UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(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:
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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. ☒
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). ☒
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.
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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).
As of April 21, 2022 the registrant had
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 26, 2022
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PART I — FINANCIAL INFORMATION |
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ITEM 1. |
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Financial Statements (unaudited) |
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ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. |
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PART II — OTHER INFORMATION |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended |
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(in thousands, except per share data) |
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March 26, 2022 |
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March 27, 2021 |
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Net sales |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Income from operations |
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Interest expense, net |
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Other income, net |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Other comprehensive income: |
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Change in foreign currency translation adjustment |
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$ |
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$ |
— |
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Comprehensive Income |
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$ |
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$ |
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Earnings per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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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) |
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March 26, 2022 |
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December 25, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance for doubtful accounts of $ |
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Inventories |
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Prepaids and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued customer rebates and returns |
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Revolving credit facility |
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Other accrued liabilities |
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Total current liabilities |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Deferred tax liabilities, net |
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Commitments and contingencies (Note 8) |
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Shareholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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Total shareholders’ equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
4
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
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Three Months Ended March 26, 2022 |
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Common Stock |
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(in thousands, except share data) |
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Shares Issued |
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Par Value |
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Additional Paid-In Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Income (Loss) |
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Total |
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Balance at December 25, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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Compensation expense under Incentive Stock Plan |
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— |
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— |
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— |
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— |
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Purchase and cancellation of common stock |
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( |
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( |
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— |
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( |
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Cancellation of non-vested stock, net of issuances |
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( |
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— |
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— |
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— |
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Other stock-related activity, net of tax |
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( |
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— |
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( |
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( |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Balance at March 26, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 27, 2021 |
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Common Stock |
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(in thousands, except share data) |
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Shares Issued |
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Par Value |
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Additional Paid-In Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Income (Loss) |
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Total |
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Balance at December 26, 2020 |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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Exercise of stock options |
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— |
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— |
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— |
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Compensation expense under Incentive Stock Plan |
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— |
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— |
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— |
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— |
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Purchase and cancellation of common stock |
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( |
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( |
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( |
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( |
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— |
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( |
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Cancellation of non-vested stock, net of issuances |
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( |
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— |
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— |
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— |
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— |
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— |
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Other stock-related activity, net of tax |
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( |
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— |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Balance at March 27, 2021 |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
5
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months Ended |
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(in thousands) |
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March 26, 2022 |
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March 27, 2021 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation, amortization and accretion |
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Provision for doubtful accounts |
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Provision for stock-based compensation |
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Changes in assets and liabilities: |
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Accounts receivable |
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Inventories |
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( |
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( |
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Prepaids and other current assets |
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( |
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( |
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Other assets |
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( |
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( |
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Accounts payable |
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( |
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Accrued customer rebates and returns |
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Accrued compensation and other liabilities |
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Cash provided by operating activities |
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Cash Flows from Investing Activities: |
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Proceeds from purchase price adjustment |
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— |
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Property, plant and equipment additions |
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( |
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( |
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Cash used in investing activities |
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( |
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( |
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Cash Flows from Financing Activities: |
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Payments of revolving credit line |
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( |
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— |
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Other stock-related activity |
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( |
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( |
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Proceeds from exercise of stock options |
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— |
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Purchase and cancellation of common stock |
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( |
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( |
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Cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on Cash and Cash Equivalents |
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— |
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Net (Decrease) Increase in Cash and Cash Equivalents |
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Cash and Cash Equivalents, Beginning of Period |
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Cash and Cash Equivalents, End of Period |
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$ |
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$ |
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Supplemental Cash Flow Information |
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Cash paid for interest expense |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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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
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 $
(in thousands) |
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Accounts receivable |
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$ |
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Inventories |
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Prepaids and other current assets |
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Property, plant and equipment |
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Goodwill |
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Identifiable intangible assets |
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Operating lease right-of-use assets |
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Other assets |
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Accounts payable |
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( |
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Accrued compensation |
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( |
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Other current liabilities |
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( |
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Long-term operating lease liabilities |
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( |
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Deferred tax liabilities |
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( |
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Net cash consideration |
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$ |
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7
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 $
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 |
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December 25, 2021 |
|
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Raw materials |
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$ |
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$ |
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Bulk product |
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Finished product |
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Packaging materials |
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Total |
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$ |
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$ |
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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
Upon the lease commencement date, we recorded an operating lease right of use asset of $
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 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total fixed lease payments |
|
$ |
|
|
8
6. |
Goodwill and Intangible Assets |
Goodwill
Goodwill included the following:
(in thousands) |
|
Three Months Ended |
|
|
Balance at December 25, 2021 |
|
$ |
|
|
Foreign currency translation |
|
|
|
|
Balance at March 26, 2022 |
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Product Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Amortization expense was $
7. |
Revolving Credit Facility |
As of March 26, 2022, the interest rate on the outstanding borrowings under our revolving credit facility was
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 $
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 |
|
$ |
|
|
|
$ |
|
|
Chassis |
|
|
|
|
|
|
|
|
Automotive body |
|
|
|
|
|
|
|
|
Hardware |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
Three Months Ended |
|
|||||
(in thousands) |
|
March 26, 2022 |
|
|
March 27, 2021 |
|
||
Net sales to U.S. customers |
|
$ |
|
|
|
$ |
|
|
Net sales to non-U.S. customers |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
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
Compensation cost related to RSA and RSU grants was $
10
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 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
( |
) |
|
$ |
|
|
Canceled |
|
|
( |
) |
|
$ |
|
|
Balance at March 26, 2022 |
|
|
|
|
|
$ |
|
|
As of March 26, 2022, there was $
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 $
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 |
|
|
|
|
$ |
|
|
|
|
|
|