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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 28, 2020

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 23, 2020, the registrant had 32,443,271 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 28, 2020

 

 

 

 

 

Page

Part I — FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended March 28, 2020 and March 30, 2019

 

3

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

4

 

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

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

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

22

 

 

 

 

 

Part II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

25

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

25

 

 

 

 

 

Item 5.

 

Other Information

 

25

 

 

 

 

 

Item 6.

 

Exhibits

 

25

 

 

 

 

 

Exhibit Index

 

 

 

26

 

 

 

 

 

Signatures

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Thirteen Weeks Ended

 

(in thousands, except per share data)

 

March 28, 2020

 

 

March 30, 2019

 

Net sales

 

$

257,730

 

 

$

243,791

 

Cost of goods sold

 

 

172,933

 

 

 

156,299

 

Gross profit

 

 

84,797

 

 

 

87,492

 

Selling, general and administrative expenses

 

 

59,735

 

 

 

57,750

 

Income from operations

 

 

25,062

 

 

 

29,742

 

Other income, net

 

 

2,631

 

 

 

29

 

Income before income taxes

 

 

27,693

 

 

 

29,771

 

Provision for income taxes

 

 

4,918

 

 

 

6,364

 

Net income

 

$

22,775

 

 

$

23,407

 

Earnings Per Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.70

 

 

$

0.71

 

Diluted

 

$

0.70

 

 

$

0.71

 

Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

32,354

 

 

 

32,801

 

Diluted

 

 

32,426

 

 

 

32,889

 

 

See accompanying Notes to Consolidated Financial Statements


3


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(in thousands, except for share data)

 

March 28, 2020

 

 

December 28, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

161,778

 

 

$

68,353

 

Accounts receivable, less allowance for doubtful accounts of $1,063 and $957

 

 

423,301

 

 

 

391,810

 

Inventories

 

 

258,371

 

 

 

280,813

 

Prepaids and other current assets

 

 

10,810

 

 

 

13,614

 

Total current assets

 

 

854,260

 

 

 

754,590

 

Property, plant and equipment, net

 

 

99,082

 

 

 

101,837

 

Operating lease right-of-use assets

 

 

32,230

 

 

 

32,198

 

Goodwill

 

 

91,275

 

 

 

74,458

 

Intangible assets, net

 

 

27,748

 

 

 

21,305

 

Deferred tax asset, net

 

 

3,886

 

 

 

4,336

 

Other assets

 

 

44,303

 

 

 

52,348

 

Total

 

$

1,152,784

 

 

$

1,041,072

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

73,283

 

 

$

90,437

 

Accrued compensation

 

 

9,339

 

 

 

9,782

 

Accrued customer rebates and returns

 

 

110,374

 

 

 

105,903

 

Revolving credit line

 

 

99,000

 

 

 

-

 

Other accrued liabilities

 

 

22,541

 

 

 

14,380

 

Total current liabilities

 

 

314,537

 

 

 

220,502

 

Long-term operating lease liabilities

 

 

29,714

 

 

 

29,730

 

Other long-term liabilities

 

 

13,298

 

 

 

13,297

 

Deferred tax liabilities, net

 

 

3,860

 

 

 

3,959

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.01; authorized 50,000,000 shares; issued and

   outstanding 32,434,665 and 32,558,168 in 2020 and 2019, respectively

 

 

325

 

 

 

326

 

Additional paid-in capital

 

 

53,454

 

 

 

52,605

 

Retained earnings

 

 

737,596

 

 

 

720,653

 

Total shareholders’ equity

 

 

791,375

 

 

 

773,584

 

Total

 

$

1,152,784

 

 

$

1,041,072

 

 

See accompanying Notes to Consolidated Financial Statements

 

 


4


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

Thirteen Weeks Ended March 28, 2020

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

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

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

1,214

 

 

 

 

 

 

1,214

 

Purchase and cancellation of common stock

 

 

(96,709

)

 

 

(1

)

 

 

(175

)

 

 

(5,604

)

 

 

(5,780

)

Issuance of non-vested stock, net of cancellations

 

 

(21,974

)

 

 

 

 

 

 

 

 

 

 

 

 

Other stock related activity, net of tax

 

 

(2,925

)

 

 

 

 

 

(190

)

 

 

(228

)

 

 

(418

)

Net income

 

 

 

 

 

 

 

 

 

 

 

22,775

 

 

 

22,775

 

Balance at March 28, 2020

 

 

32,434,665

 

 

$

325

 

 

$

53,454

 

 

$

737,596

 

 

$

791,375

 

 

 

 

Thirteen Weeks Ended March 30, 2019

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

Shares

Issued

 

 

Par

Value

 

 

Paid-In

Capital

 

 

Retained

Earnings

 

 

Total

 

Balance at December 29, 2018

 

 

33,004,861

 

 

$

330

 

 

$

47,861

 

 

$

679,432

 

 

$

727,623

 

Exercise of stock options

 

 

11,714

 

 

 

 

 

 

31

 

 

 

 

 

 

31

 

Compensation expense under Incentive Stock Plan

 

 

 

 

 

 

 

 

915

 

 

 

 

 

 

915

 

Purchase and cancellation of common stock

 

 

(115,090

)

 

 

(1

)

 

 

(207

)

 

 

(9,427

)

 

 

(9,635

)

Issuance of non-vested stock, net of cancellations

 

 

48,193

 

 

 

 

 

 

 

 

 

 

 

 

 

Other stock related activity, net of tax

 

 

(7,665

)

 

 

 

 

 

1,290

 

 

 

(1,924

)

 

 

(634

)

Net income

 

 

 

 

 

 

 

 

 

 

 

23,407

 

 

 

23,407

 

Balance at March 30, 2019

 

 

32,942,013

 

 

$

329

 

 

$

49,890

 

 

$

691,488

 

 

$

741,707

 

 

 

 

See accompanying Notes to Consolidated Financial Statements

5


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Thirteen Weeks Ended

 

(in thousands)

 

March 28, 2020

 

 

March 30, 2019

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

22,775

 

 

$

23,407

 

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

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

7,496

 

 

 

7,265

 

Gain on equity method investment

 

 

(2,498

)

 

 

-

 

Provision for doubtful accounts

 

 

14

 

 

 

-

 

Benefit for deferred income taxes

 

 

(912

)

 

 

-

 

Provision for stock-based compensation

 

 

1,214

 

 

 

915

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(29,491

)

 

 

13,333

 

Inventories

 

 

28,016

 

 

 

(18,184

)

Prepaids and other current assets

 

 

2,262

 

 

 

(3,685

)

Other assets

 

 

(2,219

)

 

 

1,925

 

Accounts payable

 

 

(19,346

)

 

 

(11,091

)

Accrued customer rebates and returns

 

 

4,471

 

 

 

(497

)

Accrued compensation and other liabilities

 

 

6,808

 

 

 

3,043

 

Cash provided by operating activities

 

 

18,590

 

 

 

16,431

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Acquisition, net of cash acquired

 

 

(14,462

)

 

 

-

 

Property, plant and equipment additions

 

 

(3,505

)

 

 

(8,838

)

Cash used in investing activities

 

 

(17,967

)

 

 

(8,838

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Net proceeds of revolving credit line

 

 

99,000

 

 

 

-

 

Other stock related activity

 

 

(418

)

 

 

(622

)

Purchase and cancellation of common stock

 

 

(5,780

)

 

 

(9,635

)

Cash provided by (used in) financing activities

 

 

92,802

 

 

 

(10,257

)

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

93,425

 

 

 

(2,664

)

Cash and Cash Equivalents, Beginning of Period

 

 

68,353

 

 

 

43,458

 

Cash and Cash Equivalents, End of Period

 

$

161,778

 

 

$

40,794

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

20

 

 

$

61

 

Cash paid for income taxes

 

$

62

 

 

$

74

 

 

See accompanying Notes to Consolidated Financial Statements 

6


DORMAN PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THIRTEEN WEEKS ENDED MARCH 28, 2020 AND MARCH 30, 2019

(UNAUDITED)

1.

Basis of Presentation

As used herein, unless the context otherwise requires, “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 consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, they do not include all the information and footnotes required by U.S. generally accepted accounting principles 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 thirteen weeks ended March 28, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending 2020 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 28, 2019. 

Certain prior year amounts have been reclassified to conform with current year presentation.

Revision of Prior Period Financial Statements

During the quarter ended June 29, 2019, we identified and corrected an immaterial error that affected previously issued consolidated financial statements. This error related to the application of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, related to the balance sheet classification of accrued customer rebates and returns that are recognized in connection with sales of our products. We adopted this ASU on December 31, 2017, the beginning of our 2018 fiscal year. We previously recorded accrued customer rebates and returns that were expected to be issued as credits to our customers as a valuation account which offset accounts receivable. Accrued customer rebates and returns are now recorded as a current liability.

Previously issued comparative financial statements, which were revised to correct the error noted above, are presented as “As Revised” in the tables presented in the following footnotes.

 

 

Thirteen Weeks Ended March 30, 2019

 

(in thousands)

 

As Previously Reported

 

 

Adjustment

 

 

As Revised

 

Revised Consolidated Statement of Cash Flows from Operating Activities Amounts:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

12,611

 

 

$

722

 

 

$

13,333

 

Accrued customer rebates and returns

 

$

 

 

$

(497

)

 

$

(497

)

Accrued compensation and other liabilities

 

$

3,268

 

 

$

(225

)

 

$

3,043

 

Net cash provided by operating activities

 

$

16,431

 

 

$

 

 

$

16,431

 

Additionally, as a result of the adoption of ASU No. 2014-09, the Company should have disclosed the initial impact to the balance sheet reclassification for accrued customer rebates and returns from accounts receivable, net to accrued customer rebates and returns. The cumulative effect of the changes to the consolidated balance sheet from the adoption was as follows:

 

(in thousands)

 

As of December 30, 2017

 

 

Effect of Adoption

 

 

As of December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

241,880

 

 

$

95,537

 

 

$

337,417

 

Accrued customer rebates and returns

 

$

6,522

 

 

$

95,537

 

 

$

102,059

 

 

The correction of this error did not impact our Consolidated Statements of Operations or our Consolidated Statements of Shareholder’s Equity in any period presented.

2.

Business Acquisitions and Investments

Power Train Industries, Inc.

On January 2, 2020, we acquired the remaining 60% of the outstanding stock of Power Train Industries, Inc. (“PTI”), a privately-held supplier of parts to the automotive aftermarket, based in Reno, Nevada. The total consideration paid for PTI was approximately $30.8 million, which included $18.0 million paid for the remaining 60% of the outstanding stock, $0.5 million deferred payment, 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 approximately $2.5 million in Other Income in the thirteen weeks ended

7


March 28, 2020, as a result of the increase in fair value of the previously owned 40% interest in PTI. We previously accounted for our 40% interest as an equity-method investment.   

The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired, and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill.

In connection with this acquisition, we recorded $16.8 million in goodwill, $7.3 million of identified intangibles, and $6.7 million of other assets, net, primarily $3.5 million of cash, $2.0 million of accounts receivable, $5.6 million of inventory, and ($4.4 million) of net other assets and liabilities.   

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

(in thousands)

 

Valuation

 

 

Amortization Period (in years)

 

Customer relationships

 

$

4,600

 

 

 

15

 

Tradenames

 

 

700

 

 

 

5

 

Technology

 

 

1,800

 

 

 

8

 

Other

 

 

190

 

 

 

5

 

Total

 

$

7,290

 

 

 

 

 

The fair values of the Customer relationships and Tradenames were estimated using a discounted present value income approach.

The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing automotive aftermarket businesses, the assembled workforce of PTI 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 Consolidated Financial Statements since the date of acquisition.            

3.

Sales of Accounts Receivable

We have entered into 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 Consolidated Balance Sheet at the time of the sales transactions. Pursuant to these agreements, we sold $151.3 million and $172.8 million of accounts receivable during the thirteen weeks ended March 28, 2020, and March 30, 2019 respectively. All of our credit terms with our customers are less than one year. If receivables had not been sold over the previous twelve months, $375.7 million and $437.9 million of additional accounts receivable would have been outstanding at March 28, 2020 and December 28, 2019, respectively, based on standard payment terms. Selling, general and administrative expenses for the thirteen weeks ended March 28, 2020 and March 30, 2019 included $2.8 million and $4.6 million, respectively, in financing costs associated with these accounts receivable sales programs. See Note 17 for information regarding our increasing the level of receivables collected under factoring programs in light of the COVID-19 pandemic.

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 28,

2020

 

 

December 28,

2019

 

Bulk product

 

$

101,118

 

 

$

114,308

 

Finished product

 

 

152,632

 

 

 

161,866

 

Packaging materials

 

 

4,621

 

 

 

4,639

 

Total

 

$

258,371

 

 

$

280,813

 

 

5.

Leases

We adopted ASU No. 2016-02, Leases, on December 30, 2018, the beginning of our fiscal 2019, using the modified retrospective approach. We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and to obtain substantially all of the economic benefit from the use of the underlying asset. Some of our leases include both lease and non-lease components which are accounted for as a single lease component as we have elected the practical expedient. Some of our operating lease agreements include variable lease costs, primarily taxes, insurance, common area maintenance or increases in rental costs related to inflation. Substantially all of our equipment leases and some of our real estate leases have terms of less than one year and, as such, are accounted for as short-term leases as we have elected the practical expedient.

Operating leases are included in the right-of-use lease assets, other current liabilities and long-term lease liabilities on the Consolidated Balance Sheet. Right-of-use assets and lease liabilities are recognized at each lease’s commencement date based on the present values of its lease payments over its respective lease term. When a borrowing rate is not explicitly available for a lease, our incremental borrowing rate is used based

8


on information available at the lease’s commencement date to determine the present value of its lease payments. Operating lease payments are recognized on a straight-line basis over the lease term. We had no financing leases as of March 28, 2020.

We have operating leases for distribution centers, sales offices and certain warehouse and office equipment. Our leases have remaining lease terms of 1 to 11 years, many of which include one or more renewal options. We consider these renewal options in determining the lease term used to establish our right-of-use assets and lease liabilities when it is determined that it is reasonably certain that the renewal option will be exercised.

As of March 28, 2020, there were no material variable lease costs or sublease income. Cash paid for operating leases was $1.9 million and $1.2 million in the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively, which is classified in operating activities. The following table summarizes the lease expense for the thirteen weeks ended March 28, 2020 and March 30, 2019

 

(in thousands)

 

March 28, 2020

 

 

 

 

March 30, 2019

 

Operating lease expense

 

$

1,901

 

 

 

 

$

1,928

 

Short-term lease expense

 

 

1,114

 

 

 

 

 

1,070

 

Total lease expense

 

$

3,015

 

 

 

 

$

2,998

 

 

Supplemental balance sheet information related to our operating leases is as follows:

 

(in thousands)

 

March 28, 2020

 

Operating lease right-of-use assets

 

$

32,230

 

 

 

 

 

 

Other accrued liabilities

 

$

5,412

 

Long-term operating lease liabilities

 

 

29,714

 

Total operating lease liabilities

 

$

35,126

 

 

 

 

 

 

Weighted average remaining lease term (years)

 

 

9.16

 

Weighted average discount rate

 

 

5.18

%

The following table summarizes the maturities of our lease liabilities for all operating leases as of March 28, 2020:

 

(in thousands)

 

March 28, 2020

 

2020 (Remainder of 2020)

 

$

4,357

 

2021

 

 

5,476

 

2022

 

 

5,004

 

2023

 

 

3,388

 

2024

 

 

3,451

 

2025 and thereafter

 

 

21,514

 

Total lease payments

 

 

43,190

 

Less: Imputed interest

 

 

(8,064

)

Present value of lease liabilities

 

$

35,126

 

 

6.

Goodwill and Intangible Assets

Goodwill

Goodwill included the following:

(in thousands)

 

March 28,

2020

 

 

December 28, 2019

 

Balance at beginning of period

 

$

74,458

 

 

$

72,606

 

Goodwill acquired

 

 

16,817

 

 

 

-

 

Measurement period adjustments

 

 

-

 

 

 

1,852

 

Balance at end of period

 

$

91,275

 

 

$

74,458

 

9


Intangible Assets

Intangible assets included the following:

 

 

 

 

 

 

March 28, 2020

 

 

December 28, 2019

 

(in thousands)

 

Weighted Average Amortization Period

 

 

Gross Carrying Value

 

 

Accumulated Amortization

 

 

Net Carrying Value

 

 

Gross Carrying Value

 

 

Accumulated Amortization

 

 

Net Carrying Value

 

Intangible assets subject to amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

 

11.2

 

 

$

6,760

 

 

$

1,128

 

 

$

5,632

 

 

$

6,060

 

 

$

975

 

 

$

5,085

 

Customer relationships

 

 

9.3

 

 

 

25,050

 

 

 

5,310

 

 

 

19,740

 

 

 

20,450

 

 

 

4,698

 

 

$

15,752

 

Technology

 

 

8.3

 

 

 

2,167

 

 

 

135

 

 

 

2,032

 

 

 

367

 

 

 

74

 

 

$

293

 

Other

 

 

4.1

 

 

 

430

 

 

 

86

 

 

 

344

 

 

 

240

 

 

 

65

 

 

$

175

 

Total

 

 

 

 

 

$

34,407

 

 

$

6,659

 

 

$

27,748

 

 

$

27,117

 

 

$

5,812

 

 

$

21,305

 

Amortization expense was $0.8 million and $0.7 million for the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively.

7.

Debt

In December 2017, we entered into a credit agreement which will expire in December 2022. This agreement provides for an initial revolving credit facility of $100.0 million and, subject to certain requirements, gives us the ability to request increases of up to an incremental $100.0 million. The credit agreement replaced our previous $30.0 million facility. Borrowings under the credit agreement are on an unsecured basis. At the Company’s election, the interest rate applicable to borrowings under the credit agreement will be either (1) the Prime Rate as announced by Wells Fargo from time to time, (2) an Adjusted LIBOR Market Index Rate as measured by the LIBOR Market Index Rate plus the Applicable Margin which fluctuates between 65 basis points and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated EBITDA, or (3) an Adjusted LIBOR Rate as measured by the LIBOR Rate plus the Applicable Margin which fluctuates between 65 basis points and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated EBITDA. The interest rate at March 28, 2020 was LIBOR plus 65 basis points (1.64%). During the occurrence and continuance of an event of default, all outstanding revolving credit loans will bear interest at a rate per annum equal to 2.00% in excess of the greater of (1) the Prime Rate or (2) the Adjusted LIBOR Market Index Rate then applicable. As of March 28, 2020, we were not in default in respect to the credit agreement. The credit agreement also contains covenants, including those related to the ratio of certain consolidated fixed charges to consolidated EBITDA, capital expenditures, and share repurchases, each as defined by the credit agreement. The credit agreement also requires us to pay a fee of 0.10% on the average daily unused portion of the facility, provided the fee will not be charged on the first $30 million of the revolving credit facility.

On March 23, 2020, Dorman took proactive steps to increase its cash position and preserve financial flexibility in light of uncertainties from the COVID-19 pandemic by drawing down $99.0 million from the revolving credit facility. See Note 17 for additional information regarding our response to COVID-19.

As of March 28, 2020, we had $99.0 million in borrowings under the credit agreement, which amount does not include two outstanding letters of credit for approximately $0.8 million in the aggregate which were issued to secure ordinary course of business transactions. Net of these borrowings and letters of credit, we had approximately $0.2 million available under the credit agreement at March 28, 2020.

In addition to the foregoing, and, subject to certain requirements, the credit agreement gives the Company the ability to request increases in revolving credit commitments of up to an additional $100.0 million.

As of March 28, 2020, we were not in default in respect to the credit agreement.

8.

Commitments and Contingencies

CBP Matter

During 2019, we informed United States Customs & Border Protection (“CBP”) that we were commencing a voluntary disclosure process with CBP where we would voluntarily disclose to CBP certain product misclassifications and reimburse CBP for any resulting underpayment of duties that were identified as part of a voluntary internal review conducted by the Company. As of the date of this filing, our internal review is substantially complete. The Company recorded an estimated liability of $2.8 million in its Statement of Operations for the year ended December 28, 2019, which represents the Company’s estimated underpayment of duties, after deducting its estimated overpayment of duties, to CBP due to misclassifications over the prior five-year period, which is the applicable statute of limitations, plus applicable interest. The estimated liability of $2.8 million is reported in Other Long-Term Liabilities on the Consolidated Balance Sheet at March 28, 2020. The liability is reported in Other Long-Term liabilities since the ultimate resolution of the misclassifications with CBP is uncertain and is not expected to be resolved within the next twelve months.

We expect to complete our internal review and make our initial prior disclosure submission to CBP in the first six months of 2020. However, the process of finalizing our prior disclosure with CBP may be iterative. We intend to work cooperatively with CBP in connection with the prior disclosure process and expect to complete the prior disclosure process with CBP and pay all required amounts within 18 months of our initial prior disclosure submission.

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

10


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

 

The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, in May 2014 regarding the accounting for and disclosure of revenue. Specifically, the update outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

Our primary source of revenue is from contracts with and purchase orders from customers. Revenue is recognized from product sales when goods are shipped, title and risk of loss and control have been transferred to the customer, and collection is reasonably assured. We estimate the transaction price at the inception of a contract or upon fulfilling a purchase order, including any variable consideration, and will update the estimate for changes in circumstances. We utilize the most likely amount method consistently to estimate the effect of uncertainty on the amount of variable consideration to which we would be entitled. The most likely amount method considers the single most likely amount from a range of possible consideration amounts. This method is utilized for all of our variable consideration.

We record estimates for cash discounts, product returns, promotional rebates, core (i.e. remanufactured parts) return deposits and other discounts in the period the related product revenue is recognized (“customer rebates and returns”). The provision for customer rebates and returns is recorded as a reduction of gross sales. Beginning with our Form 10-Q for the period ended June 29, 2019, our obligation associated with customer rebates and returns is classified as a current liability on our consolidated balance sheets (“accrued customer rebates and returns”). We have revised prior period balances to conform with this presentation. Please refer to Note 1. Actual customer rebates and returns 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 according to the definition of the new standard.

All of our revenue was recognized under the point of time approach in accordance with the revenue standard during the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively. Also, we do not have significant financing arrangements with our customers, as 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.

 

Five-step model

 

We apply the FASB’s guidance on revenue recognition, which requires us to recognize the amount of revenue and consideration which we expect to receive in exchange for goods or services transferred to our customers. To do this, we apply the five-step model prescribed by the FASB, which requires us to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy a performance obligation.

 

Contract Assets and Liabilities

 

We recognize a receivable or contract asset when we perform a service or transfer a good in advance of receiving consideration.

 

- A receivable is recorded when our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due.

 

- A contract asset is recorded when our right to consideration in exchange for goods or services that we have transferred to a customer is conditional on something other than the passage of time. We did not have any contract assets recorded as of March 28, 2020 or December 28, 2019.

 

We recognize a contract liability when we receive consideration, or if we have the unconditional right to receive consideration, in advance of satisfying the performance obligation. A contract liability is our obligation to transfer goods or services to a customer for which we have received consideration, or an amount of consideration is due from the customer. We did not have any contract liabilities recorded as of March 28, 2020 or December 28, 2019.

 

Disaggregated Revenue

 

The following tables present our disaggregated net sales by Type of Major Good / Product Line, and Geography.

11


 

 

Thirteen Weeks Ended

 

(in thousands)

 

March 28, 2020

 

 

March 30, 2019

 

Powertrain

 

$

108,142

 

 

$

95,163

 

Chassis

 

 

73,375

 

 

 

77,406

 

Automotive body

 

 

64,632

 

 

 

60,746

 

Hardware

 

 

11,581

 

 

 

10,476

 

Net sales

 

$

257,730

 

 

$

243,791

 

 

 

 

Thirteen Weeks Ended

 

(in thousands)

 

March 28, 2020

 

 

March 30, 2019

 

Net sales to U.S. customers

 

$

241,392

 

 

$

227,151

 

Net sales to non-U.S. customers

 

$

16,338