

 

460

 

 

$

24,840

 

Technology

 

 

2,167

 

 

 

633

 

 

 

1,534

 

 

 

2,167

 

 

 

571

 

 

$

1,596

 

Other

 

 

430

 

 

 

257

 

 

 

173

 

 

 

430

 

 

 

236

 

 

$

194

 

Total

 

$

194,807

 

 

$

18,719

 

 

$

176,088

 

 

$

194,807

 

 

$

15,998

 

 

$

178,809

 

 

Amortization expense was $3.0 million and $0.8 million during the three months ended March 26, 2022 and March 27, 2021, respectively. 

7.

Revolving Credit Facility

As of March 26, 2022, the interest rate on the outstanding borrowings under our revolving credit facility was 1.6%. No borrowings were outstanding as of March 27, 2021.

8.

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. If the remaining performance targets for 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 there exists the possibility 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.

9.

Revenue Recognition

Our primary source of revenue is from contracts with and purchase orders from customers. In most 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 a sales agreement indicates approval and commitment of the parties, identifies the rights of both parties, identifies the payment terms, and has commercial substance. At this point, we believe it is 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

9


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 three months ended March 26, 2022 and March 27, 2021. Also, we do not have significant financing arrangements with our customers. Our credit terms are all less than one year. Lastly, 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 revenue by type of major good / product line, and geography.

 

 

Three Months Ended

 

(in thousands)

 

March 26, 2022

 

 

March 27, 2021

 

Powertrain

 

$

152,228

 

 

$

121,105

 

Chassis

 

 

160,862

 

 

 

85,510

 

Automotive body

 

 

73,280

 

 

 

68,645

 

Hardware

 

 

15,209

 

 

 

12,752

 

Total

 

$

401,579

 

 

$

288,012

 

 

 

 

Three Months Ended

 

(in thousands)

 

March 26, 2022

 

 

March 27, 2021

 

Net sales to U.S. customers

 

$

373,618

 

 

$

273,150

 

Net sales to non-U.S. customers

 

 

27,961

 

 

 

14,862

 

Total

 

$

401,579

 

 

$

288,012

 

 

10.

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 awards 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 three months ended March 26, 2022, we granted 23,995 performance-based RSUs with a grant date fair value of $111.31 per share. For the three months ended March 27, 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 $1.6 million and $1.8 million for the three months ended March 26, 2022 and March 27, 2021, respectively, and was included in selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

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The following table summarizes our RSA and RSU activity for the three months ended March 26, 2022:

 

 

Shares

 

 

Weighted

Average

Fair Value

 

Balance at December 25, 2021

 

 

206,677

 

 

$

85.97

 

Granted

 

 

87,378

 

 

$

100.70

 

Vested

 

 

(42,107

)

 

$

89.20

 

Canceled

 

 

(23,833

)

 

$

108.63

 

Balance at March 26, 2022

 

 

228,115

 

 

$

93.09

 

As of March 26, 2022, there was $16.8 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.6 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 $0.4 million and $0.3 million for the three months ended March 26, 2022 and March 27, 2021, 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.

The following table summarizes our stock option activity for the three months ended March 26, 2022:

 

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Term

(In years)

 

 

Aggregate

Intrinsic

Value

 

Balance at December 25, 2021

 

233,396

 

 

$

77.85