form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended
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September 26,
2009
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or
o TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from
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to
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Commission
File Number:
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0-18914 |
DORMAN
PRODUCTS, INC.
(Exact
name of registrant as specified in its charter)
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Pennsylvania
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23-2078856
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3400 East Walnut Street, Colmar,
Pennsylvania
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18915
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(Address
of principal executive offices)
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(Zip
Code)
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(215) 997-1800
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(Registrant’s
telephone number, including area
code)
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Not Applicable
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(Former
name, former address and former fiscal year, if changed since last
report)
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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. x
Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o
Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
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Large
accelerated filer o
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Accelerated
filer x
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Non-accelerated
filer o (Do not check if
a smaller reporting company)
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Smaller
reporting company o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o
Yes x
No
As of
October 30, 2009 the Registrant had 17,675,701 shares of common stock, $.01 par
value, outstanding.
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
September
26, 2009
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Page
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Part
I — FINANCIAL INFORMATION
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Item
1.
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Statements
of Operations:
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3
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4
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5
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6
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7
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Item
2.
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12
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Item
3.
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18
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Item
4.
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18
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Part
II — OTHER INFORMATION
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Item
1.
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18
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Item
1A.
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19
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Item
2.
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19
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Item
3.
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19
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Item
4.
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19
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Item
5.
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19
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Item
6.
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19
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21
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22
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PART I. FINANCIAL INFORMATION
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
DORMAN
PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
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For
the Thirteen Weeks Ended
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(in
thousands, except for share data)
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September
26,
2009
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September
27,
2008
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Net
Sales
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$ |
98,007 |
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$ |
91,202 |
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Cost
of goods sold
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62,710 |
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61,697 |
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Gross
profit
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35,297 |
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29,505 |
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Selling,
general and administrative expenses
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22,318 |
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21,010 |
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Income
from operations
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12,979 |
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8,495 |
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Interest
expense, net
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52 |
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221 |
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Income
before taxes
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12,927 |
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8,274 |
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Provision
for taxes
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4,994 |
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3,226 |
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Net
Income
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$ |
7,933 |
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$ |
5,048 |
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Earnings
Per Share:
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Basic
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$ |
0.45 |
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$ |
0.29 |
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Diluted
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$ |
0.44 |
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$ |
0.28 |
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Average
Shares Outstanding:
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Basic
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17,657 |
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17,660 |
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Diluted
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17,998 |
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18,046 |
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See
accompanying notes to consolidated financial statements
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
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For
the Thirty-nine Weeks Ended
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(in
thousands, except for share data)
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September
26, 2009
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September
27, 2008
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Net
Sales
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$ |
280,680 |
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$ |
261,638 |
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Cost
of goods sold
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184,958 |
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177,265 |
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Gross
profit
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95,722 |
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84,373 |
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Selling,
general and administrative expenses
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65,003 |
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62,463 |
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Income
from operations
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30,719 |
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21,910 |
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Interest
expense, net
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204 |
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774 |
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Income
before taxes
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30,515 |
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21,136 |
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Provision
for taxes
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11,757 |
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8,173 |
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Net
Income
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$ |
18,758 |
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$ |
12,963 |
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Earnings
Per Share:
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Basic
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$ |
1.06 |
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$ |
0.73 |
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Diluted
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$ |
1.04 |
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$ |
0.72 |
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Average
Shares Outstanding:
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Basic
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17,647 |
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17,684 |
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Diluted
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17,976 |
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18,059 |
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See
accompanying notes to consolidated financial statements.
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(unaudited)
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(in
thousands, except for share data)
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September
26,
2009
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December
27,
2008
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Assets
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Current
Assets:
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Cash
and cash equivalents
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$ |
5,697 |
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$ |
5,824 |
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Accounts
receivable, less allowance for doubtful accounts and customer credits of
$35,815 and $32,563
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88,553 |
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77,101 |
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Inventories
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95,593 |
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93,577 |
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Deferred
income taxes
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11,796 |
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11,626 |
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Prepaids
and other current assets
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1,895 |
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2,135 |
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Total
current assets
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203,534 |
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190,263 |
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Property,
Plant and Equipment, net
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25,377 |
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25,053 |
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Goodwill
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26,553 |
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26,553 |
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Other
Assets
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2,020 |
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1,553 |
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Total
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$ |
257,484 |
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$ |
243,422 |
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Liabilities
and Shareholders’ Equity
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Current
Liabilities:
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Current
portion of long-term debt
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$ |
6,039 |
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$ |
86 |
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Accounts
payable
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20,265 |
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21,900 |
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Accrued
compensation
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7,971 |
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4,775 |
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Other
accrued liabilities
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3,582 |
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3,265 |
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Total
current liabilities
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37,857 |
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30,026 |
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Other
Long-Term Liabilities
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2,275 |
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2,108 |
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Long-Term
Debt
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289 |
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15,356 |
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Deferred
Income Taxes
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8,771 |
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8,088 |
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Commitments
and Contingencies
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Shareholders’
Equity:
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Common
stock, par value $.01; authorized 25,000,000 shares: issued and
outstanding 17,679,753 and 17,644,371
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177 |
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176 |
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Additional
paid-in capital
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32,589 |
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31,985 |
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Cumulative
translation adjustments
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2,852 |
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1,073 |
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Retained
earnings
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172,674 |
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154,610 |
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Total
shareholders’ equity
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208,292 |
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187,844 |
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Total
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$ |
257,484 |
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$ |
243,422 |
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See
accompanying notes to consolidated financial statements.
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
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For
the Thirty-nine Weeks Ended
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(in
thousands)
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September
26,
2009
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September
27,
2008
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Cash
Flows from Operating Activities:
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Net
income
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$ |
18,758 |
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$ |
12,963 |
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Adjustments
to reconcile net income to cash provided by operating
activities:
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Depreciation
and amortization
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5,774 |
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5,707 |
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Provision
for doubtful accounts
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365 |
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411 |
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Provision
for deferred income tax
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513 |
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123 |
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Provision
for non-cash stock compensation
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193 |
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180 |
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Changes
in assets and liabilities:
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Accounts
receivable
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(11,357 |
) |
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(8,219 |
) |
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Inventories
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(1,163 |
) |
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(10,474 |
) |
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Prepaids
and other current assets
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302 |
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- |
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Other
assets
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(523 |
) |
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158 |
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Accounts
payable
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(1,957 |
) |
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3,173 |
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Accrued
compensation and other liabilities
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3,629 |
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(1,024 |
) |
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Cash provided
by operating activities
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14,534 |
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2,998 |
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Cash
Flows from Investing Activities:
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|
|
|
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Property,
plant and equipment additions
|
|
|
(5,926 |
) |
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|
(5,792 |
) |
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Proceeds
from sale of assets of a business
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|
- |
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|
|
766 |
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Cash
used in investing activities
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|
(5,926 |
) |
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|
(5,026 |
) |
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Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
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Repayment
of long-term debt obligations
|
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|
(64 |
) |
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|
(8,633 |
) |
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Net
(repayment of) proceeds from revolving credit facility
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|
|
(9,050 |
) |
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|
12,000 |
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Proceeds
from exercise of stock options
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|
|
254 |
|
|
|
68 |
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Other
stock related activity
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|
|
279 |
|
|
|
38 |
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Purchase
and cancellation of common stock
|
|
|
(815 |
) |
|
|
(995 |
) |
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Cash
(used in) provided by financing activities
|
|
|
(9,396 |
) |
|
|
2,478 |
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
661 |
|
|
|
(268 |
) |
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Net
(Decrease) Increase in Cash and Cash Equivalents
|
|
|
(127 |
) |
|
|
182 |
|
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Cash
and Cash Equivalents, Beginning of Period
|
|
|
5,824 |
|
|
|
6,918 |
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Cash
and Cash Equivalents, End of Period
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|
$ |
5,697 |
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$ |
7,100 |
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Supplemental
Cash Flow Information
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Cash
paid for interest expense
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|
$ |
260 |
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$ |
917 |
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Cash
paid for income taxes
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|
$ |
9,878 |
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$ |
7,870 |
|
See
accompanying notes to consolidated financial statements.
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2009 AND SEPTEMBER 27, 2008
(UNAUDITED)
As used
herein, unless the context otherwise requires, “Dorman”, the “Company”, “we”,
“us”, or “our” refers to Dorman Products, Inc. and its
subsidiaries.
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles 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 of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
thirty-nine week period ended September 26, 2009 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 26,
2009. We may experience significant fluctuations from quarter to quarter in our
results of operations due to the timing of orders placed by our customers.
Generally, the second and third quarters have the highest level of customer
orders, but the introduction of new products and product lines to customers may
cause significant fluctuations from quarter to quarter. 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 year ended December 27, 2008.
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2.
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Sales of Accounts
Receivable
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We have
entered into several customer sponsored programs administered by unrelated
financial institutions that permit us to sell, without recourse, certain
accounts receivable at discounted rates to the financial institutions. We do not
retain any servicing requirements for these accounts receivable. Transactions
under these agreements are accounted for as sales of accounts receivable. At
September 26, 2009 and December 27, 2008, $55.7 million and $55.0 million,
respectively, of accounts receivable were sold and removed from the consolidated
balance sheets based upon standard payment terms. Selling, general and
administrative expenses for the thirty-nine weeks ended September 26, 2009 and
September 27, 2008 include $1.5 million and $1.8 million, respectively, in
financing costs associated with these accounts receivable sales programs. During
the thirty-nine weeks ended September 26, 2009 and September 27, 2008, we sold
$57.3 million and $84.2 million, respectively, under these
programs.
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 average cost or
market. Inventories were as follows:
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(in
thousands)
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September
26,
2009
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December
27,
2008
|
|
|
Bulk
product
|
|
$ |
33,402 |
|
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$ |
35,385 |
|
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Finished
product
|
|
|
59,828 |
|
|
|
55,558 |
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Packaging
materials
|
|
|
2,363 |
|
|
|
2,634 |
|
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Total
|
|
$ |
95,593 |
|
|
$ |
93,577 |
|
On May
15, 2008, we sold certain assets of our Canadian Subsidiary for $0.9 million,
which was paid in installments through
December 2008.
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5.
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Stock-Based
Compensation
|
Effective
May 18, 2000 we amended and restated our Incentive Stock Option Plan (the
“Plan”). Under the terms of the Plan, our Board of Directors may grant incentive
stock options or non-qualified stock options or combinations thereof to purchase
up to 2,345,000 shares of common stock to officers, directors and employees.
Grants under the Plan must be made within 10 years of the date the plan was
approved and are exercisable at the discretion of the Board of Directories, but
in no event more than 10 years from the date of the grant. At September 26,
2009, options to acquire 322,330 shares were available for grant under the Plan.
The Plan expires on December 13, 2009.
On
December 12, 2008, our Board of Directors approved the 2008 Stock Option and
Stock Incentive Plan, which was approved by our shareholders at the Company’s
Annual Meeting held on May 20, 2009. Under the 2008 Plan, our Board of Directors
may grant incentive stock options, non-qualified stock options and/or shares of
restricted stock to purchase up to 1,000,000 shares of common stock to officers,
directors, and employees. Grants under the 2008 Plan must be made within 10
years of the date the plan was approved and are exercisable at the discretion of
the Board of Directors, but in no event more than 10 years from the date of
grant.
We
expense the grant-date fair value of employee stock options. Compensation cost
is recognized on a straight-line basis over the vesting period during which
employees perform related services. The compensation cost charged against income
for our stock-based compensation program for the thirty-nine weeks ended
September 26, 2009 and September 27, 2008 was $193,000 and $180,000 before
taxes. The compensation cost recognized is classified as selling, general and
administrative expense in the consolidated statement of operations. No cost was
capitalized during 2009 and 2008. We included a forfeiture assumption of 5.2% in
2009 and 4.6% in 2008 in the calculation of expense. Cash flows resulting from
tax deductions in excess of compensation cost recognized in the financial
statements is classified as financing cash flows.
We use
the Black-Scholes option valuation model to estimate the fair value of options
granted. Expected volatility and expected dividend yield are based on the actual
historical experience of our stock. The expected life represents the period of
time that options granted are expected to be outstanding and was calculated
using the simplified method. The risk-free rate is based on the U.S. Treasury
security with terms equal to the expected time of exercise as of the grant date.
There were no stock options granted in the thirty-nine weeks ended September 26,
2009 or September 27, 2008.
Transactions
under the Plan were as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Price
|
|
|
Weighted
Average
Remaining
Term
(In
years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Balance
at December 27, 2008
|
|
|
820,100 |
|
|
$ |
5.91 |
|
|
|
|
|
|
|
|
Exercised
|
|
|
(108,100 |
) |
|
|
2.53 |
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,500 |
) |
|
|
12.48 |
|
|
|
|
|
|
|
|
Balance
at September 26, 2009
|
|
|
710,500 |
|
|
$ |
6.40 |
|
|
|
4.1 |
|
|
$ |
5,674,000 |
|
|
Options
exercisable at September 26, 2009
|
|
|
594,300 |
|
|
$ |
5.25 |
|
|
|
3.3 |
|
|
$ |
5,434,000 |
|
The total
intrinsic value of stock options exercised during 2009 was $1.2
million.
As of
September 26, 2009, there was approximately $0.4 million of unrecognized
compensation cost related to non-vested stock options, which is expected to be
recognized over a weighted-average period of approximately 3.2
years.
Cash
received from option exercises under the Plan during 2009 was $244,000. The
excess tax benefit generated from options which were exercised during 2009 was
$338,000 and was credited to additional paid in capital.
The
following table sets forth the computation of basic earnings per share and
diluted earnings per share:
|
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
(in
thousands, except per share data)
|
|
September
26,
2009
|
|
|
September
27,
2008
|
|
|
September
26,
2009
|
|
|
September
27,
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,933 |
|
|
$ |
5,048 |
|
|
$ |
18,758 |
|
|
$ |
12,963 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding used in basic earnings per share
calculation
|
|
|
17,657 |
|
|
|
17,660 |
|
|
|
17,647 |
|
|
|
17,684 |
|
|
Effect
of dilutive stock options
|
|
|
341 |
|
|
|
386 |
|
|
|
329 |
|
|
|
375 |
|
|
Adjusted
weighted average shares outstanding used in diluted earnings per share
calculation
|
|
|
17,998 |
|
|
|
18,046 |
|
|
|
17,976 |
|
|
|
18,059 |
|
|
Basic
earnings per share
|
|
$ |
0.45 |
|
|
$ |
0.29 |
|
|
$ |
1.06 |
|
|
$ |
0.73 |
|
|
Diluted
earnings per share
|
|
$ |
0.44 |
|
|
$ |
0.28 |
|
|
$ |
1.04 |
|
|
$ |
0.72 |
|
Options
to purchase 192,000 and 173,500 shares were outstanding at September 26, 2009
and September 27, 2008, respectively, but were not included in the computation
of diluted earnings per common share, as their effect would have been
antidilutive.
|
7.
|
Common Stock
Repurchases
|
On
February 22, 2008, we announced that our Board of Directors authorized the
repurchase of up to 500,000 shares of our outstanding common stock. Under this
program, share repurchases may be made from time to time depending upon market
conditions, share price and availability, and other factors at our discretion.
Repurchases will take place in open market transactions or in privately
negotiated transactions in accordance with applicable laws. During 2009, we
repurchased and cancelled 3,600 shares of common stock under the
plan.
We
periodically repurchase at the then current market price and cancel common stock
issued to our defined contribution profit sharing and 401(k) plan. For the
thirty-nine weeks ended September 26, 2009, we repurchased and cancelled 63,364
shares of common stock. During 2008, we repurchased and cancelled 108,033 shares
of common stock.
|
8.
|
Related-Party
Transactions
|
We have
entered into a noncancelable operating lease for our primary operating facility
from a partnership in which Richard N. Berman, our Chief Executive Officer, and
Steven L. Berman, our Executive Vice President, are partners. Based upon the
terms of the lease, payments in 2009 will be $1.4 million. Total rental payments
to the partnership under the lease arrangement were $1.4 million in
2008.
At
September 26, 2009, we have $ 1.8 million of net unrecognized tax benefits, $1.2
million of which would affect our effective tax rate if recognized. We recognize
interest and penalties related to uncertain tax positions in income tax expense.
As of September 26, 2009, we have approximately $0.5 million of accrued interest
related to uncertain tax positions.
The last
year examined by the IRS was 2005, and all years up through and including that
year are closed by examination. We are currently under examination for tax years
2003-2007 by one state tax authority to which we are subject to tax. The tax
years 2004-2008 remain open to examination by the remaining major taxing
jurisdictions in the United States to which we are subject. The tax years
2004-2008 remain open to examination in Sweden for our Swedish
subsidiary.
Comprehensive
income includes all changes to shareholders’ equity during a period, except
those resulting from investment by and distributions to shareholders. Components
of comprehensive income include net income and changes in foreign currency
translation adjustments. Total comprehensive income was $9.5 million and $3.5
million for the thirteen weeks ended September 26, 2009 and September 27, 2008,
respectively. Total comprehensive income was $20.5 million and $8.9 million for
the thirty-nine weeks ended September 26, 2009 and September 27, 2008
respectively.
|
11.
|
Fair Value
Disclosures
|
The
carrying value of financial instruments such as cash, accounts receivable,
accounts payable, and other current assets and liabilities approximate their
fair value based on the short-term nature of these instruments. Based on
borrowing rates currently available to us for loans with similar terms and
average maturities, the fair value of total long-term debt, including the
current portion, was $6.3 million at September 26, 2009 and $15.4 million at
December 27, 2008.
|
12.
|
New Accounting
Pronouncements
|
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162". This statement modifies the Generally
Accepted Accounting Principles (“GAAP”) hierarchy by establishing only two
levels of GAAP, authoritative and nonauthoritative accounting literature.
Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also
known collectively as the “Codification,” is considered the single source of
authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC.
Nonauthoritative guidance and literature would include, among other things, FASB
Concepts Statements, American Institute of Certified Public Accountants Issue
Papers and Technical Practice Aids and accounting textbooks. The Codification
was developed to organize GAAP pronouncements by topic so that users can more
easily access authoritative accounting guidance. It is organized by topic,
subtopic, section, and paragraph, each of which is identified by a numerical
designation. This statement applies beginning in third quarter.
In June
2009, the FASB issued new guidance concerning the transfer of financial assets.
This guidance amends the criteria for a transfer of a financial asset to be
accounted for as a sale, creates more stringent conditions for reporting a
transfer of a portion of a financial asset as a sale, changes the initial
measurement of a transferor’s interest in transferred financial assets,
eliminates the qualifying special-purpose entity concept and provides for new
disclosures. This new guidance is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. The Company is evaluating the
impact of adoption of this new guidance on its financial
statements.
In June
2009, the FASB issued new guidance concerning the determination of the primary
beneficiary of a variable interest entity (“VIE”). This new guidance amends
current U.S. GAAP by: requiring ongoing reassessments of whether an enterprise
is the primary beneficiary of a VIE; amending the quantitative approach
previously required for determining the primary beneficiary of the VIE;
modifying the guidance used to determine whether an entity is a VIE; adding an
additional reconsideration event (e.g. troubled debt restructurings) for
determining whether an entity is a VIE; and requiring enhanced disclosures
regarding an entity’s involvement with a VIE. This new guidance is effective as
of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. The
Company is evaluating the impact of adoption of this new guidance on its
financial statements.
In May
2009, the FASB issued new guidance concerning subsequent events. This guidance
establishes the standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued. This
Statement also requires the disclosure of the date through which subsequent
events have been evaluated. The Company adopted this guidance, as required, for
the period ending June 27, 2009. Adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements. Refer to
Note 13 for the required disclosure.
In April
2008, the FASB issued guidance on the determination of the useful life of
intangible assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The adoption of the provisions of this guidance
did not impact the Company’s consolidated results of operations and financial
position.
In
December 2007, the FASB issued new guidance on business combinations that
changes the requirements for an acquirer’s recognition and measurement of the
assets acquired and the liabilities assumed in a business combination. This
guidance is effective for annual periods beginning after December 15, 2008 and
should be applied prospectively for all business combinations entered into after
the date of adoption.
In
December 2007, the FASB issued new guidance concerning noncontrolling interests
in consolidated financial statements. This guidance requires (i) that
noncontrolling (minority) interests be reported as a component of shareholders’
equity, (ii) that net income attributable to the parent and to the
noncontrolling interest be separately identified in the consolidated statement
of operations, (iii) that changes in a parent’s ownership interest while the
parent retains its controlling interest be accounted for as equity transactions,
(iv) that any retained noncontrolling equity investment upon the deconsolidation
of a subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. This
guidance is effective for annual periods beginning after December 15, 2008 and
should be applied prospectively. However, the presentation and disclosure
requirements of the statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of this guidance did not have a
material impact the Company’s consolidated financial position and results of
operations.
In
September 2006, the FASB issued guidance concerning fair value measurements.
This guidance defines fair value, established a framework for measuring fair
value and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements. Accordingly, this guidance does not require any new fair value
measurements. The provisions of this guidance are to be applied prospectively
and are effective for fiscal years beginning after November 15, 2007. The FASB
has agreed to a one-year deferral of the fair value measurement requirements for
non-financial assets and liabilities that are not required or permitted to be
measured at fair value on a recurring basis. We adopted this guidance for
financial assets and liabilities on December 30, 2007, and there was no impact
on the Company’s consolidated results of operations and financial position. We
adopted this guidance for non-financial assets and liabilities on December 28,
2008, and there was no impact on the Company’s consolidated results of
operations and financial position.
The
Company has evaluated subsequent events from September 26, 2009 to the date of
this report on the form 10-Q. There were no subsequent events required to be
recognized or disclosed in the financial statements.
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Cautionary
Statement Regarding Forward Looking Statements
Certain
statements in this document constitute “forward-looking statements” within the
meaning of the Federal Private Securities Litigation Reform Act of 1995. While
forward-looking statements sometimes are presented with numerical specificity,
they are based on various assumptions made by management regarding future
circumstances over many of which the Company has little or no control.
Forward-looking statements may be identified by words including “anticipate,”
“believe,” “estimate,” “expect,” and similar expressions. The Company cautions
readers that forward-looking statements, including, without limitation, those
relating to future business prospects, revenues, working capital, liquidity, and
income, are subject to certain risks and uncertainties that would cause actual
results to differ materially from those indicated in the forward-looking
statements. Factors that could cause actual results to differ from
forward-looking statements include but are not limited to: (i) competition in
the automotive aftermarket industry; (ii) concentration of the Company’s sales
and accounts receivable among a small number of customers and the extension of
customer payment terms and price concessions; (iii) the impact of consolidation
in the automotive aftermarket industry; (iv) weakness in the dollar and value of
the Chinese Yuan increasing; (v) dependence on senior management and control by
officers, directors, and family members; (vi) increase in OE patent filings;
(vii) product quality; (viii) reliance on new product development; and/or (ix)
the impact of increases in the cost of production. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. For additional information concerning factors that could cause
actual results to differ materially from the information contained in this
report, reference is made to the information in Part I, “Item 1A, Risk Factors”
in the Company’s Annual Report on Form 10-K for the fiscal year ended December
27, 2008.
Introduction
The
following discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and notes of Dorman Products, Inc. and its
subsidiaries included elsewhere in ths Quarterly Report on Form 10-Q and with
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and audited financial statements and notes included in the Company’s
Annual Report on Form 10-K.
Overview
We are a
leading supplier of Original Equipment (OE) Dealer "Exclusive" automotive
replacement parts, automotive hardware, brake products, and household hardware
to the automotive aftermarket and mass merchandise markets. Dorman automotive
parts and hardware are marketed under the Dorman®, OE
Solutions™,
HELP!®,
AutoGrade™,
First Stop™,
Conduct-Tite®, Pik-A-Nut®, and
Scan-Tech™
brand names. We design, package and market over 92,000 different automotive
replacement parts (including brake parts), fasteners and service line products
manufactured to our specifications. Our products are sold under one of the seven
Dorman brand names listed above. Our products are sold primarily in the United
States through automotive aftermarket retailers (such as AutoZone, Advance and
O'Reilly), national, regional and local warehouse distributors (such as Carquest
and NAPA) and specialty markets including parts manufacturers for resale under
their own private labels and salvage yards. Through our Scan-Tech subsidiary we
are increasing our international distribution of automotive replacement parts,
with sales into Europe, the Middle East and the Far East.
The
automotive aftermarket in which we compete has been growing in size; however,
the industry which we supply continues to consolidate. As a result, our
customers regularly seek more favorable pricing, product returns and extended
payment terms when negotiating with us. While we do our best to avoid such
concessions, in some cases pricing concessions have been made, customer payment
terms have been extended and returns of product have exceeded historical levels.
The product returns and more favorable pricing primarily affect our profit
levels while payment term extensions generally reduce operating cash flow and
require additional capital to finance the business. We expect both of these
trends to continue for the foreseeable future. We have increased our focus on
efficiency improvements and product cost reduction initiatives to offset the
impact of these trends.
In
addition, we are relying on new product development as a way to offset some of
these trends and as our primary vehicle for growth. As such, new product
development is a critical factor for our future success. We have invested
heavily in resources necessary for us to increase our new product development
efforts and to strengthen our relationships with our customers. These
investments are primarily in the form of increased product development resources
and awareness programs, customer service improvements and increased customer
credits and allowances. This has enabled us to provide an expanding array of new
product offerings and grow our revenues.
We may
experience significant fluctuations from quarter to quarter in our results of
operations due to the timing of orders placed by our customers. Generally, the
second and third quarters have the highest level of customer orders, but the
introduction of new products and product lines to customers may cause
significant fluctuations from quarter to quarter.
We
operate on a fifty-two, fifty-three week period ending on the last Saturday of
the calendar year.
Sale
of Assets
On May
15, 2008, we sold certain assets of our Canadian subsidiary for $0.9 million. We
realized a $0.7 million tax benefit upon disposition of the
business.
Results of
Operations
The
following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items in our Consolidated Statements of
Operations:
|
|
|
Percentage
of Net Sales
|
|
|
|
|
For
the Thirteen Weeks Ended
|
|
|
For
the Thirty-nine Weeks Ended
|
|
|
|
|
September
26,
2009
|
|
|
September
27,
2008
|
|
|
September
26,
2009
|
|
|
September
27,
2008
|
|
|
Net
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost
of goods sold
|
|
|
64.0 |
|
|
|
67.6 |
|
|
|
65.9 |
|
|
|
67.8 |
|
|
Gross
profit
|
|
|
36.0 |
|
|
|
32.4 |
|
|
|
34.1 |
|
|
|
32.2 |
|
|
Selling,
general and administrative expenses
|
|
|
22.8 |
|
|
|
23.1 |
|
|
|
23.2 |
|
|
|
23.8 |
|
|
Income
from operations
|
|
|
13.2 |
|
|
|
9.3 |
|
|
|
10.9 |
|
|
|
8.4 |
|
|
Interest
expense, net
|
|
|
- |
|
|
|
0.2 |
|
|
|
- |
|
|
|
0.3 |
|
|
Income
before taxes
|
|
|
13.2 |
|
|
|
9.1 |
|
|
|
10.9 |
|
|
|
8.1 |
|
|
Provision
for taxes
|
|
|
5.1 |
|
|
|
3.6 |
|
|
|
4.2 |
|
|
|
3.1 |
|
|
Net
Income
|
|
|
8.1 |
% |
|
|
5.5 |
% |
|
|
6.7 |
% |
|
|
5.0 |
% |
Thirteen
Weeks Ended September 26, 2009 Compared to Thirteen Weeks Ended September 27,
2008
Net sales
increased 7% to $98.0 million for the third quarter ended
September 26, 2009 from $91.2 million in the same period last year.
Revenues before the impact of exchange were up 8% over the prior
year. Our revenue growth was driven by overall strong demand for our
products and higher new product sales.
Cost of
goods sold, as a percentage of net sales, decreased to 64.0% for the thirteen
weeks ended September 26, 2009 from 67.6% in the same period last year. The
reduction is due primarily to lower product return and warranty costs along with
a reduction in freight expenses and certain material costs.
Selling,
general and administrative expenses for the thirteen weeks ended September 26,
2009 increased 6% to $22.3 million from $21.0 million in the same period last
year. The increase is the result of higher new product development spending and
increased incentive compensation expense due to higher earnings levels. These
increases were offset partially by lower operating costs in most other areas due
to cost reduction initiatives.
Interest
expense, net, decreased to $0.1 million in the thirteen weeks ended September
26, 2009 from $0.2 million in the same period last year due to lower borrowing
levels and lower interest rates.
Our
effective tax rate decreased slightly to 38.6% in the thirteen weeks ended
September 26, 2009 from 39.0% in the same period last year.
Thirty-nine
Weeks Ended September 26, 2009 Compared to Thirty-nine Weeks Ended September 27,
2008
Net sales
increased 7% to $280.7 million for the thirty-nine weeks ended September 26,
2009 from $261.6 million in the same period last year. Revenues before the
impact of exchange and the sale of our Canadian subsidiary were up 9% over the
prior year. Our revenue growth was driven by overall strong demand for our
products and higher new product sales.
Cost of
goods sold, as a percentage of net sales, decreased to 65.9% for the thirty-nine
weeks ended September 26, 2009 from 67.8% in the same period last year. The
decrease is the result of a reduction of $1.0 million in air freight costs
compared to last year, and a reduction in other freight expenses and certain
material costs.
Selling,
general and administrative expenses for the thirty-nine weeks ended September
26, 2009 increased 4% to $65.0 million from $62.5 million in the same period
last year. The increase is the result of higher new product development spending
and increased incentive compensation expense due to higher earnings levels. Our
continued focus on cost control has offset most of the variable costs associated
with higher sales and inflationary cost increases.
Interest
expense, net, decreased to $0.2 million in the thirty-nine weeks ended September
26, 2009 from $0.8 million in the same period last year due to lower borrowing
levels and lower interest rates.
Our
effective tax rate decreased slightly to 38.5% in the thirty-nine weeks ended
September 26, 2009, from 38.7% in the same period last year.
Liquidity
and Capital Resources
Historically,
we have financed our growth through a combination of cash flow from operations,
accounts receivable sales programs provided by certain customers and through the
issuance of senior indebtedness through our bank credit facility and senior note
agreements. At September 26, 2009, working capital was $165.7 million, total
long-term debt (including the current portion and revolving credit borrowings)
was $6.3 million and shareholders’ equity was $208.3 million. Cash and cash
equivalents as of September 26, 2009 was $5.7 million.
Over the
past several years we have continued to extend payment terms to certain
customers as a result of customer requests and market demands. These extended
terms have resulted in increased accounts receivable levels and significant uses
of cash flow. We participate in accounts receivable sales programs with several
customers which allow us to sell our accounts receivable on a non-recourse basis
to financial institutions to offset the negative cash flow impact of these
payment terms extensions. As of September 26, 2009 and December 27, 2008, we had
sold $55.7 million and $55.0 million in accounts receivable under these programs
and had removed them from our balance sheets based upon standard payment terms.
We expect continued pressure to extend our payment terms for the foreseeable
future. Further extensions of customer payment terms will result in additional
uses of cash flow or increased costs associated with the sale of accounts
receivable.
We have a
$30.0 million revolving credit facility which expires in June 2010. Borrowings
under the facility are on an unsecured basis with interest at rates ranging from
LIBOR plus 65 basis points to LIBOR plus 150 basis points based upon the
achievement of certain benchmarks related to the ratio of funded debt to EBITDA.
The interest rate at September 26, 2009 was LIBOR plus 65 basis points (0.90%).
Borrowings under the facility were $6.0 million as of September 26, 2009. We had
approximately $21.4 million available under the facility at September 26, 2009.
The loan agreement also contains covenants, the most restrictive of which
pertain to net worth and the ratio of debt to EBITDA.
We also
have outstanding $0.4 million under a commercial loan granted in connection with
the opening of a new distribution facility which bears interest at 4% payable
monthly. The principal balance is paid monthly in equal installments through
September 2013. The loan is secured by a letter of credit issued under our
revolving credit facility.
Our
business activities do not include the use of unconsolidated special purpose
entities, and there are no significant business transactions that have not been
reflected in the accompanying financial statements.
Cash
generated from our operating activities was $14.5 million in the thirty-nine
weeks ended September 26, 2009. Net income, depreciation and a $3.6 million
increase in accrued compensation and other liabilities were the primary sources
of operating cash flow. Accrued compensation and other liabilities increased
primarily due to higher incentive compensation accruals in 2009. The primary use
of cash was accounts receivable, which increased $11.4 million due to sales
growth.
Investing
activities used $5.9 million of cash in the thirty-nine weeks ended September
26, 2009 primarily as a result of additions to property, plant and equipment.
Capital spending in 2009 consisted of tooling associated with new products,
equipment associated with the expansion of a distribution center, upgrades to
information systems and scheduled equipment replacements.
Financing
activities used $9.4 million of cash in the thirty-nine weeks ended September
26, 2009, primarily related to our repayment of outstanding amounts under our
revolving credit facility and the purchase and cancellation of our common
stock.
Based on
our current operating plan, we believe that our sources of available capital are
adequate to meet our ongoing cash needs for at least the next twelve
months.
Foreign
Currency Fluctuations
In 2008,
approximately 80% of our products were purchased from suppliers in a variety of
foreign countries. The products generally are purchased through purchase orders
with the purchase price specified in U.S. dollars. Accordingly, we do not have
exposure to fluctuations in the relationship between the dollar and various
foreign currencies between the time of execution of the purchase order and
payment for the product. To the extent that the dollar decreases in value to
foreign currencies in the future, the price of the product in dollars for new
purchase orders may increase.
The
largest portion of our overseas purchases come from China. The value of the
Chinese Yuan has increased relative to the U.S. Dollar since July 2005 when it
was allowed to fluctuate against a basket of currencies. Most experts believe
that the value of the Yuan will increase further relative to the U.S. Dollar
over the next few years. Such a move would most likely result in an increase in
the cost of products that are purchased from China.
Impact
of Inflation
The
overall impact of inflation has not resulted in a significant change in labor
costs or the cost of general services utilized by the Company. During the second
and third quarter of 2008 we experienced significant increases in the cost of
our materials costs as a result of commodity price increases and weakness in the
U.S. Dollar. The upward pressure on materials costs has eased as the U.S.
economy weakened, but costs are up over the first half of 2008 levels. We have
been able to offset a portion of these cost increases with higher selling
prices; however, we may not be able to do so in the future. We will attempt to
offset any further cost increases by passing along selling price increases to
customers, through the use of alternative suppliers and by resourcing products
to other countries. However, there can be no assurance that we will be
successful in these efforts.
Related-Party
Transactions
We have a
noncancelable operating lease for our primary operating facility from a
partnership in which Richard N. Berman, our Chief Executive Officer, and Steven
L. Berman, our President, are partners. Based upon the terms of the lease,
payments in 2009 will be $1.4 million. Total rental payments to the partnership
under the lease arrangement were $1.4 million in 2008.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, the disclosure of
contingent liabilities and the reported amounts of revenues and expenses. We
regularly evaluate our estimates and judgements, including those related to
revenue recognition, bad debts, customer credits, inventories, goodwill and
income taxes. Estimates and judgements are based upon historical experience and
on various other assumptions believed to be accurate and reasonable under the
circumstances. Actual results may differ materially from these estimates under
different assumptions or conditions. We believe the following critical
accounting policies affect our more significant estimates and judgements used in
the preparation of our consolidated financial statements.
Allowance
for Doubtful Accounts. The preparation of our financial statements requires us
to make estimates of the collectability of our accounts receivable. We
specifically analyze accounts receivable and historical bad debts, customer
creditworthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of the allowance for doubtful accounts. A
significant percentage of our accounts receivable have been, and will continue
to be, concentrated among a relatively small number of automotive retailers and
warehouse distributors in the United States. Our five largest customers
accounted for 81% and 71% of net accounts receivable as of December 27, 2008 and
December 29, 2007, respectively. A bankruptcy or financial loss associated with
a major customer could have a material adverse effect on our sales and operating
results.
Revenue
Recognition and Allowance for Customer Credits. Revenue is recognized from
product sales when goods are shipped, title and risk loss have been transferred
to the customer and collection is reasonably assured. We record estimates for
cash discounts, product returns and warranties, discounts and promotional
rebates in the period of the sale (“Customer Credits”). The provision for
Customer Credits is recorded as a reduction from gross sales and reserves for
Customer Credits are shown as a reduction of accounts receivable. Amounts billed
to customers for shipping and handling are included in net sales. Costs
associated with shipping and handling are included in cost of goods sold. Actual
Customer Credits have not differed materially from estimated amounts for each
period presented.
Excess
and Obsolete Inventory Reserves. We must make estimates of potential future
excess and obsolete inventory costs. We provide reserves for discontinued and
excess inventory based upon historical demand, forecasted usage, estimated
customer requirements and product line updates. We maintain contact with our
customer base in order to understand buying patterns, customer preferences and
the life cycle of our products. Changes in customer requirements are factored
into the reserves as needed.
Goodwill.
We employ a discounted cash flow analysis and a market comparable approach in
conducting our impairment tests. Earnings multiples of 5.25 to 5.5 times EBITDA
were used when conducting these tests in 2008.
Income
Taxes. We follow the asset and liability method of accounting for deferred
income taxes. Under this method, income tax expense is recognized for the amount
of taxes payable or refundable for the current year and for the change in the
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in an entity's financial statements or tax returns. We
must make assumptions, judgments and estimates to determine our current
provision for income taxes and also our deferred tax assets and liabilities and
any valuation allowance to be recorded against a deferred tax asset. Our
judgments, assumptions and estimates relative to the current provision for
income taxes takes into account current tax laws, our interpretation of current
tax laws and possible outcomes of current and future audits conducted by tax
authorities. Changes in tax laws or our interpretation of tax laws and the
resolution of current and future tax audits could significantly impact the
amounts provided for income taxes in our consolidated financial statements. Our
assumptions, judgments and estimates relative to the value of a deferred tax
asset takes into account predictions of the amount and category of future
taxable income. Actual operating results and the underlying amount and category
of income in future years could render our current assumptions, judgments and
estimates of recoverable net deferred taxes inaccurate. Any of the assumptions,
judgments and estimates mentioned above could cause our actual income tax
obligations to differ from our estimates.
Recent
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162". This statement modifies the Generally
Accepted Accounting Principles (“GAAP”) hierarchy by establishing only two
levels of GAAP, authoritative and nonauthoritative accounting literature.
Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also
known collectively as the “Codification,” is considered the single source of
authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC.
Nonauthoritative guidance and literature would include, among other things, FASB
Concepts Statements, American Institute of Certified Public Accountants Issue
Papers and Technical Practice Aids and accounting textbooks. The Codification
was developed to organize GAAP pronouncements by topic so that users can more
easily access authoritative accounting guidance. It is organized by topic,
subtopic, section, and paragraph, each of which is identified by a numerical
designation. This statement applies beginning in third quarter.
In June
2009, the FASB issued new guidance concerning the transfer of financial assets.
This guidance amends the criteria for a transfer of a financial asset to be
accounted for as a sale, creates more stringent conditions for reporting a
transfer of a portion of a financial asset as a sale, changes the initial
measurement of a transferor’s interest in transferred financial assets,
eliminates the qualifying special-purpose entity concept and provides for new
disclosures. This new guidance is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. The Company is evaluating the
impact of adoption of this new guidance on its financial
statements.
In June
2009, the FASB issued new guidance concerning the determination of the primary
beneficiary of a variable interest entity (“VIE”). This new guidance amends
current U.S. GAAP by: requiring ongoing reassessments of whether an enterprise
is the primary beneficiary of a VIE; amending the quantitative approach
previously required for determining the primary beneficiary of the VIE;
modifying the guidance used to determine whether an entity is a VIE; adding an
additional reconsideration event (e.g. troubled debt restructurings) for
determining whether an entity is a VIE; and requiring enhanced disclosures
regarding an entity’s involvement with a VIE. This new guidance is effective as
of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. The
Company is evaluating the impact of adoption of this new guidance on its
financial statements.
In May
2009, the FASB issued new guidance concerning subsequent events. This guidance
establishes the standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued. This
Statement also requires the disclosure of the date through which subsequent
events have been evaluated. The Company adopted this guidance, as required, for
the period ending June 27, 2009. Adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements. Refer to
Note 13 for the required disclosure.
In April
2008, the FASB issued guidance on the determination of the useful life of
intangible assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The adoption of the provisions of this guidance
did not impact the Company’s consolidated results of operations and financial
position.
In
December 2007, the FASB issued new guidance on business combinations that
changes the requirements for an acquirer’s recognition and measurement of the
assets acquired and the liabilities assumed in a business combination. This
guidance is effective for annual periods beginning after December 15, 2008 and
should be applied prospectively for all business combinations entered into after
the date of adoption.
In
December 2007, the FASB issued new guidance concerning noncontrolling interests
in consolidated financial statements. This guidance requires (i) that
noncontrolling (minority) interests be reported as a component of shareholders’
equity, (ii) that net income attributable to the parent and to the
noncontrolling interest be separately identified in the consolidated statement
of operations, (iii) that changes in a parent’s ownership interest while the
parent retains its controlling interest be accounted for as equity transactions,
(iv) that any retained noncontrolling equity investment upon the deconsolidation
of a subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. This
guidance is effective for annual periods beginning after December 15, 2008 and
should be applied prospectively. However, the presentation and disclosure
requirements of the statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of this guidance did not have a
material impact the Company’s consolidated financial position and results of
operations.
In
September 2006, the FASB issued guidance concerning fair value measurements.
This guidance defines fair value, established a framework for measuring fair
value and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements. Accordingly, this guidance does not require any new fair value
measurements. The provisions of this guidance are to be applied prospectively
and are effective for fiscal years beginning after November 15, 2007. The FASB
has agreed to a one-year deferral of the fair value measurement requirements for
non-financial assets and liabilities that are not required or permitted to be
measured at fair value on a recurring basis. We adopted this guidance for
financial assets and liabilities on December 30, 2007, and there was no impact
on the Company’s consolidated results of operations and financial position. We
adopted this guidance for non-financial assets and liabilities on December 28,
2008, and there was no impact on the Company’s consolidated results of
operations and financial position.
Item 3. Quantitative and Qualitative
Disclosure about Market Risk
Our
market risk is the potential loss arising from adverse changes in interest
rates. Substantially all of our borrowings as well as our accounts receivable
sale programs bear interest rates tied to LIBOR. Under the terms of our
revolving credit facility and customer-sponsored programs to sell accounts
receivable, a change in either the lender’s base rate, LIBOR or discount rates
under our accounts receivable sale programs would affect the rate at which we
could borrow funds thereunder. Hypothetically, a one percentage point increase
in LIBOR would increase our interest expense on our variable rate debt and our
financing costs associated with our sales of accounts receivable by
approximately $0.6 million annually. This estimate assumes that our variable
rate debt balance and the level of sales of accounts receivable remains constant
for an annual period and the interest rate change occurs at the beginning of the
period. The hypothetical changes and assumptions may be different from what
actually occurs in the future.
We have
not historically and do not intend to use derivative financial instruments for
trading or to speculate on changes in interest rates or commodity prices. We are
not exposed to any significant market risks, foreign currency exchange risk or
interest rate risk from the use of derivative instruments.
Item 4. Controls and
Procedures
Quarterly
Evaluation of Our Disclosure Controls and Internal Controls
As of
September 26, 2009, the Company carried out an evaluation, under the supervision
and with the participation of the Company’s Disclosure Committee and the
Company’s management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures pursuant to paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Item
4T. Controls
and Procedures
|
Not
Applicable
|
PART
II: OTHER INFORMATION
Item
1. Legal Proceedings
We are a
party to or otherwise involved in legal proceedings that arise in the ordinary
course of business, such as various claims and legal actions involving
contracts, competitive practices, patent rights, trademark rights, product
liability claims and other matters arising out of the conduct of our business.
In the opinion of management, none of the actions, individually or in the
aggregate, would likely have a material financial impact on us.
New
Product Development. We rely on new product development in part to offset the
effect that price concessions, extended payment terms, and product returns on
existing products has on our profit levels and cash flow. There can be no
assurance that our product development efforts will be successful, that we will
be able to cost-effectively have these products manufactured on our behalf, that
we will be able to successfully market these products or that margins generated
from sales of these products will recover costs of our development efforts. If
we are not able to develop and successfully market a sufficient number of new
products our business may be adversely affected.
Impact of
Increased Cost of Production. The cost of materials may increase as a result of
commodity price increases and other increased costs of production. We will
attempt to offset any cost increase that may arise by raising prices charged to
our customers, using alternative low-cost suppliers, and by sourcing product
manufacturing activities to other countries. If we are not able to offset the
impact of such cost increases successfully, our profit margin could be adversely
affected.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item A, Risk Factors” in our Annual
Report on Form 10-K for the year ended December 27, 2008, which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks we face. Additional
risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial
condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
We made
no purchase of shares under our Stock Repurchase Program this
period.
Item 3. Defaults Upon Senior
Securities
|
Not
Applicable
|
Item 4. Submission of Matters to a Vote of
Security Holders
|
Not
Applicable
|
Item 5. Other Information
|
Not
Applicable
|
|
Item
601
Exhibit
Number
|
Title
|
|
|
|
|
3.1
(1)
|
Amended
and Restated Articles of Incorporation of the Company dated May 23,
2007.
|
|
|
|
|
3.2
(2)
|
Amended
and Restated Bylaws of the Company.
|
|
|
|
|
4.1
(3)
|
Amended
and Restated Shareholder’s Agreement dated July 1, 2006
|
|
|
|
|
10.1
(4)
|
Lease,
dated December 1, 1990, between the Company and the Berman Real Estate
Partnership, for premises located at 3400 East Walnut Street, Colmar,
Pennsylvania.
|
|
|
|
|
10.1.1
(6)
|
Amendment
to Lease, dated September 10, 1993, between the Company and the Berman
Real Estate Partnership, for premises located at 3400 East Walnut Street,
Colmar, Pennsylvania, amending 10.1.
|
|
|
|
|
10.1.2
(7)
|
Assignment
of Lease, dated February 24, 1997, between the Company, the Berman Real
Estate Partnership and BREP 1, for the premises located at 3400 East
Walnut Street, Colmar, Pennsylvania, assigning 10.1.
|
|
|
|
|
10.1.3
(10)
|
Amendment
to Lease, dated April 1, 2002, between the Company and the BREP I, for
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
amending 10.1.
|
|
|
|
|
10.1.4
(13)
|
Amendment
to Lease, dated December 12, 2007, between the Company and BREP I, for
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
amending 10.1.
|
|
|
|
|
10.2
(14)
|
Lease,
dated January 31, 2006, between the Company and First Industrial, L.P. for
premises located at 3150 Barry Drive, Portland,
Tennessee.
|
|
10.2.1
(15)
|
Amendment
to Lease, dated January 28, 2008, between the Company and First
Industrial, L.P. for premises located at 3150 Barry Drive, Portland,
Tennessee.
|
|
|
|
|
10.3
(11)
|
Third
Amended and Restated Credit Agreement dated as of July 24, 2006, between
the Company and Wachovia Bank, N.A.
|
|
|
|
|
10.3.1
(16)
|
Amendment
to Amended and Restated Credit Agreement, dated December 24, 2007, between
the Company and Wachovia Bank, N.A.
|
|
|
|
|
10.4
(12)
|
Commercial
Loan Agreement, dated September 27, 2006, between the Company and the
Tennessee Valley Authority.
|
|
|
|
|
10.5
(8)†
|
Dorman
Products, Inc. Amended and Restated Incentive Stock
Plan.
|
|
|
|
|
10.6
(5)†
|
Dorman
Products, Inc. 401(k) Retirement Plan and Trust.
|
|
|
|
|
10.6.1
(9)†
|
Amendment
No. 1 to the Dorman Products, Inc. 401(k) Retirement Plan and
Trust.
|
|
|
|
|
10.7
(5)†
|
Dorman
Products, Inc. Employee Stock Purchase Plan.
|
|
|
|
|
10.9
(17)
|
Employment
Agreement, dated April 1, 2008, between the Company and Richard N.
Berman.
|
|
|
|
|
10.10
(18)
|
Employment
Agreement, dated April 1, 2008, between the Company and Steven L.
Berman.
|
|
|
|
|
10.11(19)
|
Dorman
Products, Inc. 2008 Stock Option and Stock Incentive
Plan
|
|
|
|
|
31.1
|
Certification
of Chief Executive Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002 (filed with this report)
|
|
|
|
|
31.2
|
Certification
of Chief Financial Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002 (filed with this report).
|
|
|
|
|
32.
|
Certification
of Chief Executive and Chief Financial Officer as required by Section 906
of the Sarbanes-Oxley Act of 2002 (filed with this
report).
|
________________
†
Management Contracts and Compensatory Plans, Contracts or
Arrangements.
(1)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on
May 24, 2007.
(2)
Incorporated by reference to the Exhibits filed with Company’s
Current Report on Form 8-K dated July 31, 2009.
(3)
Incorporated by reference to the Exhibits filed with the Company’s Quarterly
Report on Form 10-Q for the quarter
ended
September 27, 2008.
(4)
Incorporated by reference to the Exhibits filed with Company’s
Registration Statement on Form S-1 and Amendments
No. 1,
No. 2, and No. 3 thereto (Registration 33-37264).
(5)
Incorporated by reference to the Exhibits files with the Company's Annual Report
on Form 10-K for the fiscal year
ended
December 26, 1992.
(6)
Incorporated by reference to the Exhibits filed with the Company's Registration
Statement on Form S-1 and
Amendment
No. 1 thereto (Registration No. 33-68740).
(7)
Incorporated by reference to the Exhibits filed with the Company's Annual Report
on Form 10-K for the fiscal year
ended
December 28, 1996.
(8)
Incorporated by reference to the Exhibits filed with the Company’s Registration
Statement on Form S-8 (Registration
333-157150).
(9)
Incorporated by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter
ended
June 25, 1994.
(10)
Incorporate by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter
ended
June 29, 2002.
(11)
Incorporated by reference to the Exhibit filed with the Company’s Current Report
on Form 8-K dated July 27, 2006.
(12)
Incorporated by reference to the Exhibit filed with the Company’s Current Report
on Form 8-K dated September
28,
2006
(13)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated December
12,
2007.
(14)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated February 2,
2006.
(15)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated January
29,
2008.
(16)
Incorporated by reference to the Exhibits filed with the Company’s Current
Report on Form 8-K dated January
2,
2008.
(17)
Incorporated by reference to Exhibits filed with the Company’s Current Report on
Form 8-K dated April 1, 2008.
(18)
Incorporated by reference to Exhibits filed with the Company’s Current Report on
Form 8-K dated April 1, 2008.
(19)
Incorporated by reference to the Exhibits filed with the Registration Statement
on Form S-8 dated August 3, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
Dorman
Products, Inc.
|
|
|
|
|
|
|
|
Date November 2, 2009
|
\s\ Richard Berman
|
|
|
Richard
Berman
|
|
|
Chairman
and Chief Executive Officer
|
|
|
(Principal
executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date November 2, 2009
|
\s\ Mathias Barton
|
|
|
Mathias
Barton
|
|
|
Chief
Financial Officer and
|
|
|
Principal
Accounting Officer
|
|
|
(Principal
financial officer)
|
|
|
Certification
of Chief Executive Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002 (filed with this report
|
|
|
|
|
|
Certification
of Chief Financial Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002 (filed with this report).
|
|
|
|
|
|
Certification
of Chief Executive and Chief Financial Officer as required by Section 906
of the Sarbanes-Oxley Act of 2002 (filed with this
report)
|
Page 22 of 22