NEW PRODUCTS • NEW SOLUTIONS • NEW OPPORTUNITIES
MARKET POSITION
We are a leading supplier of replacement parts and fasteners for passenger cars, light
trucks, and heavy duty trucks in the automotive aftermarket. We distribute and market
approximately 140,000 different SKUs of automotive replacement parts and fasteners which
are sold under several DORMAN® sub-brands (OE Solutions™, HELP!®, AutoGrade™, Conduct-
Tite®, FirstStop™, TECHoice™ and HD Solutions®).
Our products are sold primarily in the United States through automotive and heavy vehicle
aftermarket retailers, national, regional and local warehouse distributors, specialty markets
and salvage yards.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Statement of Operations Data:
Net sales
Income from operations
Income from continuing operations (a)
Earnings per share from continuing
operations
Basic
Diluted
Balance Sheet Data:
Total assets
Working capital
Long-term debt
Dividends paid (b)
Shareholders’ equity
Fiscal Year Ended December (1)
2014
2013
2012 (c)
2011 (d)
2010
$751,476
140,734
89,987
$664,466
127,939
81,920
$570,420
104,231
66,405
$513,432
87,637
56,202
$438,205
76,807
48,101
$ 2.50
$ 2.49
$ 2.25
$ 2.24
$ 1.84
$ 1.82
$ 1.57
$ 1.55
$ 1.35
$ 1.33
$580,368
364,631
—
—
462,061
$529,169
336,668
—
—
413,641
$412,683
268,839
—
54,716
332,872
$382,116
262,731
—
—
317,103
$326,960
218,935
—
—
263,153
(1) We operate on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year.
(a) On September 21, 2011, we announced our plan to exit the international portion of our ScanTech business due to continued operating losses and to focus
on growing our North American business. The results of ScanTech have been presented as a discontinued operation in the Statement of Operations data
presented above.
(b) On December 5, 2012, we announced a special cash dividend of $1.50 per share of common stock payable on December 28,2012 to shareholders of record
at the close of business on December 17, 2012.
(c) Net income from discontinued operations includes a reclassification of approximately $3.0 million of a previously recognized currency translation adjustments
from accumulated other comprehensive income to net income ($0.08 per share) and $1.4million of benefits related to foreign tax credits we expect to
utilize in the future ($0.04 per share).
(d) Net income from discontinued operations includes charges of $2.2 million to write down inventory and tooling ($0.06 per share) and $0.4 million to write
down other assets and to accrue employee-related costs ($0.01 per share).
OE Solutions™
Formerly Dealer Only
Hard Parts
HELP!®
Merchandized Replacement
Parts and Repair Solutions
Auto Grade™
Automotive Hardware
First Stop™
Value-Priced, Full Coverage
Small Brake Parts
Conduct Tite!®
Merchandized Electrical
Maintenance Parts
TECHoice™
Value-Priced Hard Parts
HD Solutions™
Formerly Dealer Only
Heavy Duty Hard Parts
Check Dorman First
Launched in 2014, our Check Dorman First campaign focuses on changing customer
buying habits. Our widely distributed awareness materials all remind customers to
always check Dorman’s website when searching for replacement parts; rather than
call the OE Dealer.
LETTER TO SHAREHOLDERS
To My Fellow Shareholders,
2014
Annual Report
This year marked our 14th consecutive year of sales growth, including double digit sales growth in each
of the last six years, as our dedicated contributors continue to execute our proven “New to the Aftermar-
ket” product development strategy. We believe that our ability to successfully execute this strategy, coupled
with our proven business model, will propel the company’s success for years to come.
Our growth in revenue and earnings has created substantial long term value for our shareholders. Our
business model generated a five year compounded annual growth rate of 16% in net sales and 27% in net
income. As a result, a $100 investment in our stock made five years ago would be worth well over $600 at
the end of 2014.
We can continue to grow over the long-term by remaining focused on our core mission – identifying
failure prone passenger car, light truck, and heavy duty truck parts that are only available from dealerships
and making them available to our customers and end users.
Our growth comes primarily from the sale of new products that we develop in-house. We introduced
approximately 3,750 new parts in 2014, including 1,266 “Formerly Dealer Only” parts, an increase of 8%
over 2013. In 2014, 22% of our sales were from products that were introduced in the last 24 months. We
believe that the benefits from the investments we have made in the business and the continued success of
our new products will allow us to achieve our long-term goals of low double digit sales and earnings
growth.
2014 Highlights
Our net sales increased 13% to $751.5 million in 2014, up from $664.5 million in 2013. Our net income
increased 10% to $90.0 million from $81.9 million in the prior year even as we continued to invest in new
product development and a new enterprise resource planning (ERP) system. Diluted earnings per share in
2014 rose 11% to $2.49 from $2.24 in 2013.
The installation of our new ERP system is now complete. This new system is a scalable platform that will
support our future growth for many years to come, allow us to establish enterprise-wide data structures,
and more efficiently support our current and future business processes.
We introduced several high profile new product categories in 2014:
• Our Stainless Steel Brake Line program will offer over 60 SKUs with coverage for over 6 million vehicles
in operation. Other aftermarket suppliers only provide bulk tubing rolls, requiring installers and end
users to bend their own lines. Our offering will be “pre-bent” resulting in faster and easier installation.
• Our fully remanufactured and tested Transmission Electro-Hydraulic Control Module (TEHCM) combines
all components into one unit. Our product is “plug & play” saving the installer time and money by
eliminating a trip to the dealer.
• Our Driveshaft Assembly program includes 90 SKUs with coverage for over 21 million vehicles in opera-
tion. Our assemblies are 100% new and keep driveshaft repair in installer’s shops rather than at specialty
rebuilders.
• We lead the way in remanufactured Hybrid Drive Batteries. We have 10 SKUs with coverage for over 45
million vehicles in operation, including the batteries for the Ford Escape and Nissan Altima that were
introduced in 2014. The original Ford Escape battery costs over $9,000 to replace which in many cases
will exceed the value of the vehicle. Our fully remanufactured and tested Ford Escape replacement
battery will save the owner over $4,000 after full installation.
LETTER TO SHAREHOLDERS
2014
Annual Report
Cost of goods sold, as a percentage of net sales increased to 61.8% in fiscal 2014 from 60.7% in the
same period last year. The variance was primarily the result of competitive pricing pressures and a shift in
product mix. Selling, general and administrative expenses decreased to 19.5% of fiscal 2014 net sales from
20.0% of fiscal 2013 net sales as we were able to leverage our expenses over growing net sales. Selling,
general and administrative expenses were $146.5 million in fiscal 2014 compared to $133.0 million in fiscal
2013. The increase was primarily due to higher variable costs associated with our 13% sales growth,
approximately $2.3 million in additional investment in new product development and other resources to
support our product growth efforts, and inflationary increases as compared to prior year.
We are happy to report that we remain debt free at the end of fiscal 2014.
Looking to 2015 and Beyond
New product leadership through innovation has always been a key differentiator for Dorman. To attain
profitable growth over the long-term, we will continue to actively strengthen both our new product devel-
opment capabilities and customer relationships, as our customers are now more than ever, seeking new
products to gain a competitive edge in the market.
Our unique aftermarket new product development model is transportable to similar markets. We have
successfully entered the Medium and Heavy Duty parts market with the launch of Dorman HD Solutions™
and the Hybrid Drive Battery program using our acquisition of Re-Involt as a platform. We enter such
markets only after completing market assessments, understanding transaction drivers, and establishing the
infrastructure necessary to support new product development, sales, and marketing. We expect to enter
more new markets over the next several years by organic growth or by acquisition, or both. We will act only
in support of our mission to grow sales and earnings over the long-term.
Finding, retaining and developing top talent to execute our strategy is a critical focus for 2015 and
beyond. The persistence and passion of our contributors is the driving force behind our new product
innovations and our proven ability to prosper through various economic environments and industry transi-
tions. In support of this effort we continue to make investments in our learning and development pro-
grams and in new initiatives such as our “Strong Start” program for integrating new contributors into the
Dorman team.
Our Culture of Contribution is defined as the way we mutually respect and support each other. As part
of our culture, we demand a high degree of accountability for business results and customer satisfaction.
We give praise for outstanding achievement and encourage performance, growth, and excellence. Through
personal leadership, our contributors produce results that make a difference for our customers and share-
holders. Our management team is committed to nurturing our culture and empowering our contributors
to build upon the success Dorman has had over the past several years.
To our shareholders, particularly those
that have been with us over the long term,
we say thank you for demonstrating your
confidence in our company.
Steven L. Berman
Chairman of the Board
and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 27, 2014
OR
(cid:2)
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
(State or other jurisdiction of
incorporation or organization)
23-2078856
(I.R.S Employer
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.01 Par Value
Name of each exchange on which registered:
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
⌧
(cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities
Act. Yes
(cid:2)
⌧
No
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
⌧
(cid:2)
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 (§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). Yes
No
⌧
(cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
(cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
Large accelerated filer
⌧
(cid:2)
Accelerated filer
(cid:2)
(cid:2)
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(cid:2)
⌧
No
As of February 19, 2015 the registrant had 35,616,334 shares of common stock, $0.01 par value, outstanding. The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2014 was $1,364,609,466.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement, in connection with its Annual Meeting of Shareholders, to be filed with
the Securities and Exchange Commission within 120 days after December 27, 2014, are incorporated by reference into Part III of this
Annual Report on Form 10-K.
DORMAN PRODUCTS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 27, 2014
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 4.1 Executive Officers of the Registrant
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
The Company’s fiscal year ends on the last Saturday of the calendar year.
References to
Fiscal 2010
Fiscal 2011
Fiscal 2012
Fiscal 2013
Fiscal 2014
Refers to the year ended
December 25, 2010
December 31, 2011
December 29, 2012
December 28, 2013
December 27, 2014
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41
Item 1. Business.
General
PART I
otherwise requires, “Dorman”, the “Company”, “we”, “us”, or “our” refers to Dorman Products, Inc. and its subsidiaries.
Dorman Products, Inc. was incorporated in Pennsylvania in October 1978. As used herein, unless the context
We are a leading supplier of replacement parts and fasteners for passenger cars, light trucks, and heavy duty trucks in
the automotive aftermarket. We distribute and market approximately 140,000 different stock keeping units (“SKU’s”) of automotive
replacement parts and fasteners, many of which we design and engineer. We believe we are the dominant aftermarket supplier of
original equipment “dealer exclusive” items. Original equipment dealer exclusive parts are those which were traditionally available to
consumers only from original equipment manufacturers or used parts from salvage yards and include, among other parts, intake
manifolds, exhaust manifolds, window regulators, radiator fan assemblies, tire pressure monitor sensors, exhaust gas recirculation (EGR)
coolers and complex electronics modules. Fasteners include such items as oil drain plugs, wheel bolts, and wheel lug nuts.
Approximately 85% of our products are sold under brands that we own and the remainder of our products are sold for resale under
customers’ private labels, other brands or in bulk. Our products are sold primarily in the United States through automotive aftermarket
retailers (such as Advance Auto Parts, AutoZone, and O’Reilly Auto Parts), national, regional and local warehouse distributors (such as
Genuine Parts Co. - NAPA) and specialty markets, and salvage yards. We also distribute automotive replacement parts internationally,
with sales primarily into Europe, Mexico, the Middle East, Asia and Canada.
The Automotive Aftermarket
The automotive replacement parts market is made up of two components: parts for passenger cars and light trucks,
which accounted for projected industry sales of approximately $246 billion in 20141, and parts for medium and heavy duty trucks, which
accounted for projected industry sales of approximately $81 billion in 20141. We market products primarily for passenger cars and light
trucks, including those with diesel engines and, more recently, for medium and heavy duty trucks. Two distinct groups of end-users buy
replacement vehicle (automotive and truck) parts: (i) individual consumers, who purchase parts to perform “do-it-yourself” repairs on
their own vehicles; and (ii) professional installers, which include vehicle repair shops and the dealership service departments. The
individual consumer market is typically supplied through retailers and through the retail arms of warehouse distributors. Vehicle repair
shops generally purchase parts through local independent parts wholesalers and through national parts distributors. Automobile
dealership service departments generally obtain parts through the distribution systems of vehicle manufacturers and specialized national
and regional parts distributors.
Spending in the light vehicle aftermarket can be generally grouped into three categories: discretionary, maintenance
and repair. Discretionary, such as accessories and performance, tends to move in-line with consumer discretionary spending.
Maintenance is composed of products and services, such as oil and oil changes, and tends to be less correlated with discretionary
spending. The repair category consists mainly of replacement parts which fail over time and tends to be less cyclical as it is largely
comprised of parts necessary for a vehicle to function properly or safely. We believe the majority of our products fall into the repair
category. The increasing complexity of automobiles and the number of different makes and models of automobiles have resulted in a
significant increase in the number of products required to service the domestic and foreign automotive fleet. Accordingly, the number of
parts required to be carried by retailers and wholesale distributors has increased substantially. The requirement to include more products
in inventory and the significant consolidation among distributors of automotive replacement parts have in turn resulted in larger
distributors.
Retailers and others who purchase aftermarket automotive repair and replacement parts for resale are constrained to a
finite amount of space in which to display and stock products. Thus, the reputation for quality, customer service, and line profitability
which a supplier enjoys are significant factors in a purchaser’s decision as to which product lines to carry in the limited space available.
Further, because of the efficiencies achieved through the ability to order all or part of a complete line of products from one supplier
(with possible volume discounts), as opposed to satisfying the same requirements through a variety of different sources, retailers and
other purchasers of automotive parts seek to purchase products from fewer but stronger suppliers.
Brands and Products
We sell approximately 140,000 different SKU’s of automotive replacement parts and fasteners to meet a variety of
needs. Our DORMAN® NEW SINCE 1918™ marketing campaign positions our brands under a single corporate umbrella—
DORMAN®. Our products are now sold under one of the seven DORMAN® sub-brands as follows:
1
Source: 2015 Auto Care Association Factbook
3
DORMAN®
OE Solutions ™
- Automotive replacement parts, such as intake manifolds, exhaust manifolds, oil cooler lines, window
regulators, harmonic balancers and radiator fan assemblies.
DORMAN®
HELP! ®
DORMAN®
TECHoice™
DORMAN®
AutoGrade™
DORMAN®
Conduct-Tite!®
DORMAN®
FirstStop™
DORMAN®
HD Solutions™
- Automotive replacement parts, including window handles, switches, door hardware, interior trim parts,
headlamp aiming screws and retainer rings, radiator parts, battery hold-down bolts and repair kits, valve train
parts and power steering filler caps.
- A value line of automotive replacement parts, including mass air flow sensors, belt tensioners, and idler
pulleys.
- A line of application specific and general automotive hardware that is a necessary element to a complete repair.
Product categories include body hardware, general automotive fasteners, oil drain plugs, and wheel hardware.
- A selection of electrical connectors, wire, tools, testers, and accessories.
- Value priced technician quality brake and clutch hydraulic programs.
- A line of heavy duty aftermarket parts for class 4-8 heavy vehicles. Coverage includes coolant tubes, door
handles and other body parts, fluid reservoirs, headlights and lighting, hood components, window regulators,
and wiper transmissions.
the private labels of parts manufacturers and national warehouse distributors (such as Genuine Parts Co. - NAPA).
We also generate revenues from the sale of parts that we package for ourselves, or others, for sale in bulk or under
table represents each of the four classes as a percentage of net sales for each of the last three fiscal years.
We group our products into four major classes: power-train, automotive body, chassis, and hardware. The following
Power-train
Automotive Body
Chassis
Hardware
Total
December 27, 2014
Percentage of Net Sales
Year Ended
December 28, 2013
December 29, 2012
37%
29%
26%
8%
100%
36%
30%
25%
9%
100%
33%
30%
26%
11%
100%
Our power-train product line includes intake and exhaust manifolds, cooling products, harmonic balancers, fluid
lines, fluid reservoirs, connectors, 4 wheel drive components and axles, drain plugs, and other engine, transmission and axle
components. Our line of automotive body products include door handles and hinges, window lift motors, window regulators, switches
and handles, wiper components, lighting, electrical, and other interior and exterior automotive body components. Chassis products
include brake hardware and hydraulics, wheel and axle hardware, suspension arms, knuckles, links, bushings, and other suspension,
steering and brake components. Hardware products include threaded bolts, auto body and home fasteners, automotive and home
electrical wiring components, and other hardware assortments and merchandise.
We warrant our products against certain defects in material and workmanship when used as designed on the vehicle
on which it was originally installed. We offer a limited lifetime warranty on most of our products. Our warranty limits the customer’s
remedy to the repair or replacement of the part that is defective.
Product Development
Product development is central to our business. The development of a broad range of products, many of which are
not conveniently or economically available elsewhere, has in part, enabled us to grow to our present size and is important to our
future growth. In developing our products, our strategy has been to design and package parts so as to make them better and easier to
install and/or use than the original parts they replace and to sell automotive parts for the broadest possible range of uses. Each new
product idea is reviewed by our product management staff, as well as by members of the production, sales, finance, marketing, legal,
and administrative staffs.
4
Through careful evaluation, exacting design and precise tooling, we are frequently able to offer products which fit a
broader range of makes and models, as well as a wider range of application years than the original equipment parts they replace. One
such innovation is our replacement spare tire hoist, which through several mechanical design changes allow us to offer a part that
replaces three original equipment parts, and now fits common domestic models over a thirteen year range. By selecting an appropriate
micro controller and making other customizations, our Xenon headlight control module fits a range of domestic models from GM and
Chrysler, as well as models from BMW, Mercedes Benz, Volkswagen and Volvo. This flexibility assists retailers and other
purchasers in maximizing the productivity of the limited space available for each class of part sold. Further, where possible, we
improve our parts so that they are better than the parts they replace. Our replacement sway bar kits are solid bars to ensure that they
will not exhibit the same failure modes as the hollow bars they replace. Finally, we make every attempt to look at the repair through
the eyes of the end user, and redesign many of our items to make installation easier. Our “split” brake dust shields allow for a
replacement that does not require removal of the vehicle’s rear axle, and several of our replacement key fobs come with a disposable
programmer that easily pairs the key fob to the car and eliminates the need for expensive programming tools. In addition, we often
package different items in complete kits to further aid installation.
Ideas for expansion of our product lines arise through a variety of sources. We maintain an in-house product
management staff that routinely generates ideas for new parts and the expansion of existing lines. Further, we maintain an “800”
telephone number and an Internet site for “New Product Ideas” and receive, either through our sales force, product development team
or our website, many ideas from our customers and end-users as to which types of presently unavailable parts the ultimate consumers
are seeking.
Sales and Marketing
installers. Based on net sales to our customers as of December 27, 2014:
We market our products to three groups of purchasers who in turn supply individual consumers and professional
(i) approximately 49% of our revenues were generated from sales to automotive aftermarket retailers (such as
Advance Auto Parts, AutoZone, and O’Reilly Auto Parts), local independent parts wholesalers and national general
merchandise chain retailers. We sell many of our products to virtually all major chains of automotive aftermarket
retailers;
(ii) approximately 45% of our revenues were generated from sales to automotive parts distributors (such as
Genuine Parts Co. - NAPA), which may be local, regional or national in scope, and which may also engage in retail
sales; and
(iii) the balance of our revenues (approximately 6%) are generated from international sales and sales to special
markets, which include, among others, mass merchants (such as Wal-Mart), salvage yards and the parts distribution
systems of parts manufacturers.
We use a number of different methods to sell our products. Our more than 60 person direct sales force and sales
support staff solicits purchases of our products directly from customers, as well as manages the activities of approximately 17
independent manufacturers’ representative agencies worldwide. We use independent manufacturers’ representative agencies to help
service existing automotive retail, automotive and heavy duty parts distribution customers, providing frequent on-site contact. We
increase sales by securing new customers, by adding new product lines and expanding product selection within existing customers.
For certain of our major customers, and our private label purchasers, we rely primarily upon the direct efforts of our sales force who,
together with our marketing department and our executive officers, coordinate the more complex pricing and ordering requirements of
these accounts.
Our sales efforts are not directed merely at selling individual products, but rather more broadly towards selling
groups of related products that can be displayed on attractive Dorman-designed display systems, thereby maximizing each customer’s
ability to present our product line within the confines of the available area.
We prepare a number of on-line catalogs, application guides and training materials designed to describe our products
and other applications as well as to train our customers’ sales teams in the promotion and sale of our products. Catalogs of all our
parts are available on our website.
We currently service more than 2,300 active accounts. During fiscal 2014, fiscal 2013 and fiscal 2012, four
customers (Advance Auto Parts, AutoZone, Genuine Parts Co. - NAPA and O’Reilly Auto Parts) each accounted for more than 10%
of net sales and in the aggregate accounted for 60% of net sales in fiscal 2014 and 57% of net sales in each of fiscal 2013 and fiscal
2012.
5
Manufacturing
Substantially all of our products are manufactured by third parties. Because numerous manufacturers are available to
manufacture our products, we are not dependent upon the services of any one manufacturer or any small group of them. No one
manufacturer supplies more than 10% of our products. In fiscal 2014, as a percentage of our total dollar volume of purchases, approximately
27% of our products were purchased from various suppliers throughout the United States and the balance of our products were purchased
directly from vendors in a variety of foreign countries.
Once a new product has been identified, our engineering department produces detailed proprietary engineering drawings,
specifications, and prototypes which are used to solicit bids for manufacture from a variety of vendors in the United States and abroad. After
a vendor is selected, the vendor produces tooling which we then own. A pilot run of the product is produced and subjected to rigorous testing
by our engineering department and, on occasion, by outside testing laboratories and facilities in order to evaluate the precision of
manufacture and the resiliency and structural integrity of the materials used. If acceptable, the product then moves into full production.
Packaging, Inventory and Shipping
Finished products are received at one or more of our facilities, depending on the type of part. It is our practice to inspect
samples of shipments based upon vendor performance. If cleared, these shipments of finished parts are logged into our computerized
production tracking systems and staged for packaging, if necessary.
We employ a variety of custom-designed packaging machines which include blister sealing, skin film sealing, clamshell
sealing, bagging and boxing lines. Packaged product contains our label (or a private label), a part number, a universal packaging bar code
suitable for electronic scanning, a description of the part and, if appropriate, installation instructions. Products are also sold in bulk to
automotive parts manufacturers and packagers. Computerized tracking systems, mechanical counting devices and experienced workers
combine to assure that the proper variety and numbers of parts meet the correct packaging materials at the appropriate places and times to
produce the required quantities of finished products.
Completed inventory is stocked in the warehouse portions of our facilities and is organized to facilitate the most efficient
methods of retrieving product to fill customer orders. We strive to maintain a level of inventory to adequately meet current customer order
demand with additional inventory to satisfy new customer orders and special programs. We maintain a “safety stock” of inventory to
compensate for fluctuations in demand and delivery.
We ship our products from all of our locations by contract carrier, common carrier or parcel service. Products are
generally shipped to the customer’s main warehouses for redistribution within their network. In certain circumstances, at the request of the
customer, we ship directly to the customer’s stores or other locations either via smaller direct ship orders or consolidated store orders that are
cross docked.
Competition
The replacement automotive parts industry is highly competitive. Various competitive factors affecting the automotive
aftermarket are price, product quality, breadth of product line, range of applications and customer service. Substantially all of our products
are subject to competition with similar products manufactured by other manufacturers of aftermarket automotive repair and replacement
parts. Some of these competitors are divisions and subsidiaries of companies much larger than us, and possess a longer history of operations
and greater financial and other resources than we do. We also face competition from automobile manufacturers who sell through their
dealerships many of the same replacement parts that we sell, although these manufacturers generally sell parts only for cars they produce.
Our customers may also be successful in sourcing some of our products directly from suppliers. Further, some of our private label customers
also compete with us.
Seasonality
Our business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months. In
addition, our business can be affected by weather conditions. Extremely hot or cold weather tends to enhance sales by causing automotive
parts to fail at an accelerated rate.
Proprietary Rights
While we take steps to register our trademarks when possible, we believe that our business is not heavily dependent on
such trademark registration. Similarly, while we actively seek patent protection for the products and improvements which we develop, we do
not believe that patent protection is critical to the success of our business. Rather, the quality, price, customer service and availability of our
product is critical to our success.
6
Employees
At December 27, 2014, we had 1,785 employees worldwide, essentially all of which were employed full-time. Of
these employees, 1,139 were engaged in production, inventory, and quality control, 361 were involved in engineering, product
development and purchasing, 125 were employed in sales and customer service, and the remaining 160 were devoted to
administration, including executive officers, finance, legal, and human resources.
None of our global employees are covered by a collective bargaining agreement. We consider our relations with our
employees to be generally good.
Available Information
Our Internet address is www.dormanproducts.com. The information on this website is not and should not be
considered part of this Form 10-K and is not incorporated by reference in this Form 10-K. This website is, and is only intended to be,
for reference purposes only. We make available free of charge on our website our Annual Report on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). In addition, we will provide, at no cost,
paper or electronic copies of our reports and other filings made with the SEC. Requests should be directed to: Dorman Products,
Inc.—Office of General Counsel, 3400 East Walnut Street, Colmar, Pennsylvania 18915.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the following factors,
which could materially affect our business, financial condition or future results. The risks described below 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
affect our business, financial conditions or results of operations.
We May Lose Business to Competitors.
Competition within the automotive aftermarket parts business is intense. We compete in North America with both
original equipment parts manufacturers and with companies that, like us, supply parts only to the automotive aftermarket. We also
face competition from automobile manufacturers who sell through their dealerships many of the same replacement parts that we sell.
Our customers may also be successful in sourcing some of our products directly from suppliers. We expect such competition to
continue. If we are unable to compete successfully in our industry we could lose customers.
Unfavorable Economic Conditions May Adversely Affect Our Business.
Adverse changes in economic conditions, including inflation, recession, or instability in the financial markets or
credit markets may either lower demand for our products or increase our operational costs, or both. Such conditions may also
materially impact our customers, suppliers and other parties with whom we do business. Our revenue will be adversely affected if
demand for our products declines. The impact of unfavorable economic conditions may also impair the ability of our customers to pay
for products they have purchased. As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase and
failure to collect a significant portion of amounts due on those receivables could have a material adverse effect on our results of
operations and financial condition.
The Loss or Decrease in Sales Among One of Our Top Customers Could Have a Substantial Negative Impact on Our Sales
and Operating Results.
A significant percentage of our sales has been, and will continue to be, concentrated among a relatively small
number of customers. During fiscal 2014, fiscal 2013 and fiscal 2012, four customers (Advance Auto Parts, AutoZone, Genuine Parts
Co. - NAPA and O’Reilly Auto Parts) each accounted for more than 10% of net sales and in the aggregate accounted for 60 % of net
sales in fiscal 2014 and 57% of net sales in each of fiscal 2013 and fiscal 2012. We anticipate that this concentration of sales among
customers will continue in the future. The loss of a significant customer or a substantial decrease in sales to such a customer could
have a material adverse effect on our sales and operating results.
7
Customer Consolidation in the Automotive Aftermarket May Lead to Customer Contract Terms Less Favorable to Us Which
May Negatively Impact Our Financial Results.
The automotive aftermarket has been consolidating over the past several years. By way of example, in January 2014,
Advance Auto Parts acquired General Parts International, Inc. (Carquest), one of the largest automotive parts distributors. As a result of
such consolidations, many of our customers have grown larger and therefore have more leverage in the arms-length negotiations of
agreements with us for the sale of our products. Customers may require us to provide extended payment terms and returns of slow
moving product in order to obtain new, or retain existing, business. While we attempt to avoid or minimize such concessions, in some
cases payment terms to customers have been extended and returns of product have exceeded historical levels. The product returns
primarily affect our profit levels while payment terms extensions generally reduce operating cash flow and require additional capital to
finance our business. We expect both of these trends to continue for the foreseeable future.
The Cancellation or Rescheduling of Orders May Cause Our Operating Results to Fluctuate.
The cancellation or rescheduling of orders may cause our operating results to fluctuate. Although we make every
reasonable effort to maintain ongoing relationships with our customers, there is an ongoing risk that orders may be cancelled or
rescheduled due to fluctuations in our customers’ business needs or overall market demand for our products. Additionally, although we
serve more than 2,300 individual accounts, the cancellation or rescheduling of orders by larger customers may have a material adverse
effect on our operating results from time to time.
Our Business May be Negatively Impacted By Foreign Currency Fluctuations and Our Dependence on Foreign Suppliers.
In fiscal 2014, approximately 73% of our products were purchased from vendors 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 generally
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 relative 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 is from China. During fiscal 2013, the Chinese Yuan increased in value
relative to the U.S. Dollar by approximately 3.1%. During fiscal 2014, the Chinese Yuan decreased in value relative to the U.S. Dollar
by approximately 0.3%. Any future increase in the value of the Yuan relative to the U.S. Dollar may result in an increase in the cost of
products that we purchase from China.
following:
As a result of the magnitude of our foreign sourcing, our business may be subject to various risks, including the
•
•
•
•
•
•
uncertainty caused by the elimination of import quotas and the possible imposition of additional quotas or
antidumping or countervailing duties or other retaliatory or punitive trade measures;
imposition of duties, taxes and other charges on imports;
significant devaluation of the dollar against foreign currencies;
restrictions on the transfer of funds to or from foreign countries;
political instability, military conflict or terrorism involving the United States or any of the countries where our
products are manufactured or sold, which could cause a delay in transportation or an increase in costs of
transportation, raw materials or finished product or otherwise disrupt our business operations; and
disease, epidemics and health-related concerns could result in closed factories, reduced workforces, scarcity of
raw materials and scrutiny and embargoing of goods produced in infected areas.
If these risks limit or prevent us from acquiring products from foreign suppliers or significantly increase the cost of our products, our
operations could be seriously disrupted until alternative suppliers are found, which could negatively impact our business.
We Extend Credit to Our Customers Who May Be Unable to Pay In the Future.
We regularly extend credit to our customers. A significant percentage of our accounts receivable have been, and will
continue to be concentrated among a relatively small number of automotive retailers and automotive parts distributors in the United
States. Our five largest customers accounted for 81% of total accounts receivable as of December 27, 2014 and December 28, 2013.
Management continually monitors the credit terms and credit limits of these and other customers. If any of these customers were unable
to pay, our business and financial condition would be adversely affected.
8
The Loss of a Key Vendor Could Lead to Increased Costs and Lower Profit Margins.
The majority of the products we sell are purchased from a number of foreign vendors. If any of our existing vendors
fail to meet our needs, we believe that sufficient capacity exists in the open market to supply any shortfall that may result.
Nevertheless, it is not always possible to replace a vendor without a disruption in our operations and replacement of a significant
vendor is often at higher prices.
Limited Shelf Space May Adversely Affect Our Ability to Expand Our Product Offerings.
Since the amount of space available to a retailer and other purchasers of our products is limited, our products
compete with other automotive aftermarket products, some of which are entirely dissimilar and otherwise non-competitive (such as
car waxes and engine oil), for shelf and floor space. No assurance can be given that additional space will be available in our
customers’ stores to support any expansion of the number of products that we offer.
If We Do Not Continue to Develop New Products and Bring Them to Market, Our Business, Financial Condition and Results
of Operations Could Be Materially Impacted.
The development and production of new products is often accompanied by design and production delays and related
costs typically associated with the development and production of new products. While we expect and plan for such delays and
related costs, we cannot predict with precision the time and expense required to overcome these initial problems so that the products
comply with specifications. There is a risk that we may not be able to introduce or bring to full-scale production new products as
quickly as we expected in our product introduction plans, which could have a material adverse effect on our business, financial
condition, and results of operations.
An Increase in Patent Filings by Original Equipment Manufacturers Could Negatively Impact Our Ability to Develop New
Products.
We have seen an increase in patent requests for new designs made by original equipment manufacturers. If original
equipment manufacturers are able to obtain patents on new designs at a rate higher than historical levels, we could be restricted or
prohibited from selling aftermarket products covered by such items until such patents expire, which could have an adverse impact on
our business.
Quality Problems with Our Products Could Damage Our Reputation and Adversely Affect Our Business.
We have experienced, and in the future may experience, reliability, quality, or compatibility problems in products
after their production and sale to customers. Product quality problems could result in damage to our reputation, loss of customers, a
decrease in revenue, litigation, unexpected expenses, and a loss of market share. We have invested and will continue to invest in our
engineering, design, and quality infrastructure in an effort to reduce these problems; however, there can be no assurance that we can
successfully remedy all of these issues. To the extent we experience significant quality problems in the future, our business and
results of operations may be negatively impacted.
Loss of Third-Party Transportation Providers Upon Whom We Depend or Increases in Fuel Prices Could Increase Our Costs
or Cause a Disruption in Our Operations.
We depend upon third-party transportation providers for delivery of our products to us and to our customers. Strikes,
slowdowns, transportation disruptions or other conditions in the transportation industry, including, but not limited to, shortages of
truck drivers, disruptions in rail service, port congestion, or increases in fuel prices, could increase our costs and disrupt our
operations and our ability to service our customers on a timely basis.
We May Not Properly Execute, or Realize Anticipated Cost Savings or Benefits from, Our Ongoing Information Technology
Initiatives.
Our success is partly dependent on properly executing, and realizing cost savings or other benefits from, our
ongoing information technology initiatives, including, without limitation, our new enterprise resource planning (“ERP”) system.
These initiatives are primarily designed to make us more efficient in the development, acquisition and distributions of our products,
which is necessary in our highly competitive industry. These initiatives are often complex, and a failure to implement them properly
may, in addition to not meeting projected cost savings or benefits, result in an interruption to our business functions.
9
Unfavorable Results of Legal Proceedings Could Materially Adversely Affect Us.
We are subject to various legal proceedings and claims that have arisen out of the ordinary course of our business
which are not yet resolved and additional claims may arise in the future. Although we currently believe that resolving all of these
matters, individually or in the aggregate, will not have a material adverse impact on our financial position, legal claims and
proceedings are subject to inherent uncertainty and our view on these matters may change in the future. Regardless of merit, litigation
may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention.
Should we fail to prevail in certain matters, we may be faced with significant monetary damages or injunctive relief that would
materially adversely affect our business and financial condition and operating results.
We Have No History of Paying Regular Dividends And Do Not Intend to Pay Regular Dividends.
On December 5, 2012, we announced a special cash dividend of $1.50 per share payable on December 28, 2012 to
shareholders of record at the close of business on December 17, 2012. This special cash dividend notwithstanding, we do not intend to
pay regular cash dividends. Rather, for the foreseeable future, we intend to retain our earnings, if any, for the operation and continued
expansion of our business.
Dorman’s Chairman of the Board and Chief Executive Officer and His Family Members Have a Controlling Influence on the
Company.
As of February 19, 2015, Steven L. Berman, our Chairman and Chief Executive Officer and director of Dorman
Products, Inc., and his family members beneficially own approximately 24% of the Company’s outstanding common stock and have a
controlling influence over the election of the Board of Directors and the outcome of most corporate actions requiring shareholder
approval (including certain fundamental transactions) and the affairs of the Company. Such concentration of ownership may have the
effect of delaying, preventing or deterring a change in control of the Company, could deprive shareholders of an opportunity to
receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our
common stock.
Our Success Depends on the Efforts of Our Management Team.
The success of our business will continue to be dependent upon Steven L. Berman, Chairman of the Board and Chief
Executive Officer, Secretary and Treasurer, and other executive officers and key employees, and our ability to attract and retain other
skilled managers. The loss of the services of any of these individuals for an extended period of time could have a material adverse
effect on our business.
Our Operations, Revenues and Operating Results, and the Operations of Our Third Party Manufacturers, Suppliers and
Customers, may be Subject to Quarter to Quarter Fluctuations and Disruptions from Events Beyond Our or Their Control.
Our operations, revenues and operating results, as well as the operations of our third party manufacturers, suppliers
and customers, may be subject to quarter to quarter fluctuations and disruptions from a variety of causes outside of our or their
control, including work stoppages, market volatility, fuel prices, acts of war, terrorism, cyber incidents, pandemics, fire, earthquake,
flooding, changes in weather patterns, weather or seasonal fluctuations or other climate-based changes, including hurricanes or
tornadoes, or other natural disasters. If a major disruption were to occur at our operations or the operations of our third party
manufacturers, suppliers or customers, it could result in harm to people or the natural environment, delays in shipments of products to
customers or suspension of operations, any of which could have a material adverse effect on our business, revenues and operating
results.
New Regulations Related to Conflict Minerals Could Adversely Impact Our Business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) contains provisions to improve
transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the
Democratic Republic of Congo (“DRC”) and adjoining countries. In August 2012, as required by Dodd-Frank, the SEC adopted rules
requiring disclosure regarding the use of conflict minerals. The implementation of these rules could adversely affect the sourcing,
supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited.
We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free
or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying customers
who may require that our products be certified as containing conflict-free minerals.
10
Cyber-attacks or Other Breaches of Information Technology Security Could Adversely Impact Our Business and Operations.
Cyber-attacks or other breaches of network or information technology security may cause equipment failure or
disruption to our operations. Such attacks, which include the use of malware, computer viruses and other means for disruption or
unauthorized access, on companies have increased in frequency, scope and potential harm in recent years. While, to the best of our
knowledge, we have not been subject to cyber-attacks or to other cyber incidents which, individually or in the aggregate, have been
material to our operations or financial conditions, the preventive actions we take to reduce the risk of cyber incidents and protect our
information technology and networks may be insufficient to repel a major cyber-attack in the future. To the extent that any disruption
or security breach results in a loss or damage to our data or unauthorized disclosure of confidential information, it could cause
significant damage to our reputation, affect our relationship with our customers, suppliers and employees, and lead to claims against
us and ultimately harm our business. Additionally, we may be required to incur significant costs to protect against damage caused by
these disruptions or security breaches in the future.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
Facilities
these facilities are owned and the remainder are leased. Our headquarters and principal warehouse facilities are as follows:
We currently have 16 warehouse and office facilities located throughout the United States, China and India. Two of
Location
Colmar, PA
Warsaw, KY
Portland, TN
Louisiana, MO
Sanford, NC
Description
Corporate Headquarters
Warehouse and office - 339,500 sq. ft. (leased) (1)
Warehouse and office - 735,500 sq. ft. (owned)
Warehouse and office - 581,500 sq. ft. (leased)
Warehouse and office - 90,000 sq. ft. (owned)
Warehouse and office - 8,000 sq. ft. (leased)
(1) We lease the Colmar facility from a partnership of which Steven L. Berman, Chairman of the Board and Chief Executive Officer
of the Company, and his family members are partners. Under this lease agreement we paid rent of $4.58 per square foot ($1.5
million per year) in fiscal 2014. The rents payable will be adjusted on January 1 of each year to reflect annual changes in the
Consumer Price Index for All Urban Consumers—U.S. City Average, All Items. On November 15, 2012, we entered into a new
lease with the partnership that expires on December 31, 2017. In the opinion of the Audit Committee of our Board of Directors,
the terms of this lease are no less favorable than those which could have been obtained from an unaffiliated party.
Item 3. 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, trademark and patent 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 the Company and we believe the range of reasonably possible losses from
current matters is immaterial.
Item 4. Mine Safety Disclosures.
Not applicable
11
Item 4.1. Executive Officers of the Registrant.
Executive Officers of the Registrant.
The following table sets forth certain information with respect to our executive officers:
Name
Age Position with the Company
Steven L. Berman
55 Chairman of the Board, Chief Executive Officer, Secretary and Treasurer
Mathias J. Barton
55 President and Director
Jeffrey L. Darby
47 Senior Vice President, Sales and Marketing
Michael B. Kealey
40 Senior Vice President, Product
Thomas J. Knoblauch
58 Vice President, General Counsel and Assistant Secretary
Matthew S. Kohnke
43 Vice President, Chief Financial Officer
Steven L. Berman is Chairman of the Board, Chief Executive Officer, Secretary and Treasurer of the Company.
Mr. Berman became Chairman, Chief Executive Officer, Secretary and Treasurer in January 2011. He previously held the positions of
President, Secretary and Treasurer and a director of the Company from October 24, 2007 to January 30, 2011. Prior to October 24,
2007, he served as Executive Vice President, Secretary and Treasurer and a director of the Company since its inception in 1978. He
attended Temple University.
Mathias J. Barton joined the Company in November 1999 as Senior Vice President, Chief Financial Officer. He
became co-President of the Company in February 2011 and President in August 2013. Mr. Barton was appointed as a member of our
Board of Directors in January 2014. Prior to joining the Company, Mr. Barton was Senior Vice President and Chief Financial Officer
of Central Sprinkler Corporation, a manufacturer and distributor of automatic fire sprinklers, valves and component parts. From May
1989 to September 1998, Mr. Barton was employed by Rapidforms, Inc., a manufacturer of business forms and other products, most
recently as Executive Vice President and Chief Financial Officer. He is a graduate of Temple University.
Jeffrey L. Darby joined the Company in November 1998 as a National Account Manager. He became Senior Vice
President, Sales and Marketing in February 2011. Prior to joining the Company, Mr. Darby worked for Federal Mogul
Corporation/Moog Automotive, an automotive parts supplier, beginning in 1990. He holds an MBA Degree from Fairleigh Dickenson
University and a B.A. Degree from William Paterson University.
Michael B. Kealey joined Dorman Products in November of 2002, as a Product Manager. He became Senior Vice
President, Product in February 2011. He previously held the positions of Vice President—Product from January 2007 through January
2011, and Director—Product Management from April 2003 through December 2006. Prior to joining the Company, Mr. Kealey was
employed by Eastern Warehouse Distributors, Inc., a distributor of automotive replacement parts, most recently as Vice President—
Purchasing. He attended Temple University.
Thomas J. Knoblauch joined the Company in April 2005 as Vice President and General Counsel. In May 2005,
Mr. Knoblauch was appointed Assistant Secretary. Prior to joining the Company he was Corporate Counsel at SunGard Data
Systems, Inc. a software and technology services company, from 1996 to 2000 and General Counsel at Rosenbluth International, Inc.,
a corporate travel company, from 2000 to May 2005. He is a graduate of Widener University, St. Joseph’s University, the Widener
University School of Law, and the Temple University Beasley School of Law Graduate Tax Program. Mr. Knoblauch is a member of
both the Pennsylvania and New York Bar.
Matthew S. Kohnke joined Dorman Products in May 2002 as Vice President—Corporate Controller. He became
Vice President and Chief Financial Officer of the Company in February 2011. Prior to joining the Company, Mr. Kohnke worked for
Arthur Andersen LLP, beginning as an intern in January 1992 and advancing to manager in the Audit and Business Advisory practice.
He is a graduate of Villanova University.
12
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Our shares of common stock are traded publicly on the NASDAQ Global Select Market under the ticker symbol
“DORM”. At February 19, 2015 there were 167 holders of record of common stock, representing more than 5,900 beneficial owners.
The last price for our common stock on February 19, 2015, as reported by the NASDAQ Global Select Market, was $44.94 per share.
The range of high and low sales prices for our common stock for each quarterly period of fiscal 2014 and fiscal 2013 are as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2014
Fiscal 2013
High
$60.47
60.99
50.70
51.75
Low
$48.85
47.48
37.22
39.73
High
$38.45
47.21
52.43
56.42
Low
$32.70
33.63
44.94
46.49
Beneficial Owners and Management and Related Shareholder Matters.”
For the information regarding our equity compensation plans, see Item 12, “Security Ownership of Certain
Stock Performance Graph. Below is a line graph comparing the cumulative total shareholder return for our
common stock with the cumulative total shareholder return for the Automotive Parts & Accessories Peer Group of the Morningstar
Group Index (formerly Hemscott Group Index) and the NASDAQ Composite Market Index for the period from December 26, 2009 to
December 27, 2014. The Automotive Parts & Accessories Peer Group is comprised of 130 public companies and the information was
furnished by Morningstar, Inc. through Zacks Investment Research, Inc. The graph assumes $100 invested on December 26, 2009 in
our common stock and each of the indices, and that the dividends were reinvested when and as paid. In calculating the cumulative
total shareholder returns, the companies included are weighted according to the stock market capitalization of such companies.
13
Stock Repurchases
follows:
During the last thirteen weeks of the fiscal year ended December 27, 2014, we purchased shares of our common stock as
Period
September 28, 2014 through October 25, 2014
October 26, 2014 through November 22, 2014
November 23, 2014 through December 27, 2014
Total
Total Number of
Shares Purchased
(1)
12,580
2,530
32,856
47,966
Average Price
Paid per Share
43.05
$
46.36
$
48.84
$
47.19
$
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)
—
—
22,500
22,500
Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs (2) (3)
$
$
$
$
60,716,946
60,716,946
59,615,827
59,615,827
(1)
Includes 1,736 shares of our common stock withheld from participants for income tax withholding purposes in connection with the
vesting of restricted stock grants during the period. The restricted stock was issued to participants pursuant to our 2008 Stock Option and
Incentive Plan. Also includes 23,730 shares purchased from the Dorman Products, Inc., 401(k) Plan and Trust (as described in Note 12,
Capital Stock, to the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K).
(2) On December 12, 2013 we announced that our Board of Directors authorized a share repurchase program, authorizing the repurchase of
up to $10 million of our outstanding common stock by the end of 2014. We announced that our Board of Directors increased the share
repurchase program authorization to $30 million on May 20, 2014, to $50 million on July 30, 2014 and to $100 million on October 28,
2014. In addition, on May 20, 2014, we announced that our Board of Directors extended the share repurchase program through May 31,
2015, and on October 28, 2014, we announced that our Board of Directors further extended the share repurchase program through
December 31, 2015. Under this program, share repurchases may be made from time to time depending on market conditions, share price,
share availability and other factors at our discretion. The share repurchase program does not obligate us to acquire any specific number of
shares. We repurchased 855,600 shares under this program during the fiscal year ended December 27, 2014. No repurchases were made
under this program during fiscal 2013.
(3) Numbers in this column assume that the repurchase program had been expanded to authorize the repurchase of up to $100 million at the
beginning of the thirteen week period ended December 27, 2014.
Item 6. Selected Financial Data.
(in thousands, except per share data)
Statement of Operations Data:
Net sales
Income from operations
Income from continuing operations
Income (loss) from discontinued operations (a)
Net income
Earnings per share
Basic
December 27,
2014
December 28,
2013
Fiscal year ended (1)
December 29,
2012 (c)
December 31,
2011 (d)
December 25,
2010
$ 751,476 $ 664,466 $ 570,420 $ 513,432
87,637
56,202
(2,925)
53,277
127,939
81,920
—
81,920
140,734
89,987
—
89,987
104,231
66,405
4,557
70,962
$
$
$
$
$ 438,205
76,807
48,101
(1,963)
46,138
$
Income from continuing operations
Income (loss) from discontinued operations
Net income
Diluted
Income from continuing operations
Income (loss) from discontinued operations
Net income
$
$
$
$
2.50
—
2.50
2.49
—
2.49
$
$
$
$
2.25
—
2.25
2.24
—
2.24
$
$
$
$
1.84
0.12
1.96
1.82
0.12
1.94
$
$
$
$
1.57
(0.08)
1.49
1.55
(0.08)
1.47
$
$
$
$
1.35
(0.06)
1.29
1.33
(0.06)
1.27
Balance Sheet Data:
Total assets
Working capital
Long-term debt
Dividends paid (b)
Shareholders’ equity
$ 580,368
$ 364,631
—
$
$
—
$ 462,061
$ 529,169
$ 336,668
—
$
$
—
$ 413,641
$ 412,683
$ 268,839
—
$
$
54,716
$ 332,872
$ 382,116
$ 262,731
—
$
$
—
$ 317,103
$ 326,960
$ 218,935
—
$
$
—
$ 263,153
(1) We operate on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year.
14
(a) On September 21, 2011, we announced our plan to exit the international portion of our ScanTech business due to continued
operating losses and to focus on growing our North American business. The results of ScanTech have been presented as a
discontinued operation in the Statement of Operations data presented above.
(b) On December 5, 2012, we announced a special cash dividend of $1.50 per share of common stock payable on December 28,
2012 to shareholders of record at the close of business on December 17, 2012.
(c) Net income from discontinued operations includes a reclassification of approximately $3.0 million of a previously recognized
currency translation adjustments from accumulated other comprehensive income to net income ($0.08 per share) and $1.4
million of benefits related to foreign tax credits we expect to utilize in the future ($0.04 per share).
(d) Net income from discontinued operations includes charges of $2.2 million to write down inventory and tooling ($0.06 per share)
and $0.4 million to write down other assets and to accrue employee-related costs ($0.01 per share).
Item 7. 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 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 competition in the automotive aftermarket industry,
unfavorable economic conditions, loss of suppliers, loss of third-party transportation providers, an increase in patent filings by
original equipment manufacturers, quality problems, delay in the development and design of new products, space limitations on our
customers’ shelves, concentration of the Company’s sales and accounts receivable among a small number of customers, the impact of
consolidation in the automotive aftermarket industry, foreign currency fluctuations, timing and amount of customers’ orders of
Company’s products, dependence on senior management, disruption from events beyond the Company’s control, risks associated with
conflict minerals, risks associated with cyber-attacks, and other risks and factors identified from time to time in the reports the
Company files with the SEC. 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.” You should not place an undue reliance on forward-looking statements. Such
statements speak only to the date on which they are made and we undertake no obligation to update publicly or revise any forward-
looking statements, regardless of future developments or the availability of new information.
Overview
We are a leading supplier of replacement parts and fasteners for passenger cars, light trucks, and heavy duty trucks
in the automotive aftermarket. We distribute and market approximately 140,000 different SKU’s of automotive replacement parts,
many of which we design and engineer. These SKU’s are sold under our various brand names, under our customers’ private label
brands or in bulk. We believe we are the dominant aftermarket supplier of original equipment dealer “exclusive” items. Original
equipment dealer “exclusive” parts are those parts which were traditionally available to consumers only from original equipment
manufacturers or salvage yards. These parts include, among other parts, intake manifolds, exhaust manifolds, window regulators,
radiator fan assemblies, tire pressure monitor sensors, complex electronics modules, and exhaust gas recirculation (EGR) coolers.
We generate virtually all of our revenues from customers in the North American automotive aftermarket, primarily
in the United States and Canada. Our products are sold primarily through automotive aftermarket retailers; national, regional and local
warehouse distributors and specialty markets; and salvage yards. We also distribute automotive replacement parts outside the United
States, with sales into Europe, Mexico, the Middle East, Asia and Canada.
Executive Overview
We achieved record net sales and net income in fiscal 2014. Net sales from continuing operations increased 13%
over fiscal 2013 levels to $751.5 million, while net income increased 10% to $90.0 million. We believe our strong financial results
have been driven by favorable industry dynamics, sales growth resulting from new product sales, continued investments in new
product development, and a commitment to process improvements.
15
The automotive aftermarket has benefited from some of the factors affecting the general economy, including the impact
of recessions, unemployment, and fluctuating gas prices. We believe vehicle owners have become more likely to keep their current vehicles
longer and perform necessary repairs and maintenance in order to keep those vehicles well maintained as a result of these factors.
According to data published by Polk, a division of IHS Automotive, the average age of vehicles was 11.4 years as of June 2014 despite
increasing new car sales. The number of miles driven is another important statistic that impacts our business. According to the United
States Department of Transportation, the number of miles driven has increased each year since 2011. Generally, as vehicles are driven more
miles, the more likely it is that parts will fail. The combination of the vehicle age increase and number of miles driven has accounted for a
portion of our sales growth.
The overall automotive aftermarket in which we compete has benefited from the conditions mentioned above. However,
our customer base has consolidated in recent years. As a result, our customers regularly seek more favorable pricing, product returns and
extended payment terms when negotiating with us. We attempt to avoid or minimize these concessions as much as possible, but we have
granted pricing concessions, extended customer payment terms and allowed a higher level of product returns in certain cases. These
concessions impact our profit levels and may require additional capital to finance the business. We expect our customers to continue to
exert pressure on our margins as the customer base continues to consolidate.
New product development is a critical success factor for us and is our primary vehicle for growth. We have made
incremental investments to increase our new product development efforts each year since 2003 in an effort to grow our business and
strengthen our relationships with our customers. The investments are primarily in the form of increased product development resources,
increased customer and end-user awareness programs and customer service improvements. These investments have enabled us to provide
an expanding array of new product offerings and grow revenues at levels that exceed market growth rates.
Our complex electronics program capitalizes on the growing number of electronic components being utilized on today’s
Original Equipment platforms. Current production models contain an average of approximately thirty five electronic modules, with some
high-end luxury vehicles containing over one hundred modules. Our complex electronics products are designed and developed in house and
extensively tested to ensure consistent performance. These products are direct replacements, and are typically “plug and play”, meaning
that they are ready to install and require no additional on-board programming, saving the service technician time and the vehicle owner’s
money.
In 2012, we introduced a new line of products to be marketed for the medium and heavy duty truck aftermarket. We
believe that this market provides many of the same opportunities for growth that the automotive aftermarket has provided us over the past
several years. Our focus here is on Formerly Dealer Only parts similar to the automotive side of the business. We launched the initial
program with a limited offering, but have made additional investments in new product development efforts to expand our product offering.
We currently have approximately 550 SKU’s in our medium and heavy duty product line.
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 net sales. The introduction of new products and
product lines to customers may cause significant fluctuations from quarter to quarter.
December 27, 2014, December 28, 2013 and December 29, 2012 were fifty-two week periods.
We operate on a fifty-two, fifty-three week period ended on the last Saturday of the calendar year. The fiscal years ended
Results of Operations
Consolidated Statements of Operations:
The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in our
December 27, 2014
Percentage of Net Sales
For the Fiscal Year Ended
December 28, 2013
December 29, 2012
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Income from continuing operations before income taxes
Provision for income taxes
Net income from continuing operations
100.0%
61.8
38.2
19.5
18.7
—
18.7
6.7
12.0%
16
100.0%
60.7
39.3
20.0
19.3
0.1
19.2
6.9
12.3%
100.0%
62.3
37.7
19.4
18.3
—
18.3
6.7
11.6%
Fiscal Year Ended December 27, 2014 Compared to Fiscal Year Ended December 28, 2013
driven by overall strong demand for our products and higher revenue from recently introduced products.
Net sales increased 13% to $751.5 million in fiscal 2014 from $664.5 million in fiscal 2013. Our revenue growth was
was primarily the result of competitive pricing pressures and a mix shift that resulted in lower overall selling prices.
Cost of goods sold, as a percentage of net sales increased to 61.8% in fiscal 2014 from 60.7% in fiscal 2013. The variance
Selling, general and administrative expenses decreased to 19.5% of fiscal 2014 net sales from 20.0% of fiscal 2013 net sales
as we were able to leverage our expenses over growing net sales. Selling, general and administrative expenses were $146.5 million in fiscal
2014 compared to $133.0 million in fiscal 2013. The increase was primarily due to higher variable costs associated with our 13% sales
growth, approximately $2.3 million in additional investment in new product development and other resources to support our product growth
efforts, and inflationary increases as compared to prior year. Additionally, we incurred approximately $5.5 million of incremental costs
associated with implementing our ERP system in fiscal 2014 including approximately $2.8 million of increased distribution costs, $1.9 million
of consulting and other related support costs incurred after the system go-live date, and $0.8 million of additional ERP system depreciation
expenses in fiscal 2014 compared to fiscal 2013. We expect to complete the stabilization and transition phase of the implementation in fiscal
2015. Partially offsetting these increases were a $2.1 million reduction in incentive compensation expenses in fiscal 2014 compared to fiscal
2013 and a $1.0 million reduction in an earn-out liability related to a prior acquisition.
Interest expense, net, was $0.2 million in fiscal 2014 and fiscal 2013.
Our effective tax rate increased to 36.0% in fiscal 2014 from 35.9% in the prior year.
Fiscal Year Ended December 28, 2013 Compared to Fiscal Year Ended December 29, 2012
Net sales increased 16% to $664.5 million in fiscal 2013 from $570.4 million in fiscal 2012. Our revenue growth was
primarily driven by strong overall demand for our new products, especially those new products introduced in the preceding 24 months.
Cost of goods sold, as a percentage of net sales, decreased to 60.7% in fiscal 2013 from 62.3% in fiscal 2012. A favorable
change in sales mix towards higher margin new products and the positive effects of price increases in select customer groups contributed to
the improved gross margin during fiscal 2013. In addition, lower transportation costs were partially offset by $0.8 million of higher excess and
obsolete inventory charges in the 2013 period compared to the same period in 2012.
Selling, general and administrative expenses in fiscal 2013 increased approximately 20% to $133.0 compared to $111.0
million in fiscal 2012. The spending increase was primarily due to higher variable costs associated with our 16% sales growth, $3.7 million in
additional investments in product management and other resources to support our new product growth efforts and $3.2 million of depreciation
and other related support costs associated with our ERP system implementation. In addition, in January 2013 one large customer changed the
way it distributes our product through its network. As a result, our selling, general and administrative costs increased by approximately $4.6
million in fiscal 2013. Also, financing costs associated with the accounts receivable sales program increased $0.8 million in fiscal 2013
compared to fiscal 2012.
Interest expense, net, was $0.2 million in fiscal 2013 compared to $0.1 million in fiscal 2012.
benefited from increased research and development tax credits and from lower state income taxes.
Our effective tax rate was 35.9% in fiscal 2013 compared to 36.2% in fiscal 2012. The effective tax rate in fiscal 2013
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 our revolving credit facility. Cash and cash equivalents as of December 27, 2014
decreased to $47.7 million from $60.6 million as of December 28, 2013 primarily due to capital expenditures and repurchases of our common
stock. Working capital was $364.6 million at December 27, 2014 compared to $336.7 million at December 28, 2013. We had no long-term
debt or borrowings under our revolving credit facility at December 27, 2014 or December 28, 2013. Shareholders’ equity was $462.1 million
at December 27, 2014 and $413.6 million at December 28, 2013.
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 to financial institutions
to offset the negative cash flow impact of these payment terms extensions. During fiscal 2014 and fiscal 2013,
17
we sold approximately $477.9 million and $406.4 million, respectively, under these programs. We had the ability to sell significantly
more accounts receivable under these programs if the needs of the business warranted. 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 2015. Borrowings under the facility are on an
unsecured basis with interest rates ranging from LIBOR plus 75 basis points to LIBOR plus 250 basis points based upon the
achievement of certain benchmarks related to the ratio of funded debt to earnings before interest, taxes, depreciation and amortization
(“EBITDA”). The interest rate at December 27, 2014 was LIBOR plus 75 basis points (0.92%). There were no borrowings under the
revolving credit facility as of December 27, 2014. As of December 27, 2014, we had two letters of credit outstanding for approximately
$1.0 million in the aggregate which were issued to secure ordinary course of business transactions. We had approximately $29.0 million
available under the facility at December 27, 2014, net of these letters of credit. The loan agreement also contains covenants, the most
restrictive of which pertain to net worth and the ratio of debt to EBITDA. As of December 27, 2014, we were in compliance with all
financial covenants contained in the revolving credit facility.
Off-Balance Sheet Arrangements
business transactions that have not been reflected in the accompanying financial statements.
Our business activities do not include the use of unconsolidated special purpose entities, and there are no significant
Contractual Obligations and Commercial Commitments
We have obligations for future minimum rental and similar commitments under non-cancellable operating leases as
well as contingent obligations related to outstanding letters of credit. These obligations as of December 27, 2014 are summarized in the
tables below (in thousands):
Contractual Obligations
Operating leases
Other Commercial Commitments
Letters of Credit
Total
Less than 1 year
Payments Due by Period
1-3 years
3-5 years
Thereafter
$
$
12,918
12,918
$
$
3,828
3,828
$ 7,393
$ 7,393
$ 1,697
$ 1,697
$ —
$ —
Amount of Commitment Expiration Per Period
Total Amount
Committed
$
$
1,025
1,025
Less than 1 year
$
$
—
—
1-3 years
$ 1,025
$ 1,025
3-5 years
$ —
$ —
Thereafter
$ —
$ —
We have excluded from the table above unrecognized tax benefits due to the uncertainty of the amount and period of payment. As of
December 27, 2014, the Company has gross unrecognized tax benefits of $1.2 million (see Note 10, Income Taxes, to the Consolidated
Financial Statements included in this Annual Report on Form 10-K).
Cash Flows
Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows:
(in thousands)
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net (decrease) increase in cash and cash equivalents
$
December 27,
2014
59,640
(29,862)
(42,715)
$
December 28,
2013
61,559
(26,563)
(2,111)
$
December 29,
2012
48,911
(18,078)
(53,390)
—
$ (12,937)
—
$
32,885
69
$ (22,488)
Cash provided by operating activities in fiscal 2014 decreased by $1.9 million compared to fiscal 2013. Net income in
fiscal 2014 increased $8.1 million compared to fiscal 2013. In fiscal 2014, accounts receivable increased $25.6 million and inventory
increased $13.1 million, both primarily due to higher net sales. Accounts payable decreased by $1.6 million in fiscal 2014 due to timing
of purchases and payments to our vendors.
18
Cash provided by operating activities in fiscal 2013 increased by $12.6 million compared to fiscal 2012 primarily due to
an $11.0 million increase in net income in fiscal 2013 compared to fiscal 2012. The sales growth in fiscal 2013 and fiscal 2012 resulted in
additional accounts receivable, inventory and accounts payable. In addition, the timing of Chinese New Year and purchases to support
anticipated future growth resulted in increased inventory and accounts payable in fiscal 2013 compared to fiscal 2012.
cash in fiscal 2012. Capital spending in each period was related to the following significant projects:
Investing activities used $29.9 million of cash in fiscal 2014, $26.6 million of cash in fiscal 2013, and $18.1 million of
•
Our new ERP system was installed in two phases, the last of which was completed on September 29, 2014.
Through December 27, 2014, we have capitalized $37.9 million related to the project of which $15.2 million was
spent in fiscal 2014, $7.4 million was spent in fiscal 2013, and $8.7 million was spent in fiscal 2012. The
installation of the new ERP system was completed without significant disruption to our operations.
•
•
•
During fiscal 2013, we completed a second expansion of our distribution facility in Warsaw, Kentucky. We spent
$5.7 million on this project in fiscal 2013.
The remaining capital spending in each period was related to tooling associated with new products, scheduled
equipment replacements and other capital projects.
Additionally, we used approximately $1.9 million of cash on hand in fiscal 2013 to acquire certain assets and
assume certain liabilities of a remanufacturer of hybrid battery systems.
million in fiscal 2012.
Cash used in financing activities was $42.7 million in fiscal 2014 compared to $2.1 million in fiscal 2013 and $53.4
•
•
•
On December 12, 2013 we announced that our Board of Directors authorized a share repurchase program. In fiscal
2014, we paid $40.4 million to repurchase 855,600 common shares. No repurchases were made under this
program during fiscal 2013.
On December 5, 2012 we announced a special cash dividend of $1.50 per share payable on December 28, 2012 to
shareholders of record at the close of business on December 17, 2012. Total cash payments resulting from this
dividend were $54.7 million in fiscal 2012.
The remaining sources and uses of cash from financing activities in each period result from stock compensation
plan activity and the repurchase of common stock from our 401(k) Plan.
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
In fiscal 2014, approximately 73% of our products were purchased from vendors 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 generally 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 relative 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 comes from China. During fiscal 2013, the Chinese Yuan increased in
value relative to the U.S. Dollar by approximately 3.1%. During fiscal 2014, the Chinese Yuan decreased in value relative to the
U.S. Dollar by approximately 0.3%. Any future increase in the value of the Yuan relative to the U.S. Dollar may result in an increase in
the cost of products that we purchase from China.
Impact of Inflation
utilized.
The overall impact of inflation has not resulted in a significant change in labor costs or the cost of general services
The cost of many commodities that are used in our products has fluctuated over time resulting in increases and
decreases in the prices of our products. In addition, we have periodically experienced increased transportation costs as a result of higher
fuel prices. We will attempt to offset cost increases by passing along selling price increases to customers, using alternative suppliers and
by sourcing purchases from other countries. However there can be no assurance that we will be successful in these efforts.
19
Related-Party Transactions
We have a noncancelable operating lease for our primary operating facility from a partnership in which Steven L.
Berman, our Chairman and Chief Executive Officer, and his family members are partners. Total annual rental payments each year to the
partnership under the lease arrangement was $1.5 million in each of fiscal 2014, fiscal 2013 and fiscal 2012. In the opinion of our Audit
Committee, the terms and rates of this lease are no less favorable than those which could have been obtained from an unaffiliated party.
million and $5.4 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
We are a partner in a joint venture with one of our suppliers. Purchases from this joint venture were $9.3 million, $5.6
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
judgments, including those related to revenue recognition, bad debts, customer credits, inventories, goodwill and income taxes.
Estimates and judgments 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 due to different assumptions or conditions. We
believe the following critical accounting policies affect our more significant estimates and judgments 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% of net accounts receivable as of December 27, 2014 and December 28, 2013. 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 of loss have been transferred to the customer and collection is reasonably assured. We record estimates for
cash discounts, product returns, promotional rebates, core returns and other discounts 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. Accrued customer rebates which we expect to settle in cash are classified as other accrued liabilities. Actual
Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for
shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold.
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. Goodwill is reviewed for impairment on an annual basis or whenever events or changes in circumstances
indicate the carrying value of the goodwill may be impaired. In regards to the annual test, we have the option to first assess qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If we determine it is not more likely than not that the fair value of a reporting
unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. During fiscal 2014 and fiscal 2013,
we assessed the qualitative factors which could affect the fair values of our reporting units and determined that it was not more likely
than not that the fair values of each reporting unit was less than its carrying amount.
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
20
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.
New and Recently Adopted Accounting Pronouncements
Statements included in this Annual Report on Form 10-K, which is incorporated herein.
Refer to Note 2, New and Recently Adopted Accounting Pronouncements, to the Notes to Consolidated Financial
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Our market risk is the potential loss arising from adverse changes in interest rates. Substantially all of our available
credit and 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 the
accounts receivable sale programs would affect the rate at which we could borrow funds thereunder. A one percentage point increase
in LIBOR or the discount rates on the accounts receivable sale programs would have increased our interest expense on our variable
rate debt, if any, and accounts receivable financing costs by approximately $3.0 million in fiscal 2014 and $2.7 million in fiscal 2013.
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.
Historically we have not used, and currently do not intend to use derivative financial instruments for trading or to
speculate on changes in interest rates or commodity prices. We are not exposed to any significant market risks, foreign currency
exchange risks, or interest rate risks from the use of derivative instruments. We did not hold any foreign exchange forward contracts
at December 27, 2014.
Item 8. Financial Statements and Supplementary Data.
“Exhibits, Financial Statement Schedules.”
Our financial statement schedule that is filed with this Annual Report on Form 10-K is listed in Part IV—Item 15,
21
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Dorman Products, Inc.:
We have audited the accompanying consolidated balance sheets of Dorman Products, Inc. and subsidiaries as of December 27, 2014
and December 28, 2013, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash
flows for each of the fiscal years in the three-year period ended December 27, 2014. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule listed under Item 15(a)(2). These consolidated financial
statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Dorman Products, Inc. and subsidiaries as of December 27, 2014 and December 28, 2013, and the results of their operations and their
cash flows for each of the fiscal years in the three-year period ended December 27, 2014, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dorman
Products, Inc.’s internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 25, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Philadelphia, PA
February 25, 2015
KPMG LLP
22
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income from discontinued operations
Net income
Earnings per share:
Basic:
Income from continuing operations
Income from discontinued operations
Net income
Diluted:
Income from continuing operations
Income from discontinued operations
Net income
Weighted average shares outstanding:
Basic
Diluted
December 27,
2014
For the Year Ended
December 28,
2013
December 29,
2012
$ 751,476
464,275
287,201
146,467
140,734
204
140,530
50,543
89,987
—
89,987
$
$ 664,466 $ 570,420
355,211
403,498
215,209
260,968
110,978
133,029
104,231
127,939
123
189
104,108
127,750
37,703
45,830
66,405
81,920
4,557
—
70,962
81,920
$
$
$
$
$
$
2.50
—
2.50
2.49
—
2.49
$
$
$
$
2.25
—
2.25
2.24
—
2.24
$
$
$
$
1.84
0.12
1.96
1.82
0.12
1.94
36,052
36,190
36,347
36,624
36,124
36,494
See accompanying Notes to Consolidated Financial Statements
23
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive loss:
Currency translation adjustments
Comprehensive income
December 27,
2014
For the Year Ended
December 28,
2013
December 29,
2012
$
$
89,987
$
81,920
$
70,962
—
89,987
—
81,920
$
(2,810)
68,152
$
See accompanying Notes to Consolidated Financial Statements
24
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts and customer credits of $79,179 and
$65,879 in 2014 and 2013, respectively
Inventories
Deferred income taxes
Prepaids and other current assets
Total current assets
Property, plant and equipment, net
Goodwill and intangible assets, net
Other assets
Total
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Accrued compensation
Other accrued liabilities
Total current liabilities
Other long-term liabilities
Deferred income taxes
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, par value $0.01; authorized 50,000,000 shares; issued and outstanding
35,611,238 and 36,464,958 shares in 2014 and 2013, respectively
Additional paid-in capital
Retained earnings
Total shareholders’ equity
Total
See accompanying Notes to Consolidated Financial Statements.
25
December 27,
2014
December 28,
2013
$
47,656
$
60,593
206,035
173,523
25,103
3,147
455,464
82,270
29,989
12,645
$ 580,368
180,777
160,387
20,798
5,851
428,406
64,786
30,089
5,888
$ 529,169
$
59,541
10,713
20,579
90,833
4,822
22,652
$
61,255
11,779
18,704
91,738
5,310
18,480
356
43,413
418,292
462,061
$ 580,368
365
43,119
370,157
413,641
$ 529,169
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
Balance at December 31, 2011
Exercise of stock options
Compensation expense under Incentive Stock Plan
Purchase and cancellation of common stock
Issuance of non-vested stock, net of cancellations
Other stock related activity
Dividends paid
Net income
Currency translation adjustments (net of tax)
Balance at December 29, 2012
Exercise of stock options
Compensation expense under Incentive Stock Plan
Purchase and cancellation of common stock
Cancellation of non-vested stock, net of issuances
Other stock related activity
Net income
Balance at December 28, 2013
Exercise of stock options
Compensation expense under Incentive Stock Plan
Purchase and cancellation of common stock
Issuance of non-vested stock, net of cancellations
Other stock related activity
Net income
Balance at December 27, 2014
Common Stock
Shares
Issued
Par
Value
Additional
Paid-In
Capital
Cumulative
Translation
Adjustments
Retained
Earnings
Total
36,156,522 $362 $ 36,860 $
394,861
(70,208)
4
— —
(1)
5,000 —
(8,669) —
— —
— —
— —
1,602
1,007
(97)
—
1,635
—
—
—
36,477,506 $365 $ 41,007 $
93,509
1
— —
(1)
(78,580)
(17,626) —
(9,851) —
— —
550
960
(142)
—
744
—
36,464,958 $365 $ 43,119 $
(917,430)
66,500
1
— —
(9)
5,060 —
(1)
(7,850)
— —
462
1,146
(1,651)
—
337
—
35,611,238 $356 $ 43,413 $
2,810 $277,071 $317,103
1,606
1,007
(1,943)
—
1,663
(54,716)
70,962
(2,810)
—
—
(1,845)
—
28
(54,716)
70,962
—
—
—
—
—
—
—
—
(2,810)
— $291,500 $332,872
551
—
960
—
(3,489)
—
—
—
827
—
81,920
—
—
—
(3,346)
—
83
81,920
— $370,157 $413,641
463
—
1,146
—
(43,519)
—
—
—
343
—
—
89,987
— $418,292 $462,061
—
—
(41,859)
—
7
89,987
See accompanying Notes to Consolidated Financial Statements.
26
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, amortization and accretion
Provision for doubtful accounts
(Benefit) provision for deferred income tax
Provision for non-cash stock compensation
Foreign exchange gain
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaids and other current assets
Other assets
Accounts payable
Accrued compensation and other liabilities
Cash provided by operating activities
Cash Flows from Investing Activities:
Property, plant and equipment additions
Acquisition
Cash used in investing activities
Cash Flows from Financing Activities:
Dividends paid
Proceeds from exercise of stock options
Other stock related activity
Purchase and cancellation of common stock
Cash used in financing activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Cash Flow Information
Cash paid for interest expense
Cash paid for income taxes
December 27,
2014
For the Year Ended
December 28,
2013
December 29,
2012
$
89,987
$
81,920
$
70,962
12,658
308
(632)
1,146
—
(25,566)
(13,136)
(522)
(6,757)
(1,558)
3,712
59,640
(29,862)
—
(29,862)
—
463
343
(43,521)
(42,715)
—
(12,937)
60,593
47,656
234
46,540
$
$
$
10,159
194
267
960
—
(40,791)
(18,537)
840
(884)
17,627
9,804
61,559
(24,666)
(1,897)
(26,563)
—
551
827
(3,489)
(2,111)
—
32,885
27,708
60,593
201
44,291
$
$
$
8,225
266
(2,384)
1,007
(2,987)
(9,730)
(28,748)
293
(801)
10,738
2,070
48,911
(18,078)
—
(18,078)
(54,716)
1,606
1,663
(1,943)
(53,390)
69
(22,488)
50,196
27,708
219
35,329
$
$
$
See accompanying Notes to Consolidated Financial Statements.
27
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2014
1.
Summary of Significant Accounting Policies
Dorman Products, Inc. (“Dorman”, the “Company”, “we”, “us”, or “our”) is 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 parts are marketed under the OE Solutions™, HELP!®, TECHoice™,
AutoGrade™, Conduct-Tite®, FirstStop™ and HD Solutions™ brand names.
ended December 27, 2014, December 28, 2013 and December 29, 2012 were fifty-two week periods.
We operate on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. The fiscal years
wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
Principles of Consolidation. The Consolidated Financial Statements include our accounts and the accounts of our
Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in accordance
with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications. Certain prior year amounts have been reclassified to conform with current-year presentation.
months or less to be cash equivalents.
Cash and Cash Equivalents. We consider all highly liquid short-term investments with original maturities of three
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 were removed from our Consolidated Balance Sheet at the time
of the sales transactions. During fiscal 2014, fiscal 2013 and fiscal 2012, we sold $477.9 million, $406.4 million and $312.7 million,
respectively, pursuant to these agreements. If receivables had not been sold, $298.9 million and $267.8 million of additional receivables
would have been outstanding at December 27, 2014 and December 28, 2013, respectively, based on standard payment terms. Selling,
general and administrative expenses include $6.2 million, $5.2 million and $4.4 million in fiscal 2014, fiscal 2013 and fiscal 2012,
respectively, of financing costs associated with these accounts receivable sales programs.
Inventories. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
We provide reserves for discontinued and excess inventory based upon historical demand, forecasted usage, estimated customer
requirements and product line updates.
Property and Depreciation. Property, plant and equipment are recorded at cost and depreciated over their estimated
useful lives, which range from three to thirty-nine years, using the straight-line method for financial statement reporting purposes and
accelerated methods for income tax purposes. The costs of maintenance and repairs are expensed as incurred. Renewals and betterments
are capitalized. Gains and losses on disposals are included in operating results.
Estimated useful lives by major asset category are as follows:
Buildings and building improvements
Machinery, equipment and tooling
Software and computer equipment
Furniture, fixtures and leasehold improvements
10 to 39 years
3 to 10 years
3 to 10 years
3 to 15 years
Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The impairment review is a two-step
process. First, recoverability is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount exceeds the estimated undiscounted future cash flows, the second
28
step of the impairment test is performed and an impairment charge is recognized in the amount by which the carrying amount of the asset
exceeds its fair value. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for
sale would be presented separately in the appropriate asset and liability sections of the balance sheet.
Goodwill. Goodwill is reviewed for impairment on an annual basis or whenever events or changes in circumstances
indicate the carrying value of the goodwill may be impaired. In regards to the annual test, we have the option to first assess qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If we determine it is not more likely than not that the fair value of a reporting
unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. During fiscal 2014 and fiscal 2013, we
assessed the qualitative factors which could affect the fair values of our reporting units and determined that it was not more likely than not
that the fair values of each reporting unit was less than its carrying amount.
joint venture.
Other Assets. Other assets include primarily long-term core inventory, deposits, and an equity method investment in a
Long-term core inventory of $10.2 million and $4.0 million as of December 27, 2014 and December 28, 2013,
respectively, represents products used in remanufacturing processes, and consists of used cores purchased and held in our facilities, used
cores that are in the process of being returned from our customers and end-users, and remanufactured cores held in finished goods
inventory at our facilities. A used core is reconditioned and sold to the customer as a replacement for a unit inside a vehicle. Our products
that utilize a core primarily include instrument clusters and hybrid batteries. Customers and end-users that purchase remanufactured
products will generally return the used core to us, which we then use in the remanufacturing process to make another finished good. Long-
term core inventory is recorded at the lower of cost or market value. Cost is determined based on actual purchases of core inventory. We
believe that the most appropriate classification of core inventory is a long-term asset. According to guidance provided under the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), current assets are defined as “assets or resources
commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle
of the business.” The determination of the long-term classification is based on our view that the value of the cores is not consumed or
realized in cash during our normal operating cycle.
Other Accrued Liabilities. Other accrued liabilities include primarily accrued customer rebates which we expect to
settle in cash of $14.3 million and $13.7 million as of December 27, 2014 and December 28, 2013, respectively. Also included are
accrued commissions, accrued income taxes, insurance liabilities, product warranties, and other current liabilities. We warrant our
products against certain defects in material and workmanship when used as designed on the vehicle on which it was originally installed.
We offer a limited lifetime warranty on most of our products. Our warranty limits the end-user’s remedy to the repair or replacement of
the part that is defective. Product warranty reserves, which are $0.1 million as of both December 27, 2014 and December 28, 2013, are
based upon actual experience and forecasts using the best historical and current claim information available. Provisions and payments
related to product warranty reserves were not material in fiscal 2014, fiscal 2013 or fiscal 2012.
Revenue Recognition and Allowance for Customer Credits. Revenue is recognized from product sales when goods
are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. We record estimates for cash
discounts, product returns, promotional rebates, core returns, and other discounts 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. Accrued customer credits which we expect to settle in cash are classified as other accrued liabilities. Actual
Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for
shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold.
Research and Development. Research and development costs are expensed as incurred. Research and development
costs totaling $15.8 million in fiscal 2014, $13.4 million in fiscal 2013 and $10.5 million in fiscal 2012 have been recorded in selling,
general and administrative expenses in the Consolidated Statements of Operations.
Stock-Based Compensation. At December 27, 2014 and December 28, 2013, we had one stock-based employee
compensation plan, which is described more fully in Note 12, Capital Stock. We record equity-classified compensation expense for all
awards granted. The value of restricted stock issued is based on the fair value of our common stock on the grant date. The fair value of
stock options granted was determined using the Black-Scholes option valuation model.
Income Taxes. We follow the asset and liability method of accounting for deferred income taxes. Deferred tax assets
and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax
assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or
recovered.
29
Foreign Currency Translation. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at
the rate of exchange prevailing at the end of the year. Income statement accounts are translated at the average exchange rate
prevailing during the year. Translation adjustments resulting from this process are recorded directly in shareholders’ equity.
Comprehensive Income. 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 foreign currency translation adjustments.
Concentrations of Risk. Financial instruments that potentially subject us to concentrations of credit risk consist
primarily of cash equivalents and accounts receivable. All cash equivalents are managed within established guidelines which limit the
amount which may be invested with one issuer. 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% of net accounts receivable as of December 27, 2014 and December 28, 2013. We continually
monitor the credit terms and credit limits to these and other customers. In fiscal 2014, approximately 73% of our products were
purchased from suppliers located in a variety of foreign countries, with the largest portion coming from China.
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. We
did not hold any foreign currency forward contracts at December 27, 2014 or December 28, 2013.
2. New and Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes
effective. The new standard will be effective for annual periods beginning after December 15, 2016. The standard permits the use of
either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our
consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the
effect of the standard on our ongoing financial reporting.
3. Acquisition
On May 17, 2013, we acquired certain assets and assumed certain liabilities of Re-Involt Technologies, LLC, a
remanufacturer of hybrid battery systems, primarily to expand our product portfolio. The purchase price was approximately $3.7
million, comprised of $1.9 million in cash and $1.8 million of estimated contingent payments to the former owner. The contingent
payment arrangement is based upon future earnings levels of the acquired business. In December 2014, we reduced our liability for
the contingent payment arrangement by $1.0 million based upon our estimates of future earnings. In connection with this acquisition,
we recorded $3.6 million in goodwill and other intangible assets, all of which we expect to be deductible for tax purposes. The
financial results of the acquired business have been included in the Consolidated Financial Statements since the acquisition date.
4. Discontinued Operations
In fiscal 2012, we exited the international portion of our ScanTech business due to continued operating losses and to
focus on growing our North American business. ScanTech was headquartered outside Stockholm, Sweden and distributed a line of
Volvo and Saab replacement parts throughout the world.
discontinued operation in the Consolidated Statements of Operations:
The following table summarizes ScanTech’s net sales and income before taxes which have been presented as a
(in thousands)
Net sales
Income before taxes
December 27,
2014
December 28,
2013
$
—
—
$
—
—
December 29,
2012
$
2,907
3,203
During fiscal 2012, we reclassified approximately $3.0 million of previously recorded currency translation
adjustments from accumulated other comprehensive income to net income as a result of the substantial liquidation of our investment
and recorded a deferred tax asset of $1.4 million related to foreign tax credits.
30
5.
Inventories
Inventories were as follows:
Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of our products.
(in thousands)
Bulk product
Finished product
Packaging materials
Total
$
December 27,
2014
65,603
105,117
2,803
$ 173,523
$
December 28,
2013
59,881
97,382
3,124
$ 160,387
6.
Property, Plant and Equipment
Property, plant and equipment include the following:
(in thousands)
Buildings
Machinery, equipment and tooling
Furniture, fixtures and leasehold improvements
Software and computer equipment
Total
Less-accumulated depreciation and amortization
Property, plant and equipment, net
$
December 27,
2014
29,185
66,441
3,974
65,525
165,125
(82,855)
82,270
$
$
December 28,
2013
26,859
58,620
3,833
53,915
143,227
(78,441)
64,786
$
7.
Long-Term Debt
Our revolving credit facility, which provides for borrowings up to $30.0 million, will expire in June 2015.
Borrowings under the facility are on an unsecured basis with interest at rates ranging from LIBOR plus 75 basis points to LIBOR plus
250 basis points based upon the achievement of certain benchmarks related to the ratio of funded debt to EBITDA. The interest rate at
December 27, 2014 was LIBOR plus 75 basis points (0.92 %). There were no borrowings under the revolving credit facility at
December 27, 2014 or December 28, 2013. We did not borrow under the revolving credit facility during fiscal 2014 or fiscal 2013. As
of December 27, 2014, we had two letters of credit outstanding for approximately $1.0 million in the aggregate which were issued to
secure ordinary course of business transactions. We had approximately $29.0 million available under the facility at December 27,
2014, net of these letters of credit. The loan agreement also contains covenants, the most restrictive of which pertain to net worth and
the ratio of debt to EBITDA. We are in compliance with all financial covenants contained in the revolving credit facility as of
December 27, 2014.
8. Operating Lease Commitments and Rent Expense
We lease certain equipment and operating facilities, including our primary operating facility which is leased from a
partnership described in Note 9, Related Party Transactions, under non-cancelable operating leases. Approximate future minimum
rental payments as of December 27, 2014 under these leases are summarized as follows:
(in thousands)
2015
2016
2017
2018
2019
Thereafter
Total
$ 3,828
3,702
3,691
1,625
72
—
$12,918
31
$3.7 million in fiscal 2013 and $3.5 million in fiscal 2012.
Rent expense, including payments for short-term equipment and storage rentals, was $4.1 million in fiscal 2014,
9. Related Party Transactions
We have a non-cancelable operating lease for our primary operating facility from a partnership in which Steven L.
Berman, our Chairman and Chief Executive Officer, and his family members are partners. Total rental payments each year to the
partnership under the lease arrangement were $1.5 million in each of fiscal 2014, fiscal 2013 and fiscal 2012. During 2012, we
entered into a new lease with the partnership which expires December 31, 2017. In the opinion of our Audit Committee, the terms and
rates of this lease are no less favorable than those which could have been obtained from an unaffiliated party.
$5.6 million and $5.4 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
We are a partner in a joint venture with one of our suppliers. Purchases from this joint venture were $9.3 million,
10.
Income Taxes
The components of the income tax provision (benefit) are as follows:
(in thousands)
Current:
Federal
State
Deferred:
Federal
State
Total
2014
2013
2012
$48,293 $42,458 $37,192
2,895
40,087
3,105
45,563
2,882
51,175
(597)
(35)
(632)
$50,543
249
18
267
$45,830
(2,214)
(170)
(2,384)
$37,703
December 29, 2012.
Also, the income tax benefit related to our discontinued operations was $1.4 million for the year ended
The following is a reconciliation of income taxes at the statutory tax rate to the Company’s effective tax rate:
Federal taxes at statutory rate
State taxes, net of federal tax benefit
Research and development tax credit
Other
Effective tax rate
2014
35.0%
1.2
(0.4)
0.2
36.0%
2013
35.0%
1.6
(0.7)
—
35.9%
2012
35.0%
1.7
(0.3)
(0.2)
36.2%
effective tax rate if recognized.
At December 27, 2014, we have $1.2 million of unrecognized tax benefits, $0.9 million of which would affect our
The following table summarizes the change in uncertain tax benefits for the three years ended December 27, 2014:
(in thousands)
Balance at beginning of year
Reductions due to lapses in statutes of limitations
Reductions due to payments for tax positions settled
Reductions due to reversals of prior year positions
Additions based on tax positions taken during the current period
Balance at end of year
32
2014
2013
2012
$1,201 $1,785 $2,161
(44)
(379)
(651)
698
$1,785
(30)
(271)
(736)
453
$1,201
(301)
—
(38)
301
$1,163
2014, we have approximately $0.2 million of accrued interest related to uncertain tax positions.
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 27,
statement purposes. The sources of temporary differences are as follows:
Deferred income taxes result from timing differences in the recognition of revenue and expense for tax and financial
(in thousands)
Assets:
Inventories
Accounts receivable
Accrued expenses
Other
Gross deferred tax assets
Liabilities:
Depreciation
Goodwill
Other
Gross deferred tax liabilities
Net deferred tax assets
December 27,
2014
December 28,
2013
$
$
7,989
15,652
1,780
197
25,618
13,406
9,761
—
23,167
2,451
$
$
6,546
12,390
1,928
417
21,281
9,136
9,343
484
18,963
2,318
not that sufficient taxable income will be generated in the foreseeable future to realize the remaining net deferred tax assets.
Based on our history of taxable income and our projection of future earnings, we believe that it is more likely than
We file income tax returns in the United States. All years before 2011 are closed for federal tax purposes. We are
currently under examination by the Internal Revenue Service for the 2011 and 2012 tax years. In regard to state taxes, we are
currently under examination by one state tax authority for years 2009-2012. Tax years before 2010 are closed for the remaining states
in which we file. We filed tax returns in Sweden through 2012 and all years prior to 2008 are closed. It is reasonably possible that
audit settlements, the conclusion of current examinations or the expiration of the statute of limitations could impact the Company’s
unrecognized tax benefits.
11. Commitments and Contingencies
Shareholders’ Agreement. A shareholders’ agreement was entered into in September 1990 and amended and
restated on July 1, 2006. Under the agreement, each of the late Richard Berman, Steven Berman, Jordan Berman, Marc Berman, Fred
Berman, Deanna Berman and additional shareholders named in the agreement has, among other things, granted the others of them
rights of first refusal, exercisable on a pro rata basis or in such other proportions as the exercising shareholders may agree, to purchase
shares of our common stock which any of them, or upon their deaths their respective estates, proposes to sell to third parties. We have
agreed with these shareholders that, upon their deaths, to the extent that any of their shares are not purchased by any of these
surviving shareholders and may not be sold without registration under the Securities Act of 1933, as amended (the “1933 Act”), we
will use our best efforts to cause those shares to be registered under the 1933 Act. The expenses of any such registration will be borne
by the estate of the deceased shareholder. The additional shareholders that are a party to the agreement are trusts affiliated with the
late Richard Berman, Steven Berman, Jordan Berman, Marc Berman or Fred Berman, or each person’s respective spouse or children.
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 and we believe the range of reasonably possible
losses from current matters is immaterial.
12. Capital Stock
Controlling Interest by Officers, Directors and Family Members. As of February 19, 2015, the estate of the late
Richard Berman, Sharyn Berman, Steven Berman, who is Chairman and Chief Executive Officer and director of the Company, his
father and his brothers beneficially own approximately 24% of the outstanding shares of our common stock and have a controlling
influence over the election of our Board of Directors, the outcome of most corporate actions requiring shareholder approval
(including certain fundamental transactions) and the affairs of the Company.
33
designation, rights and preferences of such shares will be determined by our Board of Directors.
Undesignated Stock. We have 50,000,000 shares authorized of undesignated capital stock for future issuance. The
Dividend. On December 5, 2012, we announced a special cash dividend of $1.50 per share payable on December 28,
2012 to shareholders of record at the close of business on December 17, 2012. This dividend resulted in a cash payment of $54.7 million
to our shareholders.
Incentive Stock Plan. Our 2008 Stock Option and Stock Incentive Plan (the “Plan”) was approved by our shareholders
on May 20, 2009. Under the terms of the Plan, our Board of Directors may grant up to 2,000,000 shares of common stock in the form of
shares of restricted stock, incentive stock options and non-qualified stock options or combinations thereof to officers, directors,
employees, consultants and advisors. Grants under the Plan must be made within ten years of the date the Plan was approved and stock
options are exercisable upon the terms set forth in the grant agreement approved by the Board of Directors, but in no event more than ten
years from the date of grant. At December 27, 2014, 1,719,766 shares were available for grant under the Plan.
We grant restricted stock to certain employees and members of our Board of Directors. The value of restricted stock
issued is based on the fair value of our common stock on the grant date. Vesting of restricted stock is conditional based on continued
employment or service for a specified period. Compensation cost related to the stock is recognized on a straight-line basis over the vesting
period. We retain the restricted stock, and any dividends paid thereon, until the vesting provisions have been met. Compensation cost
related to restricted stock was $1.1 million, $0.8 million and $0.8 million before taxes in fiscal 2014, fiscal 2013, and fiscal 2012,
respectively. The compensation costs were classified as selling, general and administrative expense in the Consolidated Statements of
Operations. No cost was capitalized during fiscal 2014, fiscal 2013 or fiscal 2012.
The following table summarizes our restricted stock activity for the three years ended December 27, 2014:
Balance at December 31, 2011
Granted
Vested
Balance at December 29, 2012
Granted
Vested
Cancelled
Balance at December 28, 2013
Granted
Vested
Cancelled
Balance at December 27, 2014
Shares
204,800
15,000
(45,646)
174,154
25,500
(47,069)
(43,126)
109,459
26,347
(41,619)
(21,287)
72,900
Weighted
Average
Price
$ 17.12
$ 26.70
$ 16.84
$ 18.02
$ 45.06
$ 17.38
$ 18.28
$ 24.47
$ 51.41
$ 23.44
$ 48.29
$ 27.82
nonvested restricted stock, which is expected to be recognized over a weighted-average period of approximately 2.5 years.
As of December 27, 2014, there was approximately $1.4 million of unrecognized compensation cost related to
Cash flows resulting from tax deductions in excess of the tax effect of compensation cost recognized in the financial
statements are classified as financing activities. The excess tax benefit generated from vested restricted shares was $0.5 million, $0.3
million, and $0.3 million in fiscal 2014, fiscal 2013, and fiscal 2012, respectively, and was credited to additional paid in capital.
We grant stock options to certain employees and members of our Board of Directors. We expense the grant-date fair
value of stock options. Compensation cost is recognized on a straight-line basis over the vesting period, during which related services are
performed. Compensation cost charged against income was $0.1 million, $0.1 million and $0.2 million before taxes in fiscal 2014, fiscal
2013, and fiscal 2012, respectively. The compensation costs were classified as selling, general and administrative expense in the
Consolidated Statements of Operations. No cost was capitalized during fiscal 2014, fiscal 2013 or fiscal 2012.
No stock options were granted in fiscal 2014 or fiscal 2013. In fiscal 2012, we used the Black-Scholes option valuation
model to estimate the fair value of stock options granted. Expected volatility and expected dividend yield are based on the actual historical
experience of our common stock. The expected life represents the period of time that options granted are expected to be outstanding and
was calculated using historical option exercise data. 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. The weighted-average grant-date fair value of options granted during fiscal 2012 was
$11.05 per option. We included a forfeiture assumption of 5.4% in the calculation of expense in fiscal 2014, fiscal 2013 and fiscal 2012.
34
The following table summarizes the valuation assumptions used to calculate the fair value of options granted:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options
2012
0%
59%
0.9%
4.7 years
The following table summarizes our stock option activity for the three years ended December 27, 2014:
Balance at December 31, 2011
Granted
Exercised
Balance at December 29, 2012
Exercised
Cancelled
Balance at December 28, 2013
Exercised
Balance at December 27, 2014
Options exercisable at December 27, 2014
Shares
692,800
20,000
(438,800)
274,000
(96,500)
(36,000)
141,500
(66,500)
75,000
73,000
Option Price per
Share
Weighted
Average
Price
Weighted
Average
Remaining
Terms (years)
Aggregate
Intrinsic
Value
$2.00 – $19.37 $ 5.46
$22.71 $ 22.71
$2.00 – $ 7.74 $ 4.27
$2.54 – $22.71
$2.54 – $22.71
$7.74 – $22.71
$5.05 – $19.37
$5.67 – $19.37
$5.05 – $19.37
$5.05 – $19.37
$ 8.62
$ 7.21
$ 16.98
$ 7.13
$ 6.97
$ 7.28
$ 6.95
3.5
3.5
$3,119,000
$3,060,000
The total intrinsic value of stock options exercised during fiscal 2014 was $2.8 million. As of December 27, 2014,
there was approximately $0.1 million of unrecognized compensation cost related to non-vested stock options, which is expected to be
recognized over a weighted-average period of approximately 1 year.
December 27, 2014:
The following table summarizes information concerning currently outstanding and exercisable options at
Range of Exercise Price
$ 5.05 – $5.67
$ 6.90
$ 7.74
$19.37
Balance at December 27, 2014
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
3.9
3.0
5.0
6.0
3.5
Number
Outstanding
21,000
44,000
6,000
4,000
75,000
Options Exercisable
Weighted
Average
Exercise Price
5.64
$
6.90
$
7.74
$
19.37
$
7.28
$
Number
Exercisable
21,000
44,000
6,000
2,000
73,000
Weighted
Average
Exercise Price
5.64
$
6.90
$
7.74
$
19.37
$
6.95
$
Cash received from option exercises was $0.5 million, $0.6 million, and $1.6 million during fiscal 2014, fiscal 2013,
and fiscal 2012, respectively. The excess tax benefit generated from option exercises was $0.3 million, $0.8 million and $2.4 million
during fiscal 2014, fiscal 2013 and fiscal 2012, respectively, and was credited to additional paid in capital.
Performance-Based Long Term Award Program. In December 2012, the Compensation Committee of our Board
of Directors approved the Performance-Based Long Term Award Program which connects compensation for certain of our executives
to the compounded annual growth in our pre-tax income, as defined in the program, over our most recent three fiscal years. At the
discretion of the Compensation Committee, the Performance-Based Long Term Award will be paid in either cash or equity. If the
award is paid in equity, it will be paid under the 2008 Stock Option and Stock Incentive Plan. This is a liability-classified award. For
fiscal 2014 and fiscal 2013, the Compensation Committee elected to settle the award in cash.
35
401(k) Retirement Plan. The Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “401(k) Plan”) is a
defined contribution profit sharing and 401(k) plan covering substantially all of our employees as of December 27, 2014. Annual
contributions under the 401(k) Plan are determined by the Compensation Committee of our Board of Directors. Total expense related
to the 401(k) Plan was $2.5 million, $1.9 million and $2.0 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. At
December 27, 2014, the 401(k) Plan held 361,138 shares of our common stock.
Common Stock Repurchases. We periodically repurchase, at the then current market price, and cancel common
stock issued to the 401(k) Plan. Shares are generally purchased from the 401(k) Plan when participants sell units as permitted by the
401(k) Plan or elect to leave the 401(k) Plan upon retirement, termination or other reasons. During fiscal 2014, our Board of Directors
approved the repurchase and cancellation of 61,830 shares of our common stock for $3.1 million at an average price of $50.71 per
share. During fiscal 2013, our Board of Directors approved the repurchase and cancellation of 78,580 shares of our common stock for
$3.5 million at an average price of $44.39 per share.
Share Repurchase Program. On December 12, 2013 we announced that our Board of Directors authorized a share
repurchase program, authorizing the repurchase of up to $10 million of our outstanding common stock by the end of 2014. We
announced that our Board of Directors increased the share repurchase program authorization to $30 million on May 20, 2014, to $50
million on July 30, 2014 and to $100 million on October 28, 2014. In addition, on May 20, 2014, we announced that our Board of
Directors extended the share repurchase program through May 31, 2015, and on October 28, 2014, we announced that our Board of
Directors further extended the share repurchase program through December 31, 2015. Under this program, share repurchases may be
made from time to time depending on market conditions, share price, share availability and other factors at our discretion. The share
repurchase program does not obligate us to acquire any specific number of shares. We repurchased 855,600 common shares for $40.4
million at an average price of $47.20 under this program during fiscal 2014. No repurchases were made under this program during
fiscal year ended December 28, 2013.
13. Earnings Per Share
Basic earnings per share was calculated by dividing our net income by the weighted average number of common
shares outstanding during the period, excluding nonvested restricted stock which is considered to be contingently issuable. To
calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares
outstanding. Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-
based awards. However, in periods when the price of our stock based awards, by grant, is greater than our average stock price during
the period, those common share equivalents are considered anti-dilutive and are excluded from the calculation of diluted earnings per
share. Stock-based awards of 5,000 shares and 20,000 shares were excluded from the calculation of diluted earnings per share as of
December 27, 2014 and December 29, 2012, respectively, as their effect would have been anti-dilutive. No stock-based awards were
considered anti-dilutive in the fiscal year ended December 28, 2013.
The following table sets forth the computation of basic earnings per share and diluted earnings per share:
(in thousands, except per share data)
Numerator:
Income from continuing operations
Income from discontinued operations
Net income
Denominator:
Weighted average basic shares outstanding
Effect of compensation awards
Weighted average diluted shares outstanding
Earnings Per Share:
Basic:
Income from continuing operations
Income from discontinued operations
Net income
Diluted:
Income from continuing operations
Income from discontinued operations
Net income
36
2014
2013
2012
$89,987
—
$89,987
$81,920
—
$81,920
$66,405
4,557
$70,962
36,052
138
36,190
36,347
277
36,624
36,124
370
36,494
$ 2.50
—
$ 2.50
$ 2.49
—
$ 2.49
$ 2.25
—
$ 2.25
$ 2.24
—
$ 2.24
$ 1.84
0.12
$ 1.96
$ 1.82
0.12
$ 1.94
14. Business Segments
replacement parts for the automotive aftermarket.
We have determined that our business comprises a single reportable operating segment, namely, the sale of
During fiscal 2014, fiscal 2013 and fiscal 2012, four of our customers (Advance Auto Parts, AutoZone, Genuine
Parts Co. - NAPA and O’Reilly Auto Parts) each accounted for more than 10% of net sales and in the aggregate accounted for 60% of
net sales in fiscal 2014 and 57% of net sales in each of fiscal 2013 and fiscal 2012. Net sales to countries outside the United States,
primarily to Europe, Mexico, the Middle East, Asia and Canada in fiscal 2014, fiscal 2013 and fiscal 2012 were $39.1 million, $33.2
million and $23.5 million, respectively.
15. Quarterly Results of Operations (Unaudited)
December 27, 2014 and December 28, 2013:
The following is a summary of the unaudited quarterly Results of Operations for the fiscal years ended
(in thousands, except per share amounts)
Net sales
Income from operations
Net income
Diluted earnings per share
(in thousands, except per share amounts)
Net sales
Income from operations
Net income
Diluted earnings per share
37
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2014
$183,512 $196,187 $197,796 $173,981
28,611
18,656
0.52
38,476
24,536
0.68
36,947
23,551
0.64
36,700
23,244
0.64
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2013
$154,443 $162,261 $177,953 $169,809
31,607
20,619
0.56
35,670
22,887
0.62
29,908
19,072
0.52
30,754
19,342
0.53
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required
to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms and accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted
an evaluation, as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures, as such
term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as defined in
Rule 13a-15(e), were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Exchange Act Rule 13a-15(f). Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation, as of December 27, 2014, of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that, as of
December 27, 2014, our internal control over financial reporting was effective.
financial reporting. Their report appears below.
Our independent registered public accounting firm, KPMG LLP, has issued a report on our internal control over
Changes in Internal Control Over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also conducted
an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter ended
December 27, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting. During the thirteen weeks ended December 27, 2014, we implemented a new enterprise resource planning system. The
internal controls over financial reporting affected by this implementation were evaluated for design and found to be effective. Prior to
this implementation, user acceptance was performed to ensure the system was functioning as designed. Post implementation reviews
have been and will continue to be conducted by management to ensure that the internal controls surrounding the system
implementation processes, key applications and the financial close process are properly designed and are operating effectively.
38
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Dorman Products, Inc.:
We have audited Dorman Products, Inc.’s internal control over financial reporting as of December 27, 2014, based on criteria
established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Dorman Products, Inc.‘s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Dorman Products, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 27, 2014, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Dorman Products, Inc. and subsidiaries as of December 27, 2014 and December 28, 2013, and the
related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the fiscal years
in the three-year period ended December 27, 2014, and the related financial statement schedule listed under Item 15(a)(2), and our
report dated February 25, 2015 expressed an unqualified opinion on those consolidated financial statements and the related financial
statement schedule.
Philadelphia, PA
February 25, 2015
Item 9B. Other Information.
None
KPMG LLP
39
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Except for the information provided in “Part I – Item 4.1 Executive Officers of the Registrant” and as set forth
below, the required information is incorporated by reference from our definitive proxy statement for our 2015 Annual Meeting of
Shareholders, including, but not necessarily limited to, the section entitled “Proposal I – Election of Directors,” “Committees of the
Board of Directors – Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance”.
We have adopted a written code of ethics, “Our Values and Standards of Business Conduct,” which is applicable to
all of our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting
Officer, Controller and other executive officers (collectively, the “Selected Officers”). We have also adopted a written code of ethics,
“Code of Ethics for Senior Financial Officers,” which applies to our Chief Executive Officer, Chief Financial Officer, Controller and
any other person performing similar functions (collectively, the “Senior Financial Officers”). In accordance with the SEC’s rules and
regulations a copy of each code of ethics is posted on our website www.dormanproducts.com. We intend to disclose any changes in or
waivers from our codes of ethics on our website at www.dormanproducts.com.
Item 11. Executive Compensation.
The required information is incorporated by reference from our definitive proxy statement for our 2015 Annual
Meeting of Shareholders, including, but not necessarily limited to, the section entitled “Proposal I – Election of Directors – Director
Compensation in fiscal 2014,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation”.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Except for the information set forth below, the required information is incorporated by reference from our definitive
proxy statement for our 2015 Annual Meeting of Shareholders, including, but not necessarily limited to, the section entitled “Security
Ownership of Certain Beneficial Owners and Management”.
Equity Compensation Plan Information
The following table details information regarding our existing equity compensation plans as of December 27, 2014:
(a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
75,000
—
75,000
$
$
7.28
—
7.28
1,719,766
—
1,719,766
Plan Category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The required information is incorporated by reference from our definitive proxy statement for our 2015 Annual
Meeting of Shareholders, including, but not necessarily limited to, the section entitled “Certain Relationships and Related
Transactions” and “Governance of the Company – The Board of Directors and Director Independence”.
Item 14. Principal Accounting Fees and Services.
The required information is incorporated by reference from our definitive proxy statement for our 2015 Annual
Meeting of Shareholders, including, but not necessarily limited to, the section entitled “Principal Accountant Fees and Services” and
“Pre-Approval Policies and Procedures”.
40
Item 15. Exhibits, Financial Statement Schedules.
PART IV
(a)(1) Consolidated Financial Statements. Our Consolidated Financial Statements and related documents are
provided in Part II—Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Operations for the years ended December 27, 2014, December 28, 2013 and
December 29, 2012.
Consolidated Statements of Comprehensive Income for the years ended December 27, 2014, December 28, 2013
and December 29, 2012.
Consolidated Balance Sheets as of December 27, 2014 and December 28, 2013.
Consolidated Statements of Shareholders’ Equity for the years ended December 27, 2014, December 28, 2013 and
December 29, 2012.
Consolidated Statements of Cash Flows for the years ended December 27, 2014, December 28, 2013, and
December 29, 2012.
Notes to Consolidated Financial Statements.
(a)(2) Consolidated Financial Statement Schedules. The following consolidated financial statement schedule of the
Company and related documents are filed with this Annual Report on Form 10-K:
Schedule II—Valuation and Qualifying Accounts.
(a)(3) Exhibits required by Item 601 of Regulation S-K and Item 15(b) of Form 10-K to be filed as part of this
Annual Report on Form 10-K are listed below:
Number
3.1
3.2
4.1
4.2
10.1
10.1.1
10.1.2
Title
Amended and Restated Articles of Incorporation of the Company. Incorporated by reference to the Exhibit filed with the
Company’s Current Report on Form 8-K dated May 24, 2007.
Amended and Restated Bylaws of the Company. Incorporated by reference to the Exhibit filed with the Company’s
Current Report on Form 8-K dated July 31, 2009.
Specimen Common Stock Certificate of the Company. Incorporated by reference to the Exhibit filed with the Company’s
Registration Statement on Form S-8 (Registration No. 333-160979).
Amended and Restated Shareholders’ Agreement dated as of July 1, 2006. Incorporated by reference to the Exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008.
Lease, dated December 1, 1990, between the Company and the Berman Real Estate Partnership, for premises located at
3400 East Walnut Street, Colmar, Pennsylvania. Incorporated by reference to the Exhibit filed with the Company’s
Registration Statement on Form S-1 and Amendments No. 1, No. 2, and No. 3 thereto (Registration No. 33-37264).
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. Incorporated by reference to the Exhibit filed with
the Company’s Registration Statement on Form S-1 and Amendment No. 1 thereto (Registration No. 33-68740).
Assignment of Lease dated February 24, 1997, between the Company, the Berman Real Estate Partnership and BREP I,
for premises located at 3400 East Walnut Street, Colmar, Pennsylvania. Incorporated by reference to the Exhibit filed
with the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 1996.
41
10.1.3
10.1.4
10.1.5
10.2
10.2.1
10.3
10.3.1
10.3.2
10.3.3
10.4†
10.4.1†
10.4.2†
10.4.3†
10.4.4†
Amendment to Lease, dated April 1, 2002, between the Company and BREP I, for premises located at 3400 East
Walnut Street, Colmar, Pennsylvania. Incorporated by reference to the Exhibit filed with the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 29, 2002.
Amendment No. 3 to the Agreement of Lease, dated December 12, 2007, between the Company and BREP I, for
premises located at 3400 East Walnut Street, Colmar, Pennsylvania. Incorporated by reference to the Exhibit filed with
the Company’s Current Report on Form 8-K dated December 12, 2007.
Lease Agreement, dated December 29, 2012, between the Company and BREP I, for premises located at 3400 East
Walnut Street, Colmar, Pennsylvania. Incorporated by reference to the Exhibit filed with the Company’s Current
Report on Form 8-K dated November 16, 2012.
Industrial Building Lease, dated January 31, 2006, by and between the Company and First Industrial, LP, for premises
located at 3150 Barry Drive, Portland, Tennessee. Incorporated by reference to the Exhibit filed with the Company’s
Current Report on Form 8-K dated February 2, 2006.
Second Amendment to Industrial Building Lease, dated January 25, 2008, by and between the Company and First
Industrial, LP, for premises located at 3150 Barry Drive, Portland, Tennessee. Incorporated by reference to the Exhibit
filed with the Company’s Current Report on Form 8-K dated January 29, 2008.
Third Amended and Restated Credit Agreement dated as of July 24, 2006, between the Company and Wachovia Bank,
National Association. Incorporated by reference to the Exhibit filed with the Company’s Current Report on Form 8-K
dated July 27. 2006.
Amendment No. 1 to the Third Amended and Restated Credit Agreement, dated as of December 24, 2007, by and
between the Company and Wachovia Bank, National Association. Incorporated by reference to the Exhibit filed with
the Company’s Current Report on Form 8-K dated January 2, 2008.
Amendment No. 2 to the Third Amended and Restated Credit Agreement, dated as of April 26, 2010, by and between
the Company and Wells Fargo Bank, National Association (successor by merger to Wachovia Bank, National
Association). Incorporated by reference to the Exhibit filed with the Company’s Current Report on Form 8-K dated
April 27, 2010.
Amendment No. 3 to the Third Amended and Restated Credit Agreement, dated as of December 20, 2012, by and
between the Company and Wells Fargo Bank, National Association (successor by merger to Wachovia Bank, National
Association). Incorporated by reference to the Exhibit filed with the Company’s Current Report on Form 8-K dated
December 21, 2012.
Dorman Products, Inc. 2008 Stock Option and Stock Incentive Plan. Incorporated by reference to the Exhibit filed with
the Company’s Registration Statement on Form S-8 (Registration No. 333-160979).
Form of Incentive Stock Option Agreement pursuant to the Dorman Products, Inc. 2008 Stock Option and Stock
Incentive Plan. Incorporated by reference to the Exhibit filed with the Company’s Registration Statement on Form S-8
(Registration No. 333-160979).
Form of Non-Qualified Stock Option Agreement for Officers and Other Key Employees pursuant to the Dorman
Products, Inc. 2008 Stock Option and Stock Incentive Plan. Incorporated by reference to the Exhibit filed with the
Company’s Registration Statement on Form S-8 (Registration No. 333-160979).
Form of Non-Qualified Stock Option Agreement for Outside Directors and Important Consultants and/or Advisors
pursuant to the Dorman Products, Inc. 2008 Stock Option and Stock Incentive Plan. Incorporated by reference to the
Exhibit filed with the Company’s Registration Statement on Form S-8 (Registration No. 333-160979).
Form of Restricted Stock Agreement pursuant to the Dorman Products, Inc. 2008 Stock Option and Stock Incentive
Plan. Incorporated by reference to the Exhibit filed with the Company’s Registration Statement on Form S-8
(Registration No. 333-160979).
42
10.4.5†
10.4.6†
10.5†
10.6†
10.7†
Amendment No. 1 to the Dorman Products, Inc. 2008 Stock Option and Stock Incentive Plan. Incorporated by
reference to the Exhibit filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28,
2013.
Amendment No. 2 to the Dorman Products, Inc. 2008 Stock Option Plan and Stock Incentive Plan, approved by the
Company’s shareholders at the 2014 Annual Shareholders Meeting held on May 16, 2014. Incorporated by reference to
the Exhibit filed with the Company’s Current Report on Form 8-K dated May 20, 2014.
Dorman Products, Inc. Nonqualified Deferred Compensation Plan. Incorporated by reference to the Exhibit filed with
the Company’s Current Report on Form 8-K dated February 11, 2011.
Employment Agreement, dated April 1, 2008, between the Company and Steven L. Berman. Incorporated by reference
to the Exhibit filed with the Company’s Current Report on Form 8-K dated April 1, 2008.
Dorman Products, Inc. Executive Cash Bonus Plan, approved by the Company’s shareholders at the 2010 Annual
Shareholders Meeting held on May 20, 2010. Incorporated by reference to the Exhibit filed with the Company’s
Current Report on Form 8-K dated May 24, 2010.
10.7.1†
Amendment No. 1 to the Dorman Products, Inc. Executive Cash Bonus Plan, approved by the Company’s shareholders
at the 2014 Annual Shareholders Meeting held on May 16, 2014. Incorporated by reference to the Exhibit filed with the
Company’s Current Report on Form 8-K dated May 20, 2014.
10.8†
10.9†
21
23
31.1
31.2
32
101
General Release and Waiver signed by Joseph M. Beretta dated July 11, 2013. Incorporated by reference to the Exhibit
filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2013.
Separation Agreement, dated February 25, 2011, between the Company and Jeffery Darby. Incorporated by reference
to the Exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive and Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of
2002.
The financial statements from the Dorman Products, Inc. Annual Report on Form 10-K for the year ended December
27, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of
Operations for the years ended December 27, 2014, December 28, 2013 and December 29, 2012; (ii) Consolidated
Statements of Comprehensive Income for the years ended December 27, 2014, December 28, 2013 and December 29,
2012; (iii) the Consolidated Balance Sheets as of December 27, 2014 and December 28, 2013; (iv) the Consolidated
Statements of Shareholders’ Equity for the years ended December 27, 2014, December 28, 2013 and December 29,
2012; (v) the Consolidated Statements of Cash Flows for the years ended December 27, 2014, December 28, 2013 and
December 29, 2012; and (vi) the Notes to Consolidated Financial Statements.
† Management Contracts and Compensatory Plans, Contracts or Arrangements.
43
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: February 25, 2015
Dorman Products, Inc.
By: /s/ Steven L. Berman
Steven L. Berman
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Steven L. Berman
Steven L. Berman
/s/ Mathias J. Barton
Mathias J. Barton
/s/ Matthew S. Kohnke
Matthew S. Kohnke
/s/ Richard T. Riley
Richard T. Riley
/s/ Paul R. Lederer
Paul R. Lederer
/s/ Edgar W. Levin
Edgar W. Levin
/s/ Robert M. Lynch
Robert M. Lynch
Title
Date
Chief Executive Officer and
Chairman of the Board of Directors
(principal executive officer)
President
Director
February 25, 2015
February 25, 2015
Chief Financial Officer
(principal financial and accounting officer)
February 25, 2015
Director
Director
Director
Director
44
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
NEW PRODUCTS • NEW SOLUTIONS
NEW OPPORTUNITIES
COMMON STOCK PRICES
Our shares of common stock are traded publicly on the NASDAQ Global
Select Market under the ticker symbol “DORM”. At February 19, 2015 there
were 167 holders of record of common stock, representing more than 5,900
beneficial owners. The last price for our common stock on February 19, 2015,
as reported by the NASDAQ Global Select Market, was $44.94 per share. The
range of high and low sales prices for our common stock for each quarterly
period of fiscal 2014 and fiscal 2013 are as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
2013
High
$60.47
60.99
50.70
51.75
Low
$48.85
47.48
37.22
39.73
High
$38.45
47.21
52.43
56.42
Low
$32.70
33.63
44.94
46.49
SHAREHOLDER INFORMATION
Stock Listing
The common stock of Dorman Products,
Inc. is traded on the NASDAQ Global
Select Market under the symbol DORM.
Number of Shareholders
At February 19, 2015, there were 167
holders of record of our common stock,
representing more than 5,900
beneficial owners.
Transfer Agent
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
Auditors
KPMG LLP
1601 Market St.
Philadelphia, PA 19103
Investor Relations
Dorman Products, Inc.
3400 E. Walnut Street
Colmar, PA 18915-1800
Phone: 215-997-1800, Ext. 5451
Fax: 215-997-1741
Web Site: www.dormanproducts.com
E-mail:
investorrelations@dormanproducts.com
Recent financial data, press releases,
reports filed with the Securities and
Exchange Commission, corporate
governance and historical information
are available on the Dorman Products
home page located at
www.dormanproducts.com.
If you wish to be added to our e-mail
list, visit our home page or contact
Investor Relations.
DIRECTORS &
EXECUTIVE OFFICERS
Steven L. Berman
Chairman and
Chief Executive Officer
Dorman Products, Inc.
Mathias J. Barton
President and Director
Dorman Products, Inc.
Jeffrey L. Darby
Senior Vice President,
Sales and Marketing
Dorman Products, Inc.
Michael B. Kealey
Senior Vice President,
Product
Dorman Products, Inc.
Thomas J. Knoblauch
Vice President,
General Counsel
Dorman Products, Inc.
Matthew S. Kohnke
Chief Financial Officer
Dorman Products, Inc.
Paul R. Lederer
Director
Retired Executive Vice
President - Federal-
Mogul Corporation
Edgar W. Levin
Director
Retired Senior Vice
President - Paramount
Communications, Inc.
Robert M. Lynch
Director
CEO - Lumber
Liquidators Holdings, Inc.
Richard T. Riley
Director
Retired Executive
Chairman, Lojack
Corporation