www.dormanproducts.comGiving repair professionals and vehicle owners greater freedom to fix cars and trucks by focusing on solutions first.2020ANNUAL REPORT ANNUAL REPORT
LETTER TO
SHAREHOLDERS
To Our Shareholders,
Fiscal 2020 marks a significant milestone
in Dorman’s history, as the Company’s
record-breaking performance in the second
half of the year enabled us to deliver more
than $1 billion in annual net sales for the
first time, underscoring the success of our
strategy to bring innovative solutions to
the automotive aftermarket. Reflecting on
this past year, we faced the unprecedented
COVID-19 pandemic, which created
significant challenges for the entire global
community. In response, we acted swiftly
to implement measures to protect the
health and safety of our valued contributors,
customers, and channel partners, and still
managed to continue to drive operational
efficiencies across our business. Our results
are a testament to the hard work of our
contributors, whose dedication was critical
to our success.
While the macroeconomic environment was
incredibly fluid over the year, we remained
focused on the aspects of the business
under our control, executing on our initiatives
and making significant progress on our
strategic priorities. Some highlights from the
year include:
• Increased full-year net sales growth by
10% driven by robust customer demand
for our products across all channels.
• Significantly expanded the size of our
heavy-duty product offering, contributing
to heavy-duty annual net sales growth of
15% year-over-year.
2020 ANNUAL REPORT
• Executed our strategic initiatives to improve
productivity in our operations, which resulted
in our second half gross margins returning to
historical levels, excluding the impact of tariff
pricing.
• Implemented actions to protect our financial
position in the early stages of the COVID-19
pandemic, which combined with our strong
operating cash flow generation throughout
the year, resulted in us ending fiscal 2020
with $155 million in cash and essentially
no debt, demonstrating why we believe we
have the flexibility to operate in a variety of
macroeconomic environments.
A critical growth lever at Dorman is bringing
innovative solutions to the aftermarket, and
despite the pandemic, we were able to continue
investing in new product development and R&D
capabilities during fiscal 2020 to help ensure that
we remain at the forefront of innovation within the
automotive aftermarket. This innovation focus
is critical, as vehicles are becoming increasingly
more complex due to the rapid adoption of, and
reliance upon, electronics and technology. We
continue to make the necessary investments in
technology and people to benefit from this shift,
including hiring engineers with deep expertise in
complex electronics and computer programming.
These investments are a cornerstone of our growth
strategy as we look to drive further innovation in
the years to come.
Turning to capital allocation, our strategy remains
balanced, with organic investment being our top
priority. Executing on strategic acquisitions is
our second priority, and we continue to build a
pipeline of potential opportunities. We started
2020 off strong completing the acquisition of
Power Train Industries, Inc. early in the year, but
M&A activity slowed during 2020 due to the
pandemic. However, we are optimistic about 2021
as we are beginning to see an uptick in activity. Our
M&A strategy is focused on light- and heavy-duty
targets, as well as opportunities in new adjacencies
and geographies, with the goal of expanding our
business while maintaining our leadership position.
Lastly, we are committed to returning excess
cash to shareholders through our share buyback
program, as evidenced by the 439,235 shares we
repurchased in fiscal 2020 for a total of $36.8
million.
Our business outlook remains favorable as we
continue to expand our market share and provide
new and innovative solutions for our customers.
Our “sweet-spot” is vehicles aged 8-13 years.
We believe that during this time in a vehicle’s
life cycle, normal wear and tear can cause part
failures and vehicle owners are less likely to go
to the original equipment manufacturer (“OEM”)
for repairs. We believe this segment of the
automotive aftermarket will continue to grow over
the next several years. This creates a significant
opportunity for us to leverage our vast network
of industry sources to identify failure-prone OEM
parts, allowing our 400+ product, engineering and
quality contributors to design new, better products
and provide innovative solutions to our customers.
We expect this dynamic to provide a tailwind for
Dorman for the foreseeable future.
Overall, while fiscal 2021 remains hard to predict
given macroeconomic environment uncertainties,
we remain confident that our Culture of
Contribution, commitment to operational
excellence and relentless focus on innovation
position us well for continued success and
achievement of our strategic initiatives.
We are as committed as ever to meeting customer
needs and maximizing shareholder value, and
we look forward to building on the success we
achieved in fiscal 2020 as we move into the
future. Thank you to our contributors, customers,
suppliers, shareholders and other stakeholders for
your continued confidence and support.
Kevin M. Olsen
President & CEO
This letter includes statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal
securities laws, and are based on Dorman’s current expectations and assumptions. For a discussion identifying important factors that could cause actual results to differ
materially from those anticipated in the forward-looking statements, see Dorman’s filings with the U.S. Securities and Exchange Commission, including, but not limited
to, “Risk Factors” in the Form 10-K portion of this Annual Report.
2020-Annual-Report_Dorman.indd 3
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WWW.DORMANPRODUCTS.COM2020 ANNUAL REPORT
ANNUAL REPORT
THE STORY OF
DORMAN PRODUCTS
Dorman’s story begins with the mass market
automobile.
The first moving assembly line was
introduced in 1913, accelerating car
manufacturing and making vehicles more
affordable. Early cars offered people the
newfound freedom of mobility. However, to
maintain this freedom, people now needed to
maintain their vehicles.
Only a few years later, in 1918, Jack and Lew
Dorman, two enterprising brothers from
Cincinnati, discovered that many people
couldn’t find the basic parts they needed to
repair their cars. They started a company
named Dorman Products, selling hard-to-find
automotive hardware sourced from salvaged
vehicles.
The Dormans soon found success
manufacturing star washers, and expanded
into selling other hardware, like brake
adjusting screws and center spring bolts.
Over time, the company’s product lines
grew to include dozens of different small
part categories, like bearings, caps, clamps,
fittings, hoses and springs.
Merchandising was where Dorman really
made its mark in the aftermarket. Various
assortments and inventory systems
revolutionized the small parts business,
and many of these vintage orange shelves,
trays, bins and display stands are now highly
sought-after collector items.
In 1978, two other brothers, Richard and
Steven Berman, started their own company
selling small replacement parts outside
Philadelphia. Seeing that there were many
simple products that people couldn’t buy
from anyone else except original equipment
manufacturers, they founded R&B Inc. to
deliver more convenient and affordable
solutions. They became best known under
the brand name Motormite Manufacturing,
which launched many popular product lines
like HELP!® and Conduct-Tite®.
After competing for decades, Dorman and
Motormite merged in 1994. In 2006, the two
companies further unified under the single
Dorman Products, Inc. brand. Today the
company is publicly listed on the Nasdaq
stock exchange under the ticker DORM.
2020 ANNUAL REPORT
2020 ANNUAL REPORT
Dorman is now a global automotive solutions
leader, with more than a dozen facilities and 2,700
employees worldwide*. Headquartered in Colmar,
Pennsylvania, Dorman offers more than 81,000
distinct products*, covering both light-duty and
heavy-duty vehicles, from chassis to body, from
underhood to undercar, and from hardware to
electronics.
As vehicles have evolved, so have we. Far from the
early days of simple components, Dorman now
delivers some of the most advanced replacement
parts in the aftermarket, like ABS modules,
electronic throttle bodies and VVT solenoids. Many
of our OE FIX™ parts solve common problems
customers have with the OEM alternative, reducing
repair cost and installation time, and increasing
reliability and serviceability.
The original drive of the Dorman and Berman
brothers still guides the company today. Just as
both sets of brothers saw a need to give people
better options for maintaining automobiles, we
continue to give repair professionals and vehicle
owners greater freedom to fix cars and trucks.
Dorman was one of the first companies to provide
these solutions, and we continue to be first to
market with new solutions every day.
Learn more at DormanProducts.com/tour.
*As of December 26, 2020.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
2020
2019
2018
2017
2016
Fiscal Year Ended
Statement of Operations Data:
Net sales
Sales Growth
Gross profit
Gross profit margin
Income from operations
Operating margin
Net income
Earnings per share:
Diluted
Adjusted diluted*
$1,092,748
$991,329
$973,705
$903,221
$859,604
10.2%
1.8%
7.8%
5.1%
7.1%
383,116
339,825
373,281
358,649
338,074
35.1%
34.3%
38.3%
39.7%
39.3%
133,373
105,828
171,143
176,240
168,601
12.2%
10.7%
17.6%
19.5%
19.6%
106,870
83,762
133,602
106,599
106,049
$ 3.30
$ 3.45
$ 2.56
$ 2.65
$ 4.02
$ 4.20
$ 3.13
$ 3.37
$ 3.07
$ 3.07
Balance Sheet and Cash Flow Data:
Cash and cash equivalents
$155,576
$68,353
$43,458
$71,691
$149,121
Cash provided by operating
151,966
95,306
78,112
94,241
121,539
activities
Capital expenditures
Free cash flow*
Cash used for acquisitions,
net of cash acquired
Share repurchases under
repurchase program
* Non-GAAP measures. See NOTE below.
15,450
29,560
26,106
24,450
20,059
136,516
65,746
14,808
–
52,006
28,040
69,791
101,480
59,987
–
36,781
39,387
43,386
74,728
22,470
NOTE: For additional information regarding the amounts presented above, see the Form 10-K portion of this Annual Report. Reconciliations of adjusted
diluted earnings per share to diluted earnings per share and free cash flow to cash provided by operating activities are included on the page preceding
the inside back cover of this Annual Report.
WWW.DORMANPRODUCTS.COM
ANNUAL REPORT
DORMAN PRODUCTS’
ENHANCED CAPABILITY
Our capabilities drive our brand and commitment to growing the aftermarket.
INNOVATING
FOR THE FUTURE
• Deep R&D Investment
START-UP
MINDSET
• Employee Empowerment
• Installer Centric Mindset
• Speed to Market
MARKET
LEADERS
• Growing the Aftermarket
• Category Breadth
81K+
PRODUCTS
2020 ANNUAL REPORT
DORMAN AT A GLANCE
>20
~2,700
EMPLOYEES
NEW PARTS
DAILY
AS OF THE END OF FISCAL YEAR (12/26/2020)
$1.093
BILLION IN
NET SALES
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 26, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18914
DORMAN PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(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
Trading Symbol(s)
DORM
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 ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ 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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☒
Non-accelerated filer
Smaller reporting company
Accelerated filer
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on an attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issues its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 27, 2020 was
$1,412,107,399.
Emerging growth company
☐
As of February 18, 2021, the registrant had 32,177,051 shares of common stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement, in connection with its 2021 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days after December 26, 2020, 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 26, 2020
Business
ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4.1
Properties
Legal Proceedings
Mine Safety Disclosures
Information about Our Executive Officers
PART I
PART II
ITEM 5.
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 6.
ITEM 7.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
ITEM 8.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9.
ITEM 9A. Controls and Procedures
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11.
ITEM 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
The Company’s fiscal year ends on the last Saturday of the calendar year.
References to
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Refers to the year ended
December 30, 2017
December 29, 2018
December 28, 2019
December 26, 2020
Page
4
10
21
21
21
22
22
24
25
26
34
35
59
59
61
61
61
62
62
63
63
As used herein, unless the context otherwise requires, “Dorman,” “the Company,” “we,” “us,” or “our” refers to
Dorman Products, Inc. and its subsidiaries.
This Annual Report on Form 10-K contains the registered and unregistered trademarks or service marks that are the
property of Dorman Products, Inc. and/or its affiliates. This Annual Report on Form 10-K also may contain
additional trade names, trademarks or service marks belonging to other companies. We do not intend our use or
display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be
construed to imply, a relationship with, or endorsement or sponsorship of us by these parties.
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, including statements related to the global coronavirus pandemic
(“COVID-19”), net sales, diluted earnings per share, gross profit, gross margin, selling, general and administrative
expenses, income tax expense, income before income taxes, net income, cash and cash equivalents, indebtedness,
liquidity, the Company’s share repurchase program, the Company’s outlook, the Company’s growth opportunities
and future business prospects, operational costs and productivity initiatives, customs duties and mitigation of tariffs,
long-term value, acquisitions and acquisition opportunities, investments, cost offsets, quarterly fluctuations, new
product development, customer concessions, and fluctuations in foreign currency. Words such as “may,” “believe,”
“demonstrate,” “expect,” “estimate,” “forecast,” “project,” “plan,” “anticipate,” “intend,” “should,” “will” and
“likely” and similar expressions identify forward-looking statements. However, the absence of these words does not
mean the statements are not forward-looking. In addition, statements that are not historical should also be considered
forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements,
which speak only as of the date the statement was made. Such forward-looking statements are based on current
expectations that involve a number of known and unknown risks, uncertainties and other factors (many of which are
outside of our control) which may cause actual events to be materially different from those expressed or implied by
such forward-looking statements. 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 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.” The
Company is under no obligation to (and expressly disclaims any such obligation to) update any of the information in
this report if any forward-looking statement later turns out to be inaccurate whether as a result of new information,
future events or otherwise.
3
ITEM 1. Business.
General
PART I
We are one of the leading suppliers of replacement parts and fasteners for passenger cars, light trucks, and
heavy-duty trucks in the automotive aftermarket industry. As of December 26, 2020, we marketed approximately
81,000 distinct parts compared to approximately 78,000 as of December 28, 2019, many of which we designed and
engineered. This number excludes private label stock keeping units and other variations in how we market, package
and distribute our products, includes distinct parts of acquired companies and reflects distinct parts that have been
discontinued at the end of their lifecycle. We are one of the leading aftermarket suppliers of original equipment
(“OE”) “dealer exclusive” parts. 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. For fiscal 2020, approximately 75% of our products were
sold under brands that we own, and the remainder of our products were 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, Inc. (“Advance”), AutoZone, Inc. (“AutoZone”), and O'Reilly Automotive,
Inc. (“O’Reilly”)), including through their online platforms; national, regional and local warehouse distributors
(such as Genuine Parts Co. – NAPA (“NAPA”)); and specialty markets, and salvage yards. We also distribute
automotive aftermarket parts internationally, with sales primarily into Canada and Mexico, and to a lesser extent,
Europe, the Middle East, and Australia.
The Automotive Aftermarket Industry
The automotive aftermarket industry has two distinct sectors: parts for passenger cars and light trucks, which
accounted for projected industry sales of approximately $281.3 billion in 20201, and parts for medium and heavy-
duty trucks, which accounted for projected industry sales of approximately $98.8 billion in 20201. We sell products
primarily for passenger cars and light trucks, including those with diesel engines, and for medium and heavy-duty
trucks. Two distinct groups of end-users buy replacement vehicle parts for passenger cars and light trucks: (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 dealership service departments. Individual consumers
typically are supplied through retailers and the retail arms of warehouse distributors. Vehicle repair shops generally
purchase parts through local independent parts wholesalers and 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 aftermarket for parts for passenger cars and light trucks, as well as medium and heavy-duty
trucks, generally can be 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. Repair consists mainly of replacement parts that 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. The majority of our products fall into the
repair category.
The increasing complexity 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 fleets.
Accordingly, the number of parts required to be carried by retailers and wholesale distributors has increased
substantially, which is reflected in the increase in the number of distinct parts we marketed in 2020 as compared to
2019. 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. See ITEM 1A, “Risk Factors – Risks
Related to Our Business – Our Industry, Operations and Competition” for information regarding the potential
impacts of consolidation on our business.
1 Source: 2021 Auto Care Association Factbook
4
Retailers and others who purchase automotive aftermarket 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
that a supplier provides are significant factors in a retailer’s or other reseller’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 resellers of automotive aftermarket
parts seek to purchase products from fewer but stronger suppliers.
Brands and Products
We market our products under the DORMAN® brand name and several sub-brands, which identify products
that address specific segments of the automotive aftermarket industry. In addition, across all our sub-brands,
customers can find a subset of products that have been branded DORMAN® OE FIX™ products.
Some of our most popular brands include:
DORMAN® OE Solutions® - A wide variety of replacement parts we introduced to the automotive
aftermarket, covering many product categories across all areas of the vehicle, including fluid reservoirs, variable
valve timing components, complex electronics, and integrated door lock actuators.
DORMAN® OE FIX™ - Dorman’s distinct repair innovations that you cannot get from original equipment
manufacturers, all designed to save time, money or hassle.
DORMAN® HD Solutions™ - Heavy-duty aftermarket parts for class 4-8 vehicles. These products include
lighting, cooling, engine management, wheel hardware, air tanks and cab products.
DORMAN® HELP!® - Broad assortment of small automotive replacement parts that are primarily sold in
retail store fronts such as door handles, keyless remotes and cases and door hinge repair parts.
DORMAN® Conduct-Tite® - A wide array of electrical components for common repairs as well as for
enthusiasts to customize and upgrade their vehicles.
We group our products into four major classes: powertrain, chassis, automotive body, and hardware. The
following table represents each of the four classes as a percentage of net sales for each of the last three fiscal years:
Powertrain
Chassis
Automotive Body
Hardware
Total
December 26, 2020
Percentage of Net Sales
Year Ended
December 28, 2019
December 29, 2018
40 %
30 %
25 %
5 %
100 %
40 %
30 %
25 %
5 %
100 %
40 %
29 %
26 %
5 %
100 %
Our powertrain 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. Chassis products include control arms, ball joints, tie-rod ends, brake hardware
and hydraulics, wheel and axle hardware, suspension arms, knuckles, links, bushings, and other suspension, steering,
and brake components. Our line of automotive body products includes door handles and hinges, window lift motors,
5
window regulators, switches and handles, wiper components, lighting, electrical, and other interior and exterior
automotive body 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
standard warranty limits the end-user’s remedy to the repair or replacement of the part that is defective.
Product Development
Product development and continuous innovation are central to our business. The development of a broad range
of products, many of which are not conveniently or economically available elsewhere, has enabled us to grow to our
present size and is an important driver for our future growth. Our product strategy has been to design and engineer
products, many of which we believe are better and easier to install and/or use than the original parts they replace,
and to commercialize automotive parts for the broadest possible range of uses. New product ideas are reviewed by
our product management staff and a cross-functional in-house team. The following table represents the number of
distinct parts we introduced for each of the last three fiscal years:
New to the aftermarket
Line extensions
Total distinct parts introduced
December 26, 2020 December 28, 2019 December 29, 2018
1,716
3,827
5,543
1,433
2,046
3,479
1,625
3,614
5,239
In 2020, we introduced several new product categories to the aftermarket including: a new build electronic
power steering rack, complete wiper motor and linkage arm assemblies, pre-pressed axles, loaded brake backing
plates and flexible fuel lines. Each of these solutions gives installers and consumers additional choice when
searching for reliable, affordable replacements.
Other innovative technologies we released in 2020 include climate control modules, new fuel pump driver
modules and loaded knuckles, many of which are DORMAN® OE FIXTM products providing additional durability
against wear and elements to reduce potential failure points to help avoid the need for future repairs.
Our product teams also grow and expand existing categories by introducing new products that are designed to
fit more vehicles, providing enhanced opportunities for aftermarket service providers to serve their customers. In
2020, we extended our lines in strategic categories such as valve covers, oil control valves, and drive shafts.
Some of our most popular innovations are those that provide vehicle owners significant savings over other
repair alternatives, such as rust repair solutions. Our truck bed floor supports, differential covers and fuel tank
crossmembers often eliminate the need to replace entire truck beds, axles and other large vehicle sections by
facilitating direct repair of corroded components.
We also grew our lines of diesel and heavy-duty solutions in fiscal 2020, introducing hundreds of new
products in categories such as nitrogen oxide sensors, LED forward lighting and diesel aftertreatment including:
diesel exhaust fluid heaters and pumps and a selective catalytic reduction dosing module.
We reduced new product activity in the first half of 2020 due to uncertainties related to COVID-19. We
increased new product development and commercialization in the second half of 2020 as overall market demand
rebounded. As a result, we ended the year with lower new product introductions than the prior year. Development
activities have returned to prior levels and we expect to return to our historical levels of performance in 2021.
Sales and Marketing
We market our products to three groups of purchasers who in turn supply individual consumers and
professional installers. Our products are also available in our customers’ retail stores, on our customers’ websites,
and through warehouse distributors. For the year ended December 26, 2020:
(i) approximately 58% of our net sales was generated from sales to automotive aftermarket retailers,
including major chains such as Advance, AutoZone and O'Reilly;
6
(ii) approximately 31% of our net sales was generated from sales to warehouse distributors, such as NAPA,
which may be local, regional or national in scope, and which also may engage in retail sales; and
(iii) approximately 11% of our net sales was generated from our heavy-duty channel and sales to special
markets, which include, among others, mass merchants, such as Walmart, salvage yards and the parts
distribution systems of OE parts manufacturers.
As of December 26, 2020, we had a sales and sales support team of over 110 people selling our products
either directly to our customers or, with respect to certain select customers, indirectly through independent
manufacturers’ representative agencies worldwide.
Our sales efforts are not directed merely at selling individual products, but more broadly towards selling our
entire product portfolio. Our sales strategy includes increasing sales not only by securing new customers, but also by
adding new product lines and expanding product selection within existing customers, in an effort to make our
customers a destination for new-to-the-aftermarket products.
We use online catalogs, application guides, digital marketing tools, training materials, videos and additional
content to describe and sell our products and other applications as well as to train our customers' sales teams. Our
primary website, www.dormanproducts.com, provides a search engine that can be used to search our extensive
catalog. The information on the 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.
As of December 26, 2020, we serviced more than 3,600 active accounts. During fiscal 2020, three customers
(Advance, AutoZone and O’Reilly) each accounted for more than 10% of net sales and in the aggregate accounted
for approximately 56% of net sales.
Manufacturing and Procurement
Substantially all of our products are manufactured by third parties. We engage third-party manufacturers
around the world to develop and manufacture products according to our performance and design requirements,
oftentimes using tooling that we own. In fiscal 2020, as a percentage of our total dollar volume of purchases,
approximately 23% of our products were purchased from various suppliers throughout the United States and the
balance of our products were purchased directly from suppliers outside of the United States. Our global supplier
network provides access to a broad array of manufacturing capabilities and technologies while limiting our
dependency on any single source of supply. While our supplier selection and sourcing programs will continue to
leverage our strategic manufacturing firms for a substantial portion of our product portfolio, we also have qualified
alternative sources available to provide additional support and capacity, if needed. We make a concerted effort to
build and nurture strong, healthy relationships with our suppliers. In fiscal 2020, we purchased automotive products
in substantial volumes from over 250 suppliers, and no single supplier accounted for more than 10% of our total
product purchases in fiscal 2020.
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 supplier 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 generally 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 help
ensure 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.
Packaged 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 ship our products from each of our locations by contract carrier, common carrier or parcel service.
Products are generally shipped to each customer's main warehouses for redistribution within their network. In
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certain circumstances, at the request of the customer, we ship directly to the customer's warehouses, stores or other
locations either via smaller direct ship orders or consolidated store orders that are cross docked.
Remanufacturing and Recycling Parts
Certain products we sell contain parts that can be recycled, or as more commonly referred to in our industry,
remanufactured. We refer to the used product that is ultimately remanufactured as core. A used core is
remanufactured and sold to the customer as a replacement for a unit on a vehicle. 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. Our core inventory 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. Our products that utilize cores include
electronic control modules, hybrid batteries and complex mechatronics. We believe our remanufactured parts offer
end-users an economical and safe way to maintain their cars on the road, while also reducing the impact to
environment.
Competition
The automotive aftermarket industry is highly competitive. Competitive factors affecting the automotive
aftermarket include price, product quality, breadth of product line, range of applications, customer service and the
growth of e-commerce. Substantially all our products are subject to competition with similar products offered by
other providers of automotive aftermarket repair and replacement parts. Some of these competitors are divisions and
subsidiaries of companies much larger than us who possess a longer history of operations and greater financial and
other resources than we do. We also face competition from OE 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 our suppliers.
Further, some of our private label customers also compete with us. For more information on risks relating to our
competition, see ITEM 1A, “Risk Factors – Risks Related to Our Business – Our Industry, Operations and
Competition.”
Seasonality
Our business can be affected by weather conditions. Extremely hot or cold weather generally results in an
increase in automotive parts failure at an accelerated rate, which generally leads to an increase in our sales for the
duration of the extreme weather event.
Impact of COVID-19
The COVID-19 pandemic has resulted and is expected to continue to result in significant economic disruption.
COVID-19 caused state authorities to implement stringent measures to attempt to help control the spread of the
virus, including business shutdowns and curtailments. Throughout the pandemic all of our U.S. facilities have
remained, and currently remain, open and operating, with modified staffing in certain locations where appropriate.
We have taken actions to promote the welfare of our employees by enhancing safety protocols. We have had to
adjust our operations and inventory levels as demand has fluctuated due to government-imposed restrictions being
imposed and then subsequently lifted or modified across the United States. As government-imposed restrictions vary
and continue to change across the United States and elsewhere around the world, it remains difficult to determine the
full impact that the pandemic will have on the overall demand environment as well as our ability to source parts and
other materials to meet demand levels.
For a more detailed discussion of the impact of COVID-19 on our business, see “Human Capital Resources”
below and ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Impacts of COVID-19.”
Patents, Trademarks and Other Intellectual Property
We own a number of patents important to our business, and we expect to continue to file patent applications to
protect our research and development investments in new products. As of December 26, 2020, we held 71 patents
and 16 pending patent applications, including foreign counterpart patents and foreign applications. For the United
States, patents may last 20 years from the date of the patent's filing, depending upon term adjustments made by the
patent office. In addition, we hold numerous trademarks in the United States and other countries. We also have
licenses to intellectual property for the manufacture, use and sale of certain of our products.
8
We obtain patent and other intellectual property rights used in connection with our business when practicable
and appropriate. Historically, we have done so both organically, through commercial relationships and in connection
with acquisitions.
For more information concerning the risks related to patents, trademarks and other intellectual property, see
ITEM 1A, "Risk Factors – Risks Related to Our Business – Our Intellectual Property and Information Security.”
Human Capital Resources
General
As of December 26, 2020, we had 2,681 employees worldwide, substantially all of whom were employed full-
time. Our employees are categorized by various functions. “Operations” consists of employees engaged in
production, product distribution and inventory quality control. “Product Development” includes employees involved
in product development and purchasing. “Quality and Engineering” consists of employees involved in internal and
external quality management, manufacturing engineering, design, and testing. “Sales” includes employees employed
in sales and customer service. “Administration” includes executive officers and individuals employed in finance,
legal, information technology, human resources and other functions supporting our business. The following table
shows employees by function and region.
Operations
Product Development
Quality and Engineering
Sales
Administration
Total Employees
U.S.
December 26, 2020
Non-U.S.
Total
1,976
149
157
141
165
2,588
37
2
35
19
-
93
2,013
151
192
160
165
2,681
None of our global employees is covered by a collective bargaining agreement. We consider our relations with
our employees to be generally good.
Health and Safety
We maintain a safety culture grounded on the premise of eliminating workplace incidents, risks and hazards.
We have created and implemented processes to help eliminate safety events and reduce their frequency and severity.
We also review and monitor our performance closely. In response to COVID-19, we implemented and continue to
implement safety measures in all our facilities to promote the welfare of our employees. For example, we enhanced
safety protocols, including requiring administrative employees to work from home where applicable, and we
implemented symptom screening, social distancing and robust sanitization practices at our facilities. In addition, we
adopted a COVID-19 sick leave policy providing continued salary and benefits to eligible employees.
Inclusion and Diversity
We embrace the diversity of our employees, including their unique backgrounds, experiences, thoughts and
talents. Employees are valued and appreciated for their distinct contributions to the growth and sustainability of our
business. We strive to cultivate a culture and vision that supports and enhances our ability to recruit, develop and
retain diverse talent at every level.
Talent and Development
Our talent strategy is focused on attracting the best talent, recognizing and rewarding their performance while
continually developing, engaging and retaining them. We focus significant attention on attracting and retaining
talented and experienced individuals to manage and support our operations, and our management team routinely
reviews employee turnover rates at various levels of the organization. Management also reviews employee
engagement surveys to monitor employee morale and receive feedback on a variety of issues.
Compensation
We pay our employees competitively and offer a broad range of company-paid benefits, which we believe are
competitive with others in our industry and in the geographies in which we compete for talent. In certain areas of our
operations, such as our warehouse and distribution centers in Portland, Tennessee and Warsaw, Kentucky, we tend
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to see higher attrition rates among hourly workers than in our other locations, in large part due to competition from
other warehouse and distribution operations nearby. We have implemented a number of benefits to help reduce
employee turnover at those sites, such as counseling services and establishment of an employee relief fund.
For information on risks relating to our human capital resources, see ITEM 1A, “Risk Factors – General Risk
Factors – Losing the services of our executive officers or other highly qualified and experienced employees, or
failing to attract and retain any of such officers or employees, could adversely affect our business.”
Available Information
Our Internet address is www.dormanproducts.com. The information on the 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. The website is, and is
only intended to be, for reference purposes only. We make available free of charge on or through 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: Attention:
Secretary, Dorman Products, Inc., 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. The risks are listed
below in no particular order.
Risks Related to Our Business
Our Industry, Operations and Competition
Our business is impacted by the age, condition and number of vehicles that need servicing and by
improvements in the quality of new vehicle parts.
The size of the automobile aftermarket industry depends, in part, upon the growth in number of vehicles on
the road, increase in average vehicle age, change in total miles driven per year, new or modified environmental and
vehicle safety regulations, including fuel-efficiency and emissions reduction standards, increase in pricing of new
cars and new car quality and related warranties. We believe the automobile aftermarket industry has been negatively
impacted by the fact that the quality of more recent automotive vehicles and their component parts (and related
warranties) has improved, thereby lengthening the repair cycle. Generally, if parts last longer, there will be less
demand for our products, and the average useful life of automobile parts has been steadily increasing in recent years
due to innovations in products and technology. In addition, the introduction by original equipment manufacturers of
increased warranty and maintenance initiatives has the potential to decrease the demand for our products. These
factors could have a material adverse effect upon our business, financial condition and results of operations.
Our industry is highly competitive, and our success depends on our ability to compete with suppliers of
automotive aftermarket products, some of which may have substantially greater financial, marketing and
other resources than we do.
The automotive aftermarket industry is highly competitive, and our success depends on our ability to compete
with domestic and international suppliers of automotive aftermarket products. Due to the diversity of our product
offering, we compete against a large cross section of aftermarket companies and brands, including, but not limited
to, Cardone Industries, Inc., Standard Motor Products, Inc., Tenneco, Inc., Bosch Auto Parts, First Brands Group,
LLC, Gates Corporation, Continental Automotive Systems, Inc. (VDO), MevoTech LP, ACDelco (owned by
General Motors Company), Motorcraft (owned by Ford Motor Company) and numerous category specific
competitors. In addition, we face competition from original equipment manufacturers, which, through their
automotive dealerships, supply many of the same types of replacement parts we sell. Further, some of our private
label customers also compete with us.
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Some of our competitors may have larger customer bases and significantly greater financial, technical and
marketing resources than we do. These factors may allow our competitors to:
•
•
•
•
•
respond more quickly than we can to new or emerging technologies and changes in customer
requirements by devoting greater resources than we can to the development, promotion and sale of
automotive aftermarket products;
engage in more extensive research and development;
sell products at lower prices than we do;
undertake more extensive marketing campaigns; and
make more attractive offers to existing and potential customers and strategic partners.
We cannot assure you that our competitors will not develop products or services that are equal or superior to
our products or that achieve greater market acceptance than our products or that in the future other companies
involved in the automotive aftermarket industry will not expand their operations into product lines produced and
sold by us. We also cannot assure you that additional entrants will not enter the automotive aftermarket industry or
that companies in the aftermarket industry will not consolidate. Any such competitive pressures could cause us to
lose market share or could result in significant price decreases and could have a material adverse effect upon our
business, financial condition and results of operations.
The loss or decrease in sales among one of our top customers, or a material change in the terms on which they
are willing to buy from us, could have a substantial negative impact on our sales and operating results.
A significant percentage of our sales has been, and is expected to be, concentrated among a relatively small
number of customers. During fiscal 2020, three customers (Advance, AutoZone and O’Reilly) each accounted for
more than 10% of net sales and in the aggregate accounted for approximately 56% of net sales. We anticipate that
this concentration of sales among these 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. In addition, any consolidation among our key customers may further increase our customer concentration
risk.
Also, while we may enter into long-term agreements with certain of our significant customers, those
agreements generally do not contain purchase commitments, which instead are set forth in individual purchase
orders submitted by customers based on their then-current or projected needs. We have in the past, and may in the
future, lose customers or lose a particular product line of a customer due to the highly competitive conditions in the
automotive aftermarket industry, consolidation of customers and customer initiatives to buy direct from foreign
suppliers or other business considerations. A decision by any significant customer, whether motivated by
competitive conditions, financial difficulties or otherwise, to materially decrease the amount of products purchased
from us or the number of our product lines they choose to carry, to change their manner of doing business with us,
or to stop doing business with us, could have a material adverse effect on our business, financial condition and
results of operations.
Because our sales are concentrated, and the market in which we operate is very competitive, we are under
ongoing pressure from our customers to offer lower prices, extend payment terms, increase marketing and
transportation allowances, provide enhanced rebates, discounts, rights of return and credits and offer other terms
more favorable to these customers. These customer demands have put continued pressure on our operating margins
and profitability and in the future could have a material adverse effect upon our business, financial condition and
results of operations.
There is substantial price competition in our industry, and our success and profitability will depend on our
ability to maintain a competitive cost and price structure.
There is substantial price competition in our industry, and our success and profitability will depend on our
ability to maintain a competitive cost and price structure. This is the result of a number of industry trends, including
the consolidated purchasing power of large customers, the growth of e-commerce and actions taken by some of our
competitors in an effort to attract new business, including efforts to enhance their online presence. Price reductions
may be required to remain competitive in light of such industry trends, and such reductions may impact our sales
and profit margins. Our future profitability will depend in part upon our ability to respond to changes in product and
distribution channel mix, to continue to improve our manufacturing and distribution efficiencies, to generate cost
reductions, including reductions in the cost of components purchased from outside suppliers, and to maintain a cost
11
structure that will enable us to offer competitive prices. Our inability to maintain a competitive cost structure could
have a material adverse effect upon our business, financial condition and results of operations.
Limited shelf space and the inability of our customers to expand into new locations may adversely affect our
ability to grow.
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. Moreover, our growth depends, in part, on
the ability of our customers to open and operate new locations in which our products may be sold. No assurance can
be given that additional space will be available in our customers' existing locations or that our customers will be able
to expand into new locations that would support growth in the number of products and product lines that we offer.
Any failure to maintain and/or grow our shelf or floor space, and any failure of our customers to maintain and/or
grow their number of locations, could have a material adverse effect upon our business, financial condition and
results of operations.
Customer consolidation in the automotive aftermarket industry may lead to customer contract terms less
favorable to us which may negatively impact our financial results.
The automotive aftermarket industry has been consolidating over the past several years. 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, issue customer credits and accept returns of slow-moving product 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, enhanced customer credits have been issued and returns of product have exceeded historical levels.
The product returns and customer credits primarily affect our net sales and profit levels while payment term
extensions and additional factoring costs generally reduce operating cash flow and require additional capital to
finance our business. We expect these trends to continue for the foreseeable future.
Our business, results of operations and financial condition could be materially adversely affected by the
effects of widespread public health epidemics, including COVID-19, that are beyond our control.
Any outbreaks of contagious diseases, public health epidemics and other adverse public health developments
in countries where we, our customers and suppliers, operate could have a material and adverse effect on our
business, results of operations and financial condition. The COVID-19 pandemic has adversely impacted, and is
expected to continue to adversely impact, our business, and the nature and extent of the impact may be highly
uncertain and beyond our control. Uncertain factors relating to COVID-19 include the duration, spread and severity
of the virus, the impact of potential mutations to the virus, the efficacy and distribution of vaccines designed to
combat COVID-19, the effects of the COVID-19 pandemic on our customers, vendors, suppliers and employees,
and the actions, or perception of actions that may be taken, to contain or treat its impact, including declarations of
states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial
and/or other similar restrictions and limitations.
COVID-19 and the measures designed to contain its spread may negatively impact demand for our products,
which could have a material and adverse effect on our business, results of operations and financial condition.
Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to
our schedule and specifications. If our suppliers’ operations are impacted, we may need to seek alternate suppliers,
which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to
our customers, each of which would affect our results of operations. Further, in the event any members of our
workforce, or those of our suppliers, contract COVID-19 or are otherwise compelled to quarantine, we may
experience shortages in labor and services that we require for our operations. Our increased use of remote work
environments and virtual platforms in response to the COVID-19 pandemic may also increase our risk of cyber-
attacks and data security breaches.
The duration of the disruption to our customers, our supply chain and our employees, and the related financial
and operational impacts to us, cannot be estimated at this time. Should any such disruption continue for an extended
period of time, the impact could have a material adverse effect on our business, results of operations and financial
condition.
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If we fail to maintain sufficient inventory to meet current customer demands, or if we fail to anticipate future
changes in customer demands, our financial results could be adversely affected.
We must maintain sufficient in-stock inventory and anticipate future changes in customer demands in order to
be successful. If we fail to do so, our financial results could be adversely affected. Fluctuations in demand may
result from a number of factors, including, but not limited to, global economic conditions, COVID-19, the age,
condition and number of vehicles that need servicing, automotive parts failure rates, loss of market share and
improvements in product designs that result in enhanced quality and reliability of new vehicle parts. As a result of
these and other factors, we have experienced and expect to continue to experience fluctuating levels of demand that
require us to monitor, and, where appropriate, adjust our operations, including our inventory levels and staffing at
our facilities. If we are unable to forecast accurately future reductions in demand, we may accumulate excess or
obsolete inventory and be forced to reduce hours or layoff or furlough employees. Conversely, if we are unable to
forecast accurately future increases in demand, we may have inventory shortfalls or inadequate staffing levels to
meet demand, which may result in our inability to fill orders on timely basis or at all and could result in penalties
owed to our customers and the loss of net sales.
Our profitability may be materially adversely affected as a result of overstock inventory-related returns by
our customers in excess of anticipated amounts.
In certain instances, we permit overstock returns of inventory that may be either new or non-defective or non-
obsolete. To the extent our customer agreements permit overstock returns, those customers are generally limited to
returning overstocked inventory according to a specified percentage of their annual purchases from us. We accrue
for overstock returns as a percentage of sales, after giving consideration to recent historical returns. While we
believe that we make reasonable estimates for overstock returns in accordance with our revenue recognition policies,
actual returns may differ from our estimates. To the extent that overstocked returns are materially in excess of our
projections, our business, results of operations and financial condition may be materially adversely affected.
Our operations would be materially and adversely affected if we are unable to purchase raw materials,
finished goods, equipment, manufactured components, or “core” products from our suppliers.
Because we purchase various types of raw materials, finished goods, equipment, and manufactured component
parts from suppliers, we may be materially and adversely affected by the failure of those suppliers to perform as
expected. This non-performance may consist of delivery delays or failures caused by production issues or delivery
of non-conforming products. The risk of non-performance may also result from the insolvency or bankruptcy of one
or more of our suppliers. Our suppliers’ ability to supply products to us is also subject to a number of risks,
including availability and cost of raw materials, destruction of their facilities, natural disasters, work stoppages or
health crises. For example, the automotive industry is currently experiencing a shortage in the supply of semi-
conductors. We utilize semi-conductors in our products and, to date, have not encountered a shortage in semi-
conductors. However, if we are unable to source semi-conductors on a timely basis or at all, we may be unable to
produce some of our products, which could adversely affect our ability to develop new products and fill orders on
existing products. The COVID-19 pandemic may have a lasting impact on global production and industrial supply
chains. In addition, our failure to promptly pay, or order sufficient quantities of inventory from our suppliers may
increase the cost of products we purchase or may lead to suppliers refusing to sell products to us at all.
Furthermore, because certain products we sell contain parts that can be recycled and remanufactured, which
parts are more commonly referred to in our industry as “core,” our ability to sell those products may be materially
and adversely affected if we are unable to obtain those core parts from our suppliers on favorable terms, if at all.
Our efforts to protect against and to minimize these risks may not always be effective. If any of our key
suppliers fail to meet our needs or if our relationships with any of our key suppliers are not maintained, it may not be
possible to replace such supplier without disruptions in our operations. For example, we may experience delays in
supply of manufacturing as new suppliers are qualified or as tooling is moved or replaced. Furthermore, replacement
of a key supplier is often at higher prices, which could result in lower profit margins and could have a material
adverse effect upon our business, financial condition and results of operations.
Our operating results are sensitive to the availability and cost of third-party transportation providers, which
are important in the manufacture and transport of our products.
We depend upon third-party transportation providers for shipments to and from our suppliers and for delivery
of our products to us and to our customers. Our access to third-party transportation providers is not guaranteed, and,
13
even if we have access to transportation providers, we may be unable to transport our products at economically
attractive rates in certain circumstances, particularly in cases of adverse market conditions or disruptions to
transportation infrastructure. Fluctuations in demand for third-party transportation providers and other events, such
as strikes, political events, international trade disputes, war, terrorism, natural disasters, adverse weather conditions,
increases in fuel prices, public health issues, including the COVID-19 pandemic, and other events, may impact the
availability of third-party transportation providers to ship our products or the cost to ship our products. Our business,
financial position, results of operations or cash flows could be materially and adversely affected if we are unable to
pass along increased transportation costs to our customers, or if third-party transportation capacity were to decline
significantly or otherwise become unavailable.
Product Development, Acceptance and Quality
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.
Our historical growth and profitability has depended, in part, on the introduction of new parts to the
automotive aftermarket industry. We invest in research and development to sustain or enhance our existing product
portfolio. In certain circumstances, there may be a lengthy period between commencing these development
initiatives and bringing new or improved products to market. In other instances, factors beyond our control may
impact our ability to further our research and development activities. For example, new product activity was
adversely impacted in the first half of 2020 due to COVID-19. Although new product development and
commercialization rebounded towards the end of 2020, we ended the year with lower new product introductions
than the prior year. During any period of delay in research and development activities, technology advancements,
customer demand and the markets for our products may move in directions that we had not anticipated. There is no
guarantee that our new products, or enhancements to existing products, will achieve market acceptance or that the
timing of market adoption will be as predicted. As a result, there is a significant possibility that some of our
development decisions, including significant expenditures on acquisitions, research and development, or
investments in technologies, will not meet our expectations, and that our investment in some projects will be
unprofitable. There is also a possibility that we may miss a market opportunity because we failed to invest or
invested too late in a technology, product or enhancement sought by our customers or the markets into which we
sell. If we fail to make the right investments or fail to make them at the right time, competing solutions may be more
attractive in the market. As a result, our competitive position may suffer, and our revenue and profitability could be
adversely affected.
The development and production of any new products is often accompanied by design and production delays
and related costs. 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.
Moreover, as a supplier in the automotive aftermarket industry, we may face additional challenges in designing and
producing replacement products as original equipment manufacturers design parts that contain enhanced technology
features or that are required to interface with other vehicle systems in order to work properly. 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 upon our business, financial condition, and results of
operations.
We may be adversely impacted by changes in, or restrictions on access to, automotive technology.
The automotive aftermarket industry is experiencing a period of significant technological change as a result of
the trends toward the integration of advanced electronics into traditional products and the increase in the number of
vehicles powered by fuel cells or electricity. Software, firmware, and hardware increasingly are becoming
functionally integrated with, and inseparable from, physical automotive parts. While, traditionally, repair shops and
car owners could diagnose and repair their automobiles with mechanical adjustments, today they often need access
to vehicles’ control units using laptops, complex diagnostic tools and software. Restrictions on access to testing and
diagnostic tools, software, telematics, data and repair information imposed by the original vehicle manufacturers or
by governmental regulations may force vehicle owners to rely on dealers to perform maintenance and repairs. This
in turn could limit our ability to design, manufacture and sell new products and could have a material adverse effect
upon our business, financial condition and results of operations.
These trends have led to an increase in the significance of technology to our current and future products and
the amount of capital we need to invest to develop these new technologies, as well as an increase in the amount of
14
competition we face from technology focused new market entrants. If we misjudge the amount of capital to invest or
are otherwise unable to continue providing products that meet our customers’ needs in this environment of rapid
technological change, our market competitiveness could be adversely affected, which could have a material adverse
effect upon our business, financial condition and results of operations.
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 and any associated product recalls
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 to help reduce these problems; however, there can be no assurance that we can successfully remedy
these issues. To the extent we experience significant quality problems in the future, it could have a material adverse
effect upon our business, financial condition and results of operations.
Our Intellectual Property and Information Security
We are dependent, in part, on our intellectual property. If we are not able to protect our proprietary rights or
if those rights are invalidated or circumvented, our business may be adversely affected.
Our business is dependent, in part, on our ability to innovate, and, as a result, we are reliant on our intellectual
property. We generally protect our intellectual property through patents, trademarks, trade secrets, confidentiality
and nondisclosure agreements and other measures to the extent our budget permits. There can be no assurance that
patents will be issued from pending applications that we have filed or that our patents will be sufficient to protect
our key technology from misappropriation or falling into the public domain, nor can assurances be made that any of
our patents, patent applications, trademarks or our other intellectual property or proprietary rights will not be
challenged, invalidated or circumvented. In addition, the level of protection of our proprietary technology varies by
country and may be particularly uncertain in countries that do not have well developed judicial systems or laws that
adequately protect intellectual property rights. Patent litigation and other challenges to our patents and other
proprietary rights are costly and unpredictable and may prevent us from marketing and selling a product in a
particular geographic area. Financial considerations also preclude us from seeking patent protection in every country
where infringement litigation could arise. Our inability to predict our intellectual property requirements in all
geographies and affordability constraints also impact our intellectual property protection investment decisions. If we
are unable to protect our proprietary rights, we may be at a disadvantage to others who do not incur the substantial
time and expense we incur to create our products. Preventing unauthorized use or infringement of our intellectual
property rights is inherently difficult. Moreover, it may be difficult or practically impossible to detect theft or
unauthorized use of our intellectual property. Any of the foregoing could have a material adverse effect upon our
business, financial condition and results of operations.
Claims of intellectual property infringement by original equipment manufacturers and others could
adversely affect our business and negatively impact our ability to develop new products.
From time to time in the ordinary course of our business we are subject to claims that we are infringing the
intellectual property rights of original equipment manufacturers or others. An adverse finding against us in these or
similar intellectual property disputes may have a material adverse effect on our business, financial condition and
results of operations if we are not able to successfully develop or license non-infringing alternatives. In addition, an
unfavorable ruling in intellectual property litigation could subject us to significant liability, increased legal expense,
and require us to cease developing or selling the affected products or using the affected works of authorship or
trademarks. Any significant restriction that impedes our ability to develop and commercialize our products could
have a material adverse effect upon our business, financial condition and results of operations.
Failure to maintain the value of our brands could have an adverse effect on our reputation, cause us to incur
significant costs and negatively impact our business.
Our brands are an important component of our value proposition and serve to distinguish our products from
those of our competitors. We believe that our success depends, in part, on maintaining and enhancing the value of
our brands and executing our brand strategies, which are designed to drive end-user demand for our products and
make us a valued business partner to our customers through the support of their marketing initiatives. A decline in
the reputation of our brands as a result of events, such as deficiencies or defects in the design or manufacture of our
15
products, or from legal proceedings, product recalls or warranty claims resulting from such deficiencies or defects,
may harm our reputation, reduce demand for our products and adversely affect our business. In addition to the
foregoing, certain of our customer agreements require us to supply them with private-label branded products. To the
extent we use our own products to promote the brands of our customers over our own brands, our business may be
adversely affected.
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,
disruption to our operations or the loss or theft of sensitive data relating to our Company and its employees,
customers, suppliers, and business partners, including intellectual property, proprietary business information, and
other sensitive material. Such attacks, which include the use of malware, encryption, computer viruses and other
means for disruption or unauthorized access, on companies have increased in frequency, scope and potential harm in
recent years. We take preventive actions to reduce the risk of cyber incidents and protect our information technology
and networks, including the data that is maintained within them. However, such preventative actions may be
insufficient to repel a cyber-attack or other network breach in the future. Furthermore, because the techniques used
to carry out cyber-attacks change frequently and in many instances are not recognized until after they are used
against a target, we may be unable to anticipate these changes or implement adequate preventative measures.
Moreover, we utilize third-party vendors that provide information technology services for areas such as customer
order processing and human resources functions (e.g., payroll). While we generally require these vendors to monitor
and protect their information technology systems against cyber-attacks and other breaches, their efforts may not be
effective. To the extent that any disruption or security breach of one of our vendors’ systems results in a loss or
damage to our data, loss or theft of our intellectual property, or unauthorized disclosure of confidential information,
including information regarding our customers and the ultimate purchasers of our products, 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. Moreover, intruders that gain access to our intellectual property and
trade secrets may attempt to use that information to harm our business, by developing competing or counterfeit
products. Additionally, we may be required to incur significant costs to protect against damage caused by these
disruptions or security breaches in the future. Any such cyber-attacks and loss or theft of our intellectual property or
unauthorized disclosure of confidential information could have a material adverse effect upon our business, financial
condition and results of operations.
Risks Related to Our Capital Structure and Finances
Our business may be negatively impacted by foreign currency fluctuations and our dependence on foreign
suppliers.
In fiscal 2020, approximately 77% of our products were purchased from suppliers in a variety of foreign
countries, with the largest portion of our overseas purchases being made in China. The products generally are
purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, we generally do
not have direct exposure to fluctuations in the relationship between the U.S. dollar and various foreign currencies
between the time of execution of the purchase order and payment for the product. The Chinese yuan to U.S. dollar
exchange rate has fluctuated over the past several years, and, to the extent that the U.S. dollar decreases in value
relative to the Chinese yuan or any other foreign currencies in the future, the prices of products in U.S. dollars for
new purchase orders may increase.
As a result of the magnitude of our foreign sourcing, our business may be subject to various risks, including
the following:
uncertainty caused by the elimination of import quotas and the possible imposition of additional quotas
or antidumping or countervailing duties, tariffs, or other retaliatory or punitive trade measures;
imposition of duties, tariffs, taxes and other charges on imports;
significant devaluation of the U.S. 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
16
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
have a material adverse effect upon our business, financial condition and results of operations.
We extend credit to our customers, some of whom 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 are expected to continue to be, concentrated among a relatively small number of automotive retailers and
automotive parts distributors in the United States. Our four largest customers accounted for 82% of total accounts
receivable as of December 26, 2020 and 80% of total accounts receivable as of December 28, 2019. In the ordinary
course of business, management monitors credit terms, credit limits, and the availability of credit insurance for these
and other customers. In addition, from time to time, some of the Company’s customers request increases in their
credit limits. Such requests may pose incremental risks to the Company, either by increasing the credit limit for a
customer and accepting additional financial risk of non-payment, or maintaining the credit limit and risking the
customer redirecting business to another supplier offering better credit terms. If any of the Company’s customers
were unable to pay, or if any of those customers redirect their business to other suppliers offering better credit terms,
it could have a material adverse effect upon our business, financial condition and results of operations.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, could
adversely affect our results of operations.
In fiscal 2020, approximately 77% of our products were purchased from suppliers in a variety of foreign
countries. The U.S. government has adopted a new approach to trade policy and in some cases has attempted to
renegotiate or terminate certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on
certain foreign goods, including steel and certain commercial vehicle parts, which have resulted in increased costs
for goods imported into the United States. In response to these tariffs, a number of U.S. trading partners have
imposed retaliatory tariffs on a wide range of U.S. products. If we are unable to pass price increases on to our
customer base or otherwise mitigate the costs, or if demand for our products decreases due to the higher cost, our
results of operations could be materially adversely affected. In addition, further tariffs have been proposed by the
United States and its trading partners and additional trade restrictions could be implemented on a broader range of
products or raw materials. The resulting environment of retaliatory trade or other practices could have a material
adverse effect upon our business, financial condition, results of operations, customers, suppliers and the global
economy.
Increasing our indebtedness could negatively affect our financial health.
We have an existing revolving credit facility of $100 million with Wells Fargo Bank, National Association,
as administrative agent and lender, which, subject to certain requirements, gives us the ability to request increases
of up to an incremental $100 million. As of December 26, 2020, although we did not have any borrowings
outstanding, there were $0.8 million of issued but undrawn letters of credit outstanding under the credit agreement.
Our growth strategy includes reviewing and evaluating potential acquisitions, and we may utilize borrowings
under our credit agreement to consummate transactions. Any significant increase in our indebtedness, whether in
connection with acquisitions or otherwise, could increase our vulnerability to general adverse economic and industry
conditions and limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate. Any such issue could have a material adverse effect upon our business, financial condition and results of
operations
We are exposed to risks related to accounts receivable sales agreements.
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 without recourse.
These agreements permit us to recover on our accounts receivable sooner than if they were not in place and help
reduce the risk of non-payment by customers. Certain of our customers, however, do not offer the ability to
participate in such sponsored programs. If we do not enter into these agreements, our financial condition, results of
operations and cash flows could be materially and adversely affected by delays or failures in collecting trade
accounts receivables. In addition, if any of the financial institutions with which we have these agreements
experience financial difficulties or otherwise modify or terminate these agreements, we may experience material
17
and adverse economic losses due to the loss of such arrangements and the impact of such loss on our liquidity. The
modification, termination or other loss of these arrangements could have a material and adverse effect upon our
financial condition, results of operations and cash flows. The utility of these arrangements also depends upon
LIBOR, as it is a component of the discount rate applicable to each arrangement. If LIBOR increases such that the
cost of these arrangements becomes more than the cost of servicing our receivables with existing debt, we may not
be able to rely on such arrangements, which could have a material adverse effect upon our business, financial
condition and results of operations.
The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a
different reference rate, may have an adverse effect on our business.
In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR)
announced that it would phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating
LIBOR will be established or if alternative rates or benchmarks will be adopted. Our credit agreement and all our
accounts receivable sales agreements utilize LIBOR as a benchmark for calculating the applicable interest rate.
Changes in the method of calculating LIBOR, the elimination of LIBOR or the replacement of LIBOR with an
alternative rate or benchmark may require us to renegotiate or amend these facilities, loans and programs, which
may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect
our results of operations, cash flows and liquidity. We cannot predict the effect of the potential changes to or
elimination of LIBOR or the establishment and use of alternative rates or benchmarks and the corresponding
effects upon our cost of capital.
Dorman’s Executive Chairman and his family members own a significant portion of the Company.
As of February 18, 2021, Steven L. Berman, our Executive Chairman, and his family members beneficially
own approximately 18% of the Company’s outstanding common stock. As such, Mr. Berman and his family
members can influence matters requiring approval of shareholders, including the election of the Board of Directors
and the approval of significant transactions. 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.
General Risk Factors
Unfavorable economic conditions may adversely affect our business.
Adverse changes in economic conditions, including inflation, recession, increases in fuel prices, tariffs,
unemployment levels, availability of consumer credit, taxation 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 upon our business, financial condition and results of
operations.
Our operations, revenues and operating results, and the operations of our third-party manufacturers,
suppliers and customers, may be subject to quarter over 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 over 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 upon our business, financial condition and results of
operations.
18
We rely extensively on our computer systems to manage inventory, process transactions and timely provide
products to our customers. Our systems are subject to damage or interruption from power outages,
telecommunications failures, computer viruses, security breaches, cyber-attacks or other catastrophic events. If our
systems are damaged or fail to function properly, we may experience loss of critical data and interruptions or delays
in our ability to manage inventories or process customer transactions. Such a disruption of our systems could
negatively impact revenue and could have a material adverse effect upon our business, financial condition and
results of operations.
Unfavorable results of legal proceedings could materially adversely affect us.
We are subject to various legal proceedings and claims that arise out of the ordinary course of our business,
such as those involving contracts, employment matters, competitive practices, intellectual property infringement and
product liability claims. Legal proceedings and claims and associated internal investigations may be time-consuming
and expensive to prosecute, defend or conduct. This may be true whether they are with or without merit and whether
they are covered by insurance or not. They also may divert management’s attention and other resources; inhibit our
ability to sell our products; result in adverse judgments for damages, injunctive relief, penalties and fines; and
negatively affect our reputation, business, financial condition and results of operations. There can be no assurance
regarding the outcome of current or future legal proceedings, claims or investigations.
The market price of our common stock may be volatile and could expose us to securities class action
litigation.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general
economic and market conditions. The market price for our common stock also may be affected by our ability to
meet analysts’ expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the
market price of our common stock. In addition, stock market volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the operating performance of these
companies. Downturns in the stock market may cause the price of our common stock to decline.
Following periods of volatility in the market price of a company’s securities, securities class action litigation
has often been instituted against such companies. If similar litigation were instituted against us, it could result in
substantial costs and a diversion of our management’s attention and resources, which could have a material adverse
effect upon our business, financial condition and results of operations.
Losing the services of our executive officers or other highly qualified and experienced employees or failing to
attract and retain any of such officers or employees could adversely affect our business.
Our future success depends upon the continued contributions of our executive officers and senior
management, many of whom have numerous years of experience and would be extremely difficult to replace. We
must also attract and retain experienced and highly skilled engineering, sales and marketing, finance, logistics, and
operations personnel. Competition for qualified personnel is often intense, and we may not be successful in hiring
and retaining these people. In addition, we have seen an increase in demand for qualified workers in distribution
centers, and, to the extent that drives higher wages for those roles versus other roles, our ability to attract talent and
maintain a competitive cost structure may be challenged. If we lose the services of our key employees, cannot attract
and retain other qualified personnel or cannot maintain a competitive cost structure as a result of any of the
foregoing, it could have a material adverse effect upon our business, financial condition and results of operations.
Our growth may be impacted by acquisitions. We may not be able to identify suitable acquisition candidates,
complete acquisitions or integrate acquisitions successfully.
Our future growth is likely to depend to some degree on our ability to acquire and successfully integrate new
businesses. We may not be able to identify suitable acquisition candidates, complete acquisitions, or integrate
acquisitions successfully. We may seek additional acquisition opportunities, both to further diversify our businesses
and to penetrate or expand important product offerings, geographies or markets. There are no assurances, however,
that we will be able to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on
acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses, or expand into new
geographies or markets. Once acquired, operations may not achieve anticipated levels of revenues or profitability.
Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services and
products of the acquired companies and the diversion of management's attention from other business concerns.
Although our management will endeavor to evaluate the risks inherent in any particular transaction, there are no
19
assurances that we will properly ascertain all such risks. Difficulties encountered with acquisitions could have a
material adverse effect upon our business, financial condition and results of operations.
Changes in tax laws or exposure to additional income tax liabilities could have a material adverse effect
upon our business, financial condition and results of operations.
We are subject to income taxes, as well as non-income-based taxes, at the federal, state and local levels.
We are subject to tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have
taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the
appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the
outcomes of these audits, and the actual outcomes of these audits could have a material adverse effect upon our
business, financial condition and results of operations. Additionally, changes in tax laws or tax rulings could
materially impact our effective tax rate.
Global climate change and related regulations could negatively affect our business.
The effects of climate change, such as extreme weather conditions, create financial risks to our business. For
example, the demand for our products may be affected by unseasonable weather conditions. The effects of climate
change could also disrupt our operations by impacting the availability and cost of materials needed for
manufacturing and could increase insurance and other operating costs. We could also face indirect financial risks
passed through the supply chain and disruptions that could result in increased prices for our products and the
resources needed to produce them.
Climate change is continuing to receive ever increasing attention worldwide. Many scientists, legislators and
others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which could lead
to additional legislative and regulatory efforts to limit greenhouse gas emissions. For example, new federal or state
restrictions on emissions of carbon dioxide that may be imposed on vehicles and automobile fuels could adversely
affect demand for vehicles, annual miles driven or the products we sell or lead to changes in automotive
technology. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing
laws, could require increased capital expenditures to improve our product portfolio to meet such new laws,
regulations and standards. While we have been committed to continuous improvements to our product portfolio to
meet and exceed anticipated regulatory standard levels, there can be no assurance that our commitments will be
successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have
a negative competitive impact or that economic returns will reflect our investments in new product development.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-
bribery laws around the world.
The U.S. Foreign Corrupt Practices Act (the "FCPA") and similar anti-bribery laws in other jurisdictions
generally prohibit companies and their intermediaries from making improper payments to government officials or
other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in
anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement
proceedings by both U.S. and non-U.S. regulators, and increases in criminal and civil proceedings brought against
companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in parts of
the world that are recognized as having governmental and commercial corruption and local customs and practices
that can be inconsistent with anti-bribery laws. We cannot assure you that our internal control policies and
procedures will always protect us from reckless or criminal acts committed by our employees or third-party
intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have
violated applicable anti-corruption laws, or if we are subject to allegations of any such violations, we may be
required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be
expensive and require significant time and attention from senior management. Violations of these laws may result in
criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation,
business, financial condition and results of operations. In addition, we could be subject to commercial impacts such
as lost revenue from customers who decline to do business with us as a result of such compliance matters, or we
could be subject to lawsuits brought by private litigants, each of which could have a material adverse effect on our
reputation, business, financial condition, and results of operations.
Our products are subject to import and export controls in jurisdictions in which we distribute or sell our
products. Import and exports control and economic sanctions laws and regulations include restrictions and
20
prohibitions on the sale or supply of certain products and on our transfer of parts, components, and related
technical information and know-how to certain countries, regions, governments, persons and entities.
Various countries regulate the importation of certain products through import permitting and licensing
requirements and have enacted laws that could limit our ability to distribute our products. The exportation, re-
exportation, transfers within foreign countries and importation of our products, including by our suppliers and
vendors, must comply with these laws and regulations, and any violations may result in reputational harm,
government investigations and penalties, and a denial or curtailment of importing or exporting activities. Complying
with export control and sanctions laws for a particular sale may be time consuming, may increase our costs, and may
result in the delay or loss of sales opportunities. If we are found to be in violation of U.S. sanctions or export control
laws, or similar laws in other jurisdictions, we and the individuals working for us could incur substantial fines and
penalties. Changes in export, sanctions or import laws or regulations may delay the introduction and sale of our
products in the U.S. and international markets, require us to spend resources to seek necessary government
authorizations or to develop different versions of our products, or, in some cases, prevent the export or import of our
products to certain countries, regions, governments, persons or entities, which could adversely affect our business,
financial condition and operating results.
ITEM 1B. Unresolved Staff Comments.
None
ITEM 2. Properties.
Facilities
As of December 26, 2020, we had 16 warehouse and office facilities located throughout the United States,
Canada, China, Taiwan and India. Two of these facilities are owned and the remainder are leased. Our principal
facilities are as follows:
Location
Portland, TN
Warsaw, KY
Colmar, PA
Lewisberry, PA
Louisiana, MO
Reno, NV
Sanford, NC
Virginia Beach, VA
Shanghai, China
Springfield, MO
Magnolia, TX
Description
Warehouse and office
Warehouse and office
Corporate Headquarters
Size
997,310 sq. ft.
710,500 sq. ft.
342,000 sq. ft.
Warehouse and office
Warehouse and office
Warehouse and office
Office
Warehouse and office
Warehouse and office
Office
Warehouse and office
Warehouse and office
170,500 sq. ft.
90,000 sq. ft.
54,354 sq. ft.
52,000 sq. ft.
20,000 sq. ft.
16,000 sq. ft.
10,000 sq. ft.
9,600 sq. ft.
Ownership
Leased
Owned
Leased (1)
Leased (2)
Owned
Leased
Leased
Leased
Leased
Leased
Leased
(1) We lease the Colmar facility from a partnership of which our Executive Chairman, Steven L. Berman, and
certain of his family members are owners. Under this lease agreement, we paid rent of $4.70 per square foot
($1.6 million per year) in fiscal 2020. The rent payment 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. This
lease was renewed during November 2016, effective as of January 1, 2018, and will expire on December 31,
2022.
(2) We lease one of our two Lewisberry facilities (consisting of approximately 142,500 square feet) from a limited
liability company of which our Executive Chairman, Steven L. Berman, and certain of his family members are
owners. Under this lease agreement, we pay rent of $4.55 per square foot ($0.6 million per year). The rent
payable will be increased by 3% on July 1st of each year. This lease commenced in September 2020 and will
expire on December 31, 2027. For fiscal 2020, we paid rent of $0.2 million under this lease.
ITEM 3. Legal Proceedings.
The information set forth under the heading “Other Contingencies” appearing in Note 11. “Commitments and
Contingencies,” to the Notes to Consolidated Financial Statements contained in PART IV, ITEM 15 of this report is
incorporated herein by reference.
21
ITEM 4. Mine Safety Disclosures.
Not Applicable
ITEM 4.1. Information about Our Executive Officers.
The following table sets forth certain information with respect to our executive officers as of February 22,
2021:
Name
Steven L. Berman
Kevin M. Olsen
Joseph P. Braun
Jeffrey L. Darby
David M. Hession
Michael B. Kealey
Age
Position with the Company
61
49
46
53
52
46
Executive Chairman
President and Chief Executive Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President, Sales and Marketing
Senior Vice President, Chief Financial Officer and Treasurer
Executive Vice President, Commercial
Steven L. Berman became the Executive Chairman of the Company in September 2015. Additionally, Mr.
Berman has served as a director of the Company since its inception in 1978. From January 2011 to September 2015,
Mr. Berman served as Chairman of the Board and Chief Executive Officer of the Company and from October 2007
to January 2011, Mr. Berman served as President of the Company. Prior to October 2007, Mr. Berman served as
Executive Vice President of the Company.
Kevin M. Olsen joined the Company in July 2016 as Senior Vice President and Chief Financial Officer. He
became Executive Vice President, Chief Financial Officer in June 2017, President and Chief Operating Officer in
August 2018 and President and Chief Executive Officer in January 2019. Prior to joining the Company, Mr. Olsen
was Chief Financial Officer of Colfax Fluid Handling, a division of Colfax Corporation, a diversified global
manufacturing and engineering company that provides gas and fluid-handling and fabrication technology products
and services to commercial and governmental customers around the world, from January 2013 through June 2016.
Prior to joining Colfax, he served in progressively responsible management roles at the Forged Products Aero
Turbine Division of Precision Castparts Corp, Crane Energy Flow Solutions, a division of Crane Co., Netshape
Technologies, Inc., and Danaher Corporation. Prior thereto, Mr. Olsen performed public accounting work at
PricewaterhouseCoopers LLP.
Joseph P. Braun joined the Company in April 2019 as Senior Vice President and General Counsel, and he was
appointed Corporate Secretary in May 2019. Prior to joining the Company, Mr. Braun served as Chief Legal Officer
and Corporate Secretary of Avantor, Inc., a leading, global provider of mission-critical products and services to
customers in the life sciences and advanced technologies and applied materials industries. Prior to joining Avantor,
he worked at Tyco International plc (now known as Johnson Controls International plc), a leading global provider of
security, fire detection and suppression, and life safety products and services, where he served in positions of
increasing responsibility, including, most recently, as Vice President, Mergers & Acquisitions. Mr. Braun began his
legal career in private practice at various law firms, where he advised public and private companies on mergers and
acquisitions and securities and corporate governance matters.
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. He previously held the positions of Group Vice President
from 2008 to 2010 and Vice President of Sales – Traditional and Key Accounts from 2006 to 2008. Prior to joining
the Company, Mr. Darby worked for Federal Mogul Corporation/Moog Automotive, an automotive parts supplier,
beginning in 1990.
David M. Hession joined the Company in February 2019 and was appointed to serve as the Company’s Senior
Vice President and Chief Financial Officer effective March 2019. Mr. Hession was also appointed Treasurer in May
2019. Mr. Hession was Vice President, Chief Financial Officer of Johnsonville, LLC, a privately held manufacturer
of sausage and other protein products, from May 2013 to January 2019. Prior to that time, Mr. Hession worked at
McCormick & Company, Inc., a global leader in the manufacture, marketing and distribution of spices, seasonings
and flavors to the entire food industry, where he served in various positions of increasing responsibility including,
most recently, as Vice President Finance & Administration. Mr. Hession also previously held positions with
Tradeout, Inc., a business-to-business Internet exchange for surplus inventory and fixed assets, and Xylum
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Corporation, a development stage medical device manufacturer, and he performed management consulting work for
Ernst & Young, LLP and Peterson Consulting LP.
Michael B. Kealey joined the Company in November 2002, as a Product Manager. He became Executive Vice
President, Commercial in June 2017. He previously held the positions of Senior Vice President, Product from
February 2011 through May 2017, 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.
23
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 18, 2021, there were 226 holders of record of our common stock.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of
future dividends will be at the discretion of our board of directors and will depend upon, among other things, our
earnings, financial condition, capital requirements, level of indebtedness, and other factors that our board of
directors deems relevant.
For the information regarding our equity compensation plans, see PART III ITEM 12, “Security Ownership of
Certain Beneficial Owners and Management and Related Shareholder Matters.”
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, 2015 to December 26, 2020. The Automotive Parts & Accessories Peer Group is
comprised of 169 public companies and the information was furnished by Morningstar, Inc. through Zacks
Investment Research, Inc. The graph assumes $100 invested on December 26, 2015 in our common stock and each
of the indices, and that 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.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2020
$300
$250
$200
$150
$100
$50
$0
12/26/2015
12/31/2016
Dorman Products, Inc
12/30/2017
12/29/2018
NASDAQ Composite Index
12/28/2019
12/26/2020
Morningstar Auto Parts
The stock price performance shown in the graph is not necessarily indicative of future price performance.
The performance graph and the information set forth therein shall not be deemed to be filed for purposes of
Section 18 of the Exchange Act and shall not be deemed to be incorporated by reference in any filing made by us
with the U.S. Securities and Exchange Commission, except as shall be expressly set forth by specific reference in
such a filing.
24
Stock Repurchases
During the three months ended December 26, 2020, we purchased shares of our common stock as follows:
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased Under
the Plans or
Programs (4)
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs (4)
42,225 $ 223,892,720
78,437 $ 216,624,129
99,777 $ 207,149,176
220,439 $ 207,149,176
Total Number
of Shares
Purchased
46,751 $
82,184 $
100,256 $
229,191
Average
Price Paid
per Share
91.48
92.81
94.97
Period
September 27, 2020 through October 24, 2020 (1)
October 25, 2020 through November 21, 2020 (2)
November 22, 2020 through December 26, 2020 (3)
Total
(1) Includes 96 shares of our common stock withheld from participants for income tax withholding purposes in
connection with the vesting of restricted stock during the period. The restricted stock was granted to
participants in prior periods pursuant to our 2008 Stock Option and Stock Incentive Plan (the “2008 Plan”).
Also includes 4,430 shares purchased from the Dorman Products, Inc. 401(k) Plan and Trust (as described
in Note 13, Capital Stock, to the Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K).
(2) Includes 97 shares of our common stock withheld from participants for income tax withholding purposes in
connection with the vesting of restricted stock during the period. The restricted stock was granted to
participants in prior periods pursuant to our 2018 Stock Option and Stock Incentive Plan (the “2018 Plan”).
Also includes 3,650 shares purchased from the 401(k) Plan
(3) Includes 479 shares of our common stock withheld from participants for income tax withholding purposes
in connection with the vesting of restricted stock during the period. The restricted stock was granted to
participants in prior periods pursuant to our 2008 Plan and our 2018 Plan.
(4) 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.
Through several expansions and extensions, our Board of Directors has expanded the program to $500
million and extended the program through December 31, 2022. Amounts shown assume that the program
expansion was effective at the beginning of the period indicated. 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. We repurchased 220,439 shares under this program during the three months ended
December 26, 2020.
ITEM 6. Selected Financial Data
Not required.
25
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in
conjunction with the Consolidated Financial Statements and related notes thereto included in PART II, ITEM 8 of
this Annual Report on Form 10-K. The matters discussed in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve significant risks and uncertainties.
See the “Statement Regarding Forward-Looking Statements” above and PART I, ITEM 1A, “Risk Factors” in this
Annual Report on Form 10-K for additional information regarding forward-looking statements and the factors that
could cause actual results to differ materially from those anticipated in the forward-looking statements. In ITEM 7,
we discuss fiscal 2020 and 2019 results and comparisons of fiscal 2020 results to fiscal 2019 results. Discussions of
fiscal 2018 results and comparisons of fiscal 2019 results to fiscal 2018 results can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in PART II, ITEM 7 of the Company’s
Annual Report on Form 10-K for the fiscal year ended December 28, 2019.
Overview
We are one of the leading suppliers of replacement parts and fasteners for passenger cars, light trucks, and
heavy-duty trucks in the automotive aftermarket industry. As of December 26, 2020, we marketed approximately
81,000 distinct parts compared to approximately 78,000 as of December 28, 2019, many of which we designed and
engineered. This number excludes private label stock keeping units and other variations in how we market, package
and distribute our products, includes distinct parts of acquired companies and reflects distinct parts that have been
discontinued at the end of their lifecycle. Our products are sold under our various brand names, under our
customers’ private label brands or in bulk. We are one of the leading aftermarket suppliers of OE “dealer exclusive”
parts. OE “dealer exclusive” parts are those parts that were traditionally available to consumers only from OE
manufacturers or salvage yards. These parts 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.
We generate virtually all our net sales from customers in the North American automotive aftermarket industry,
primarily in the United States. Our products are sold primarily through automotive aftermarket retailers, including
through their on-line platforms; national, regional and local warehouse distributors and specialty markets; and
salvage yards. We also distribute automotive aftermarket parts outside the United States, with sales primarily into
Canada and Mexico, and to a lesser extent, Europe, the Middle East and Australia.
We may experience significant fluctuations from quarter to quarter in our results of operations due to the
timing of orders placed by our customers as well as our ability and the ability of our suppliers to deliver products
ordered by our customers. The introduction of new products and product lines to customers, as well as business
acquisitions, may also cause significant fluctuations from quarter to quarter.
Early in 2019, we began the process of transferring operations of our existing distribution facility in Portland,
Tennessee to a new, larger facility nearby. The new 800,000 square foot facility became fully operational in October
2019. In the second quarter of 2019, we began incurring additional costs related to start-up inefficiencies and
duplication of facility overhead and operating costs primarily related to those facility consolidation activities. We
began implementing productivity initiatives in the fourth quarter of 2019 to address those inefficiencies and costs
while at the same time expanding the facility to cover an aggregate of approximately 1 million square feet, which
expansion was completed in June 2020. During 2020, we implemented initiatives to improve productivity levels at
the new facility, which resulted in distribution costs returning to levels more in-line with our expectations.
We operate on a fifty-two, fifty-three week period ended on the last Saturday of the calendar year. The fiscal
years ended December 26, 2020 (“fiscal 2020”), December 28, 2019 (“fiscal 2019”) and December 29, 2018 (“fiscal
2018”) were fifty-two week periods.
Business Performance Summary
Net sales increased 10% to $1,092.7 million in fiscal 2020 from $991.3 million in fiscal 2019, while net
income increased 28% to $106.9 million in fiscal 2020 from $83.8 million in fiscal 2019. Additionally, in fiscal
2020 we generated cash flows from operations of $152.0 million and repurchased 439,275 common shares under our
share repurchase program for $36.8 million.
26
Impacts of COVID-19
The COVID-19 pandemic has resulted and is expected to continue to result in significant economic disruption.
Since COVID-19 was declared a pandemic in early 2020, state orders shutting down or restricting business
operations to contain the spread of COVID-19 have generally exempted automotive repair and the related supply
and distribution of parts as those businesses have generally been classified as critical, essential or life-sustaining.
Therefore, the vast majority of our retail and wholesale customers have been and currently remain open for business.
In turn, all of our U.S. facilities have also remained, and currently remain, open and operating, with modified
staffing in certain locations where appropriate. We have taken actions to promote the welfare of our employees by
enhancing safety protocols, including requiring administrative employees to work from home where applicable and
implementing symptom screening, social distancing and robust sanitization practices at our facilities. We also have
adopted a COVID-19 sick leave policy providing continued salary and benefits to eligible employees. We have had
to adjust our operations and inventory levels as demand has fluctuated due to government-imposed restrictions being
imposed and then subsequently lifted or modified across the United States.
In late March 2020, we began experiencing softening customer demand as a result of government-imposed
restrictions designed to slow the spread of COVID-19. While customer orders dropped significantly early in the
second quarter of 2020 due to government-imposed restrictions, we saw a rapid recovery as the second quarter
progressed with June orders up above June 2019 levels. We continued to see an increase in orders in the third and
fourth quarters of 2020, with third and fourth quarter net sales reaching record highs for the Company. At the same
time, these favorable results were partially offset by increased freight costs due to global supply chain pressures and
industry constraints related to the ongoing COVID-19 pandemic.
As government-imposed restrictions vary and continue to change across the United States and elsewhere
around the world, it remains difficult to determine the full impact that the pandemic will have on the overall demand
environment as well as our ability to source parts and other materials to meet demand levels. Correspondingly, to the
extent there may be fluctuations in demand or delays or increased costs impacting our ability to source parts and
other materials, it remains difficult to determine the full impact that the pandemic will have on various aspects of
our operations, including, but not limited to, inventory levels, our ability to fulfill contractual requirements and
staffing at our facilities.
At the time of this filing and as we look ahead, we are unable to determine or predict the overall impact the
COVID-19 pandemic will have on our customers, vendors and suppliers or our business, results of operations,
liquidity or capital resources. Significant uncertainty still exists concerning the overall magnitude of the impact and
the duration of the COVID-19 pandemic. As a result, we will continue to closely monitor updates regarding the
spread of COVID-19 and its variants and the distribution of vaccines developed to combat COVID-19, and we will
adjust our operations according to guidelines from local, state and federal officials. In light of the foregoing, we may
take further actions that alter our business operations or that we determine are in the best interests of our employees,
customers, suppliers and shareholders.
New Product Development
New product development is an important success factor for us and traditionally has been our primary vehicle
for growth. We have made incremental investments to increase our new product development efforts to grow our
business and strengthen our relationships with our customers. The investments primarily have been in the form of
increased product development resources, increased customer and end-user awareness programs, and customer
service improvements. These investments historically have enabled us to provide an expanding array of new product
offerings and grow revenues at levels that generally have exceeded market growth rates.
In fiscal 2020, we introduced 3,479 new distinct parts to our customers and end-users, including 1,433 “New-
to-the-Aftermarket” parts. We reduced new product activity in the first half of 2020 due to uncertainties related to
COVID-19 but increased new product development and commercialization in the second half of 2020 as overall
market demand rebounded. As a result, we ended the year with lower new product introductions than the prior year.
Development activities have returned to prior levels and we expect to return to our historical levels of performance
in 2021. Please see ITEM 1, “Business – Product Development” for a year-over-year comparison of new product
introductions.
One area of focus has been our complex electronics program, which capitalizes on the growing number of
electronic components being utilized on today’s OE platforms. New vehicles contain an average of approximately
thirty-five electronic modules, with some high-end luxury vehicles containing over one hundred modules. Our
27
complex electronics products are designed and developed in-house and tested to help ensure consistent performance,
and our product portfolio is focused on further developing our leadership position in the category.
Another area of focus has been on Dorman® HD Solutions™, a line of products we market for the medium
and heavy-duty truck sector of the automotive aftermarket industry. We believe that this sector provides many of the
same opportunities for growth that the passenger car and light truck sector of the automotive aftermarket industry
has provided us. Through Dorman® HD Solutions™, we specialize in what formerly were “dealer exclusive” parts
similar to how we have approached the passenger car and light-duty truck sector. During fiscal 2020, we introduced
458 distinct parts in this product line. We expect to continue to invest in the medium and heavy-duty product
category.
Acquisitions
Part of our strategy is to grow our business through acquisitions. For example, on January 2, 2020, we
acquired the remaining 60% of the outstanding stock of Power Train Industries, Inc. (“PTI”) and in August 2018, we
acquired Flight Systems Automotive Group L.L.C. (“Flight”). We believe PTI and Flight are highly complementary
to our business and growth strategy. We may acquire businesses in the future to supplement our financial growth,
increase our customer base, add to our distribution capabilities or enhance our product development resources,
among other reasons.
Economic Factors
The Company’s financial results are also impacted by various economic and industry factors, including, but
not limited to the number, age and condition of vehicles in operation at any one time, and miles driven by those
vehicles.
Vehicles in Operation
The Company’s products are primarily purchased and installed on a subsegment of the passenger and light
duty vehicles in operation in the United States (“VIO”), specifically weighted towards vehicles aged 8 to 13 years
old. Each year, the United States seasonally adjusted annual rate (“US SAAR”) of new vehicles purchased adds a
new year to the VIO. According to data from the Auto Care Association (“Auto Care”), the US SAAR experienced a
decline from 2008 to 2011 as consumers purchased fewer new vehicles as a result of the Great Recession of 2008.
We believe that the declining US SAAR during that period resulted in a follow-on decline in our primary VIO
subsegment (8 to 13-year-old vehicles) commencing in 2016. However, following 2011 and the impact of the Great
Recession of 2008, U.S. consumers began to increase their purchases of new vehicles which over time caused the
US SAAR to recover and return to more historical levels. Consequently, subject to any potential impacts from
COVID-19, we expect the VIO for vehicles aged 8 to 13 years old to continue to recover over the next several years.
In addition, we believe that vehicle owners generally are operating their current vehicles longer than they did
several years ago, performing necessary repairs and maintenance to keep those vehicles well maintained. We believe
this trend has resulted in an increase in VIO. According to data published by Polk, a division of IHS Automotive, the
average age of VIO increased to 12.0 years as of October 2020 from 11.9 years as of October 2019 despite
increasing new car sales. Additionally, while the number of VIO in the United States decreased 4% in 2020 to 279.8
million from 290.0 million in 2019, the number of VIO that are 11 years old or older increased from 57% in 2019 to
60% in 2020. Vehicle scrappage rates have also decreased over the last several years.
Miles Driven
The COVID-19 pandemic in general, as well as restrictions imposed by certain states in response to the
COVID-19 pandemic, are adversely impacting work-related and personal travel. In fact, according the U.S.
Department of Transportation, the number of miles driven through October 2020 has decreased 13.9% year over
year due to the impacts of the COVID-19 pandemic. We believe that demand for our products is negatively
impacted by the decrease to miles driven, resulting in a reduction in vehicle maintenance and reduced demand for
our parts.
As a result, while, prior to COVID-19, we might have expected to see additional sales growth due to the VIO
and mileage trends referenced above, the impact of COVID-19 may adversely affect our sales growth potential and
our future results.
28
Brand Protection
We operate in a highly competitive market. As a result, we are continuously evaluating our approach to brand,
pricing and terms to our different customers and channels. For example, in the third quarter of 2019, we modified
our brand protection policy, which is designed to ensure that certain products bearing the Dorman name are not
advertised below certain approved pricing levels.
Discounts, Allowances, and Incentives
We offer a variety of customer discounts, rebates, defective and slowing moving product returns and other
incentives. We may offer cash discounts for paying invoices in accordance with the specified discount terms of the
invoice. In addition, we may offer pricing discounts based on volume purchased from us or other pricing discounts
related to programs under a customer’s agreement. These discounts can be in the form of “off-invoice” discounts
and are immediately deducted from sales at the time of sale. For those customers that choose to receive a payment
on a quarterly or annual basis instead of “off-invoice,” we accrue for such payments as the related sales are made
and reduce sales accordingly. Finally, rebates and discounts are provided to customers to support promotional
activities such as advertising and sales force allowances.
Our customers, particularly our larger retail customers, regularly seek more favorable pricing and product
return provisions, 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, indemnification rights, extended
customer payment terms, and allowed a higher level of product returns in certain cases. These concessions impact
net sales as well as our profit levels and may require additional capital to finance the business. We expect our
customers to continue to exert pressure on our margins.
New Customer Acquisition Costs
New customer acquisition costs refer to arrangements under which we incur change-over costs to induce a
customer to switch from a competitor’s brand. Change-over costs include the costs related to removing the new
customer’s inventory and replacing it with our inventory, which is commonly referred to as a stock-lift. New
customer acquisition costs are recorded as a reduction to revenue when incurred.
Product Warranty and Overstock Returns
Many of our products carry a lifetime limited warranty, which generally covers defects in materials or
workmanship and failure to meet specifications. In addition to warranty returns, we also may permit our customers
to return new, undamaged products to us within customer-specific limits if they have overstocked their inventories.
At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of
sales based upon estimates established using historical information on the nature, frequency and average cost of the
claim and the probability of the customer return. Significant judgments and estimates must be made and used in
connection with establishing the sales returns and other allowances in any accounting period. Revision to these
estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims.
Foreign Currency
Our products are purchased from suppliers in the United States and a variety of non-U.S. 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 U.S. dollar and
various foreign currencies between the time of execution of the purchase order and payment for the product. To the
extent that the U.S. dollar changes in value relative to foreign currencies in the future, the price of the product for
new purchase orders may change in equivalent U.S. dollars.
The largest portion of our overseas purchases comes from China. The Chinese yuan to U.S. dollar exchange
rate has fluctuated over the past several years. Any future changes in the value of the Chinese yuan relative to the
U.S. dollar may result in a change in the cost of products that we purchase from China. However, the cost of the
products we procure is also affected by other factors including raw material availability, labor cost, and
transportation costs.
Impact of Inflation
The overall impact of inflation has not resulted in a significant change in labor costs or the cost of general
services utilized.
29
The cost of many commodities that are used in our products has fluctuated over time resulting in increases and
decreases in the cost of our products. In addition, we have periodically experienced increased transportation costs as
a result of higher fuel prices, capacity constraints and other factors. We attempt to offset cost increases by passing
along selling price increases to customers and using alternative suppliers. However, there can be no assurance that
we will be successful in these efforts.
Impact of Tariffs
Effective the third quarter of 2018, the Office of the United States Trade Representative (USTR) imposed
three additional tranches of tariffs on approximately $250 billion worth of Chinese imports. Tariffs ranged from
10% to 25% depending on the commodity. Effective for shipments departing China on or after May 10, 2019, the
USTR modified the tranches to impose tariffs of 25% for all commodities. In addition, effective September 1, 2019,
the USTR imposed the fourth tranche of tariffs on approximately $300 billion worth of Chinese imports with a tariff
rate of 15%, which was reduced to 7.5% in February 2020. The tariffs enacted to date will increase the cost of many
products that are manufactured for us in China. We have taken several actions to mitigate the impact of the tariffs
including, but not limited to, price increases to our customers and cost concessions from our suppliers. We expect to
continue mitigating the impact of tariffs in fiscal 2020 primarily through selling price increases to offset the higher
tariffs incurred. Tariffs are not expected to have a material impact on our net income but are expected to increase net
sales and lower our gross and operating profit margins to the extent that these additional costs are passed through to
customers.
In January 2020, the U.S. and Chinese governments signed a trade deal that reduced some U.S. tariffs on
Chinese goods in exchange for Chinese pledges to, among other things, purchase more of American farm, energy
and manufactured goods. In addition, the USTR has granted temporary tariff relief for certain categories of products
being imported from China. However, the tariff relief granted by the USTR expired on most categories of products
being imported from China at the end of 2020 and has not been extended. We expect that we will reverse tariff-
related price increases previously passed along to our customers and cost concessions previously received from our
suppliers as such tariffs are reduced or such other relief is granted.
Results of Operations
The following table sets forth, for the periods indicated, the dollar value and percentage of net sales
represented by certain items in our Consolidated Statements of Operations:
For the Fiscal Year Ended
December 26, 2020
December 28, 2019
(in thousands, except percentage data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income from operations
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
* Percentage of sales information may not add due to rounding
$ 1,092,748
709,632
383,116
249,743
133,373
2,363
135,736
28,866
$ 106,870
100.0 % $ 991,329
64.9 % 651,504
35.1 % 339,825
22.9 % 233,997
12.2 % 105,828
(21 )
12.4 % 105,807
22,045
83,762
2.6 %
9.8 % $
0.2 %
100.0 %
65.7 %
34.3 %
23.6 %
10.7 %
0.0 %
10.7 %
2.2 %
8.4 %
Fiscal Year Ended December 26, 2020 Compared to Fiscal Year Ended December 28, 2019
Net sales increased 10% to $1,092.7 million in fiscal 2020 from $991.3 million in fiscal 2019. The increase in
net sales was primarily organic and driven by increased volumes, particularly in the second half of 2020.
Gross profit margin was 35.1% of net sales in fiscal 2020 compared to 34.3% of net sales in fiscal 2019. Gross
margin expansion was driven by improved efficiencies, as well as lower provisions for excess and obsolete
inventory as part of our ongoing efforts to streamline our end-to-end supply chain processes. Additionally, we
benefitted from the absence of certain charges that impacted gross margin in the prior year, including increased
customer return provisions and a charge related to a historical underpayment of customs duties. These benefits were
partially offset by out-of-pocket costs related to the COVID-19 pandemic.
30
Selling, general and administrative expenses were $249.7 million, or 22.9% of net sales, in fiscal 2020
compared to $234.0 million, or 23.6% of net sales, in fiscal 2019. The decrease in selling, general and administrative
expense as a percentage of net sales during the period was primarily due to improved leverage from the $101.4
million increase in net sales compared to the prior year, productivity improvements in our Portland distribution
facility, as well as reduced travel expenses stemming from COVID-19 restrictions. These decreases were partially
offset by higher incentive compensation and employee stock purchase plan expenses compared to the prior year.
Other Income, net was $2.4 million in fiscal 2020 which includes a gain of $2.5 million recognized as the
difference between the carrying value of our previously held equity method investment in PTI and the implied fair
value when we acquired PTI fully in January 2020.
Our effective tax rate increased to 21.3% in fiscal 2020 from 20.8% in fiscal 2019. The effective tax rate
increased primarily due to an increase in state income tax and higher income of foreign entities included within the
consolidated U.S. tax group.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been our invested cash and the cash flow we generate from
our operations, including accounts receivable sales programs provided by certain customers. Cash and cash
equivalents at December 26, 2020 increased to $155.6 million from $68.4 million at December 28, 2019. Working
capital was $600.3 million at December 26, 2020 compared to $534.1 million at December 28, 2019. Shareholders’
equity was $853.6 million at December 26, 2020 and $773.6 million at December 28, 2019. 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. However, our liquidity could be negatively affected by extending payment terms to
customers, a decrease in demand for our products, the outcome of contingencies or other factors. See Note 11,
“Commitments and Contingencies”, in the accompanying consolidated financial statements for additional
information regarding commitments and contingencies that may affect our liquidity.
Tariffs
Tariffs increase our uses of cash since we pay for the tariffs upon the arrival of our goods in the United States
but collect the cash on any passthrough price increases from our customers on a delayed basis according to the
payment terms negotiated with our customers.
Payment Terms and Accounts Receivable Sales Programs
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 flows. We participate in accounts receivable sales programs with several customers that
allow us to sell our accounts receivable to financial institutions to offset the negative cash flow impact of these
payment terms extensions. However, any sales of accounts receivable through these programs ultimately result in us
receiving a lesser amount of cash than if we collected those accounts receivable ourselves in due course. Moreover,
to the extent that any of these accounts receivable sales programs bear interest rates tied to the London Inter-Bank
Offered Rate (“LIBOR”), as LIBOR rates increase our cost to sell our receivables also increases. See ITEM 7A,
“Quantitative and Qualitative Disclosures about Market Risk” for more information. During fiscal 2020 and fiscal
2019, we sold approximately $740.0 million and $676.4 million, respectively, under these programs. If receivables
had not been sold, $505.1 million and $437.9 million of additional receivables would have been outstanding at
December 26, 2020 and December 28, 2019, respectively, based on standard payment terms. We had capacity to sell
more accounts receivable under these programs if the needs of the business warranted, whether due to continued
impacts of COVID-19 or other factors. Further extensions of customer payment terms would result in additional
uses of cash flow or increased costs associated with the sales of accounts receivable.
Credit Agreement
We have a credit agreement, expiring in December 2022, that provides for a revolving credit facility of $100.0
million and, subject to certain requirements, gives us the ability to request increases in revolving credit
commitments of up to an additional $100.0 million. Borrowings under the credit agreement are on an unsecured
basis. At the Company’s election, the interest rate applicable to borrowings under the credit agreement will be either
(1) the Prime Rate as announced by Wells Fargo from time to time, (2) an Adjusted LIBOR Market Index Rate as
measured by the LIBOR Market Index Rate plus the Applicable Margin which fluctuates between 65 basis points
and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated EBITDA, or
31
(3) an Adjusted LIBOR Rate as measured by the LIBOR Rate plus the Applicable Margin which fluctuates between
65 basis points and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated
EBITDA. The interest rate at December 26, 2020 was LIBOR plus 65 basis points (0.80%). During the occurrence
and continuance of an event of default, all outstanding revolving credit loans will bear interest at a rate per annum
equal to 2.00% in excess of the greater of (1) the Prime Rate or (2) the Adjusted LIBOR Market Index Rate then
applicable. The credit agreement also contains covenants, including those related to the ratio of certain consolidated
fixed charges to consolidated EBITDA, capital expenditures, and share repurchases, each as defined by the credit
agreement. As of December 26, 2020, we were not in default in respect to the credit agreement. The credit
agreement also requires us to pay a fee of 0.10% on the average daily unused portion of the facility, provided the fee
will not be charged on the first $30 million of the revolving credit facility. As of December 26, 2020, there were no
borrowings under the credit agreement and two outstanding letters of credit for approximately $0.8 million in the
aggregate which were issued to secure ordinary course of business transactions. Net of these letters of credit, we had
approximately $99.2 million available under the credit agreement at December 26, 2020.
Cash Flows
Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows:
For the Fiscal Year Ended
(in thousands)
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Net increase in cash and cash equivalents
$
December 26, 2020
$
December 28, 2019
151,966 $
(30,258 )
(34,485 )
87,223 $
95,306
(29,560 )
(40,851 )
24,895
During fiscal 2020, cash provided by operating activities was $152.0 million, primarily as a result of $106.9
million in net income, non-cash adjustments to net income of $28.1 million and a net decrease in working capital of
$16.5 million. Accrued customer rebates and returns increased $49.8 million due to higher sales volume in the
second half of 2020 and timing of payments to customers. Accounts payable increased by $25.3 million due to the
timing of payments to our vendors. Accounts receivable increased $67.4 million due to higher net sales. Inventory
increased $12.3 million due to higher inventory purchases to support new product launches and maintain customer
fill rates. Other assets and liabilities, net, decreased $21.1 million in fiscal 2020 primarily due to higher incentive
compensation accruals.
During fiscal 2019, cash provided by operating activities was $95.3 million, primarily as a result of $83.8
million in net income, non-cash adjustments to net income of $30.1 million and a net increase in working capital of
$18.5 million. Accounts receivable decreased $8.8 million due to the timing and factoring of receivables during the
year. Inventory increased $11.0 million due to higher inventory purchases to support new product launches and
maintain customer fill rates as we consolidated facilities. Accounts payable decreased by $19.1 million due to the
timing of payments to our vendors. Other assets and liabilities, net, increased $6.3 million.
Investing activities used $30.3 million and $29.6 million of cash in fiscal 2020 and 2019, respectively.
Capital spending in fiscal 2020 primarily consisted of $5.6 million in tooling associated with new
products, $5.9 million in enhancements and upgrades to our information systems and infrastructure,
scheduled equipment replacements, certain facility improvements and other capital projects.
Capital spending in fiscal 2019 primarily consisted of $7.8 million in tooling associated with new
products, $6.3 million in enhancements and upgrades to our information systems and infrastructure,
scheduled equipment replacements, certain facility improvements and other capital projects.
During fiscal 2020, we used $14.8 million (net of cash acquired) to acquire the remaining equity in
PTI.
Cash used in financing activities was $34.5 million and $40.9 million in fiscal 2020 and fiscal 2019,
respectively.
In fiscal 2020, we paid $36.8 million to repurchase 439,275 common shares under our share
repurchase program. In fiscal 2019, we paid $39.4 million to repurchase 499,564 common shares
under the program.
32
The remaining uses of cash from financing activities in each period results from stock compensation
plan activity and the repurchase of shares of our common stock held in a fund under our 401(k) Plan.
401(k) Plan participants can no longer purchase shares of Dorman common stock as an investment
option under 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.
Contractual Obligations and Commercial Commitments
We have obligations for future minimum rental payments and similar commitments under non-cancellable
operating leases as well as contingent obligations related to outstanding letters of credit. These obligations as of
December 26, 2020 are summarized in the tables below (in thousands):
Payments Due by Period
Contractual Obligations
Operating leases
Other Commercial Commitments
Letters of Credit
Less than
1 year
Total
$ 52,602 $
$ 52,602 $
1-3 years
7,346 $ 11,818 $
7,346 $ 11,818 $
Thereafter
9,440 $ 23,998
9,440 $ 23,998
3-5 years
Amount of Commitment Expiration Per Period
Total Amount
Committed
Less than
1 year
$
$
825 $
825 $
1-3 years 3-5 years
— $
— $
Thereafter
—
—
— $
— $
825 $
825 $
We have excluded from the table above contingent consideration related to acquisitions due to the uncertainty
of the amount of payment. As of December 26, 2020, the Company has accrued approximately $8.0 million which
represents the fair value of the estimated payments that will become due in connection with certain prior acquisitions
if performance targets are achieved.
Additionally, we have excluded from the table above unrecognized tax benefits due to the uncertainty of the
amount and period of payment. As of December 26, 2020, the Company has gross unrecognized tax benefits of $1.1
million. (see Note 10, Income Taxes, to the Consolidated Financial Statements included in this Annual Report on
Form 10-K).
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are transactions, agreements, or other contractual arrangements with an
unconsolidated entity for which we have an obligation to the entity that is not recorded in our consolidated financial
statements. We historically have not utilized off-balance sheet financial instruments, and currently do not plan to
utilize off-balance sheet arrangements in the future to fund our working capital requirements, operations or growth
plans.
We may issue stand-by letters of credit under our credit agreement. Letters of credit totaling $0.8 million were
outstanding at both December 26, 2020 and December 28, 2019. Those letters of credit are issued primarily to
satisfy the requirements of workers compensation, general liability and other insurance policies. Each of the
outstanding letters of credit has a one-year term from the date of issuance.
We do not have any off-balance sheet financing that has, or is reasonably likely to have, a material, current or
future effect on our financial condition, revenues, expenses, cash flows, results of operations, liquidity, capital
expenditures or capital resources.
Related-Party Transactions
We have two non-cancelable operating leases for operating facilities from companies in which Steven L.
Berman, our Executive Chairman, and his family members are partners. Total annual rental payments each year to
those companies under the lease arrangements were $1.8 million and $1.6 million in fiscal 2020 and fiscal 2019,
respectively. In the opinion of our Audit Committee, the terms and rates of these leases are no less favorable than
those which could have been obtained from an unaffiliated party when the leases were entered into and/or renewed.
33
We are a partner in a joint venture with one of our suppliers and we own a minority interest in two other
suppliers. Purchases from these companies, since we acquired our investment interests were $10.7 million in fiscal
2020 and $23.2 million in fiscal 2019.
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, customer rebates and returns, inventories, long-lived assets and purchase accounting. 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.
Revenue Recognition and Accrued Customer Rebates and Returns. Revenue is recognized from product
sales when goods are shipped, title and risk of loss and control have been transferred to the customer and collection
is reasonably assured. We record estimates for cash discounts, defective and slow-moving product returns,
promotional rebates, core return deposits, 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 an increase of accrued customer rebates and returns, which is included in current liabilities. Customer
Credits are estimated based on contractual provisions, historical experience, and our assessment of current market
conditions. Historically, actual Customer Credits have not differed materially from estimated amounts. 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 to understand buying patterns, customer preferences and the life cycle of our products. Changes in customer
requirements are factored into the reserves, as needed.
Purchase Accounting. The purchase price of an acquired business is allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based upon their respective fair market values, with any excess
recorded as goodwill. Such fair market value assessments require judgements and estimates which may change over
time and may cause the final amounts to differ materially from original estimates. Any adjustments to fair value
assessments are recorded to goodwill over the purchase price allocation period which cannot exceed twelve months
from the date of acquisition.
New and Recently Adopted Accounting Pronouncements
Refer to Note 2, New and Recently Adopted Accounting Pronouncements, to the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
Our market risk is the potential loss arising from adverse changes in interest rates. All our available credit and
accounts receivable sales programs bear interest at rates tied to LIBOR. Under the terms of our credit agreement 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 sales
programs would have increased our interest expense on our variable rate debt, if any, and accounts receivable
financing costs by approximately $5.1 million, $4.4 million and $4.4 million in fiscal 2020, fiscal 2019 and fiscal
2018, respectively. 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. See ITEM 1A,
“Risk Factors – Risks Related to Our Capital Structure and Finances” for information regarding the risks relating to
our indebtedness, our accounts receivable sales agreements and LIBOR.
34
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
derivative instruments at December 26, 2020.
ITEM 8. Financial Statements and Supplementary Data.
Our financial statement schedule that is filed with this Annual Report on Form 10-K is listed in PART IV –
ITEM 15, “Exhibits, Financial Statement Schedules.”
35
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Dorman Products, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Dorman Products, Inc. and subsidiaries (the
Company) as of December 26, 2020 and December 28, 2019, the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 26, 2020, and the
related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of December 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 26, 2020, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 26, 2020, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 22, 2021 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting
for leases as of December 30, 2018, due to the adoption of Accounting Standards Update (ASU) No. 2016-02,
Leases (Topic 842) and ASU 2018-11, Leases (Topic 842): Targeted Improvements.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
36
Accrual for customer credits for defective product returns
As disclosed in Notes 1 and 12 to the consolidated financial statements, the Company estimates customer
credits for defective product returns and other items. The accrual for customer credits to be issued for defective
product returns includes assumptions about the length of time between when a sale occurs and a credit is issued.
The provision for customer credits is reflected in the consolidated financial statements as a reduction from gross
sales and accruals for customer credits are a portion of accrued customer rebates and returns. At December 26,
2020, accrued customer rebates and returns were $155,751 thousand.
We identified the evaluation of the accrual for customer credits for defective product returns as a critical audit
matter. Subjective auditor judgment was required to evaluate the Company’s determination of the impact of
market conditions on the length of time between when a sale occurs and a credit is issued for defective product
returns.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the Company’s process to
record the accrual for customer credits for defective product returns. This included a control related to the
determination of the impact of market conditions on the length of time between when a sale occurs and a credit
is issued for defective product returns. We assessed the Company’s accrual for customer credits for defective
product returns by evaluating (1) the historical relationship between sales and customer credits for defective
product returns, (2) the Company’s internal data, (3) certain external market data, and (4) a sample of executed
third-party contracts. We inquired of personnel within the Company’s quality control department regarding the
impact of current market conditions on the length of time between when a sale occurs and a credit is issued for
defective product returns. We analyzed a sample of customer credits issued after year-end and evaluated their
effect on the accrual.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Philadelphia, Pennsylvania
February 22, 2021
37
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
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
For the Year Ended
December 26, 2020 December 28, 2019 December 29, 2018
973,705
$
600,424
373,281
202,138
171,143
(8 )
171,135
37,533
133,602
1,092,748 $
709,632
383,116
249,743
133,373
2,363
135,736
28,866
106,870 $
991,329 $
651,504
339,825
233,997
105,828
(21 )
105,807
22,045
83,762 $
$
$
$
3.31 $
3.30 $
2.57 $
2.56 $
32,280
32,373
32,606
32,688
4.04
4.02
33,097
33,207
See accompanying Notes to Consolidated Financial Statements.
38
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 of $1,260
and $957 in 2020 and 2019, respectively
Inventories
Prepaids and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred tax asset, net
Other assets
Total assets
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
Accrued compensation
Accrued customer rebates and returns
Other accrued liabilities
Total current liabilities
Long-term operating lease liabilities
Other long-term liabilities
Deferred tax liabilities, net
Commitments and contingencies (Note 11)
Shareholders' equity:
December 26, 2020 December 28, 2019
$
155,576 $
68,353
460,878
298,719
7,758
922,931
91,009
39,002
91,080
25,207
12,450
38,982
1,220,661 $
117,878 $
19,711
155,751
29,305
322,645
37,083
3,555
3,819
391,810
280,813
13,614
754,590
101,837
32,198
74,458
21,305
4,336
52,348
1,041,072
90,437
9,782
105,903
14,380
220,502
29,730
13,297
3,959
$
$
Common stock, par value $0.01; authorized 50,000,000 shares; issued
and outstanding 32,168,740 and 32,558,168 shares in 2020 and
2019, respectively
Additional paid-in capital
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
322
64,085
789,152
853,559
1,220,661 $
326
52,605
720,653
773,584
1,041,072
$
See accompanying Notes to Consolidated Financial Statements.
39
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
Par
Value
Additional
Paid-In
Capital
Retained
Earnings Total
(in thousands, except share data)
Balance at December 30, 2017
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 of tax
Net income
Balance at December 29, 2018
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 of tax
Net income
Balance at December 28, 2019
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 of tax
Net income
Balance at December 26, 2020
Shares
Issued
33,571,524 $
10,572
—
(648,503 )
83,891
(12,623 )
—
33,004,861
14,227
—
(521,944 )
69,826
(10,707 )
—
32,556,263
27,787
—
(462,635 )
53,572
(6,247 )
—
32,168,740 $
—
—
—
—
—
—
(7 )
1
—
—
336 $ 44,812 $ 589,659 $ 634,807
200
200
3,460
3,460
(1,167 ) (44,177 ) (45,351 )
1,799
1,798
—
(894 )
(1,242 )
348
— 133,602 133,602
330 47,861 679,432 727,623
123
123
3,077
3,077
(939 ) (40,395 ) (41,339 )
1,377
1,376
—
(1,039 )
1,107
(2,146 )
— 83,762 83,762
326 52,605 720,653 773,584
1,184
1,184
7,586
7,586
(833 ) (37,838 ) (38,676 )
—
3,463
3,462
81
(452 )
(533 )
— 106,870 106,870
322 $ 64,085 $ 789,152 $ 853,559
—
—
(5 )
1
—
—
—
—
(5 )
1
—
—
—
—
See accompanying Notes to Consolidated Financial Statements.
40
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 26, 2020 December 28, 2019 December 29, 2018
$
106,870 $
83,762 $
133,602
(in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation, amortization and accretion
Gain on equity method investment
Provision (benefit) for doubtful accounts
(Benefit) provision from deferred income taxes
Provision for stock-based compensation
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaids and other current assets
Other assets
Accounts payable
Accrued customer rebates and returns
Accrued compensation and other liabilities
Cash provided by operating activities
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired
Property, plant and equipment additions
Purchase of investments
Cash used in investing activities
Cash Flows from Financing Activities:
Proceeds of revolving credit line
Payments of revolving credit line
Contingent consideration payments
Other stock related activity
Proceeds from exercise of stock options
Purchase and cancellation of common stock
Cash used in financing activities
32,307
(2,498 )
316
(9,599 )
7,586
(67,369 )
(12,334 )
5,353
(3,975 )
25,251
49,849
20,209
151,966
(14,808 )
(15,450 )
—
(30,258 )
99,000
(99,000 )
—
3,007
1,184
(38,676 )
(34,485 )
25,915
—
39
1,058
3,077
8,810
(10,956 )
(7,659 )
1,672
(19,079 )
9,016
(349 )
95,306
—
(29,560 )
—
(29,560 )
—
—
—
365
123
(41,339 )
(40,851 )
28,391
—
(570 )
(58 )
3,460
(61,413 )
(46,835 )
(853 )
(3,897 )
26,957
(5,173 )
4,501
78,112
(28,040 )
(26,106 )
(5,000 )
(59,146 )
—
—
(2,036 )
249
201
(45,352 )
(46,938 )
(261 )
(28,233 )
71,691
43,458
Effect of exchange rate changes on Cash and Cash
Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Cash Flow Information
—
87,223
68,353
155,576 $
—
24,895
43,458
68,353 $
Cash paid for interest expense
Cash paid for income taxes
$
$
753 $
28,341 $
338 $
28,923 $
250
30,453
See accompanying Notes to Consolidated Financial Statements.
41
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 2020
1. Summary of Significant Accounting Policies
Dorman Products, Inc. ("Dorman", the "Company", “we”, “us”, or “our”) is a supplier of replacement parts
and fasteners for passenger cars, light trucks, and heavy-duty trucks in the automotive aftermarket industry.
We operate on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. The fiscal
years ended December 26, 2020 (“fiscal 2020”), December 28, 2019 (“fiscal 2019”) and December 29, 2018 (“fiscal
2018”) were each fifty-two week periods.
Principles of Consolidation. The Consolidated Financial Statements include our accounts and the accounts of
our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in
consolidation.
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.
Cash and Cash Equivalents. We consider all highly liquid short-term investments with original maturities
of three months or less to be cash equivalents.
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 programs 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 2020, fiscal 2019
and fiscal 2018, we sold $740.0 million, $676.4 million and $604.7 million, respectively, under these programs.
Selling, general and administrative expenses include $13.2 million, $16.7 million and $14.5 million in fiscal 2020,
fiscal 2019 and fiscal 2018, respectively, of financing costs associated with these accounts receivable sales
programs.
Inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-
in, first-out method. Inventories include the cost of material, freight, direct labor and overhead utilized in the
processing of our products. We provide reserves for discontinued and excess inventory based upon historical
demand, forecasted usage, estimated customer requirements and product line updates.
Property, Plant and Equipment. Property, plant and equipment are recorded at cost and depreciated over
their estimated useful lives, which range from 3 to 39 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 7 years
3 to 10 years
7 to 39 years
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets. Long-lived assets,
including property, plant, and equipment and amortizable identifiable intangibles, 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 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
42
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 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 regard 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 2020 and fiscal 2019, 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 value of our reporting unit was less than its carrying amount.
Purchase Accounting. The purchase price of an acquired business is allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based upon their respective fair market values, with the excess
recorded as goodwill. Such fair market value assessments require judgments and estimates which may change over
time and may cause the final amounts to differ materially from their original estimates. These adjustments to fair
value assessments are recorded to goodwill over the purchase price allocation period which cannot exceed twelve
months from the date of acquisition.
Other Assets. Other assets include primarily long-term core inventory, deposits, and equity method
investments.
Certain products we sell contain parts that can be recycled, or as more commonly referred to in our industry,
remanufactured. We refer to these parts as cores. A used core is remanufactured and sold to the customer as a
replacement for a unit inside a vehicle. 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. Our core inventory 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. Our products that utilize a core primarily include instrument clusters, hybrid batteries,
radios, and climate control modules.
Long-term core inventory was $19.6 million and $22.8 million as of December 26, 2020 and December 28,
2019, respectively. Long-term core inventory is recorded at the lower of cost or net realizable 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 expected to be consumed or realized in cash during our normal annual operating cycle.
We have investments that we account for according to the equity method of accounting. The total book value
of these investments was $8.5 million and $19.3 million as of December 26, 2020 and December 28, 2019,
respectively. These investments provided us $1.3 million, $3.2 million and $2.2 million of income during fiscal
2020, fiscal 2019, and fiscal 2018, respectively. In January 2020, we acquired the remaining 60% of the outstanding
stock of Power Train Industries, Inc. (“PTI”), a privately-held supplier of parts to the automotive aftermarket, based
in Reno, Nevada of which we held equity investments with a fair value of $12.3 million. Additionally, in fiscal 2018
we purchased an investment that we account for according to the cost method of accounting. The carrying book
value of this investment was $5.0 million as of December 26, 2020.
Other Accrued Liabilities. Other accrued liabilities include primarily 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, were immaterial as of December 26, 2020 and
December 28, 2019, and are based upon experience and forecasts using the best historical and current claim
information available. Provisions and payments related to end-user product warranty reserves were not material in
fiscal 2020, fiscal 2019 or fiscal 2018.
43
Revenue Recognition and Accrued Customer Rebates and Returns. Revenue is recognized from product
sales when goods are shipped, title and risk of loss and control have been transferred to the customer and collection
is reasonably assured. We record estimates for cash discounts, defective and slow-moving product returns,
promotional rebates, core return deposits, 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 an increase of accrued customer rebates and returns, which is included in current liabilities. Customer
Credits are estimated based on contractual provisions, historical experience, and our assessment of current market
conditions. Actual Customer Credits have not differed materially from estimated amounts. 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.
As noted above, Customer Credits include core return deposits which are an estimate of the amount we
believe we will refund to our customers when used cores are returned to us. The price we invoice to customers for
remanufactured cores contain both the amount we charge to remanufacture the part and a deposit for the core. We
charge a core deposit to encourage the customer to return the used core to us so that it can be used in our
remanufacturing process. We allow our customers up to twenty-four months to return the used core to us. Core
return deposits are reserved based on the expected deposits to be issued to customers based on historical returns.
Research and Development. Research and development costs are expensed as incurred. Research and
development costs totaling $20.7 million in fiscal 2020, $21.0 million in fiscal 2019 and $20.1 million in fiscal 2018
have been recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.
Stock-Based Compensation. At December 26, 2020 and December 28, 2019, we had awards outstanding
under two stock-based employee compensation plans, which are described more fully in Note 13, Capital Stock. We
record compensation expense for all awards granted. The value of restricted stock and restricted stock units issued is
based on the fair value of our common stock on the grant date. For performance-based restricted stock awards tied to
growth in adjusted pre-tax income, compensation costs related to the stock is recognized over the performance
period and is calculated using the closing price per share of our common stock on the grant date and an estimate of
the probable outcome of the performance conditions as of the reporting date. The fair value of performance-based
restricted stock and performance-based restricted stock units, for which the performance measure is total shareholder
return, was determined using a Monte Carlo simulation model. The fair value of stock options granted was
determined using the Black-Scholes option valuation model on the grant date.
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 enacted tax
rate expected to be in effect when taxes are actually paid or recovered.
Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not
been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax
position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax
examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax
benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement. Additionally, we accrue interest and related penalties, if applicable, on all tax
exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties are
classified as income tax expense in the Consolidated Statements of Operations. The Company does not anticipate
material changes in the amount of unrecognized income tax benefits over the next year.
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 that 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 four largest customers accounted for 82% and 80% of net
accounts receivable as of December 26, 2020 and December 28, 2019, respectively. We continually monitor the
credit terms and credit limits to these and other customers. In fiscal 2020 and fiscal 2019, approximately 77% and
79%, respectively, of our products were purchased from suppliers located in a variety of foreign countries, with the
largest portion coming from China.
44
Fair Value Disclosures. The carrying value of financial instruments such as cash and cash equivalents,
accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on
the short-term nature of these instruments. Additionally, the fair value of assets acquired and liabilities assumed are
determined at the date of acquisition. Contingent consideration associated with an acquisition is recorded at fair
value at the acquisition date and is adjusted to fair value at each reporting period.
2. New and Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which
eliminates the need to perform a hypothetical purchase price allocation to measure goodwill impairment. ASU 2017-
04 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU effective
December 29, 2019, the beginning of our 2020 fiscal year. Adoption of this ASU did not have a material impact on
our condensed consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which was subsequently
amended in November 2018 through ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments
Credit Losses. ASU 2016-13 requires entities to estimate lifetime expected credit losses for trade and other
receivables, net investments in leases, financial receivables, debt securities and other instruments, which will result
in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries
estimate their allowance for loss receivables that are current with respect to their payment terms. ASU 2016-13 is
effective for companies beginning with fiscal years beginning after December 15, 2019. We adopted this ASU
effective December 29, 2019, the beginning of our 2020 fiscal year. Adoption of this ASU did not have a material
impact on our condensed consolidated financial statements and related disclosures.
3. Business Acquisitions and Investments
Power Train Industries, Inc.
On January 2, 2020, we acquired the remaining 60% of the outstanding stock of PTI. The total purchase price
for PTI was approximately $30.7 million, which included $18.4 million paid for the remaining 60% of the
outstanding stock, subject to customary purchase price adjustments, and $12.3 million which represents the fair
value of the previously held 40% equity interest in PTI that was acquired by the Company in 2016. As a result of the
acquisition, we recorded a gain of approximately $2.5 million in other income (expense), net during the year ended
December 26, 2020 from the increase in fair value of the previously owned 40% interest in PTI. We previously
accounted for our 40% interest as an equity-method investment.
The transaction was accounted for as a business combination under the acquisition method of accounting.
Accordingly, the assets acquired, and liabilities assumed were recorded at fair value, with the remaining purchase
price recorded as goodwill.
In connection with this acquisition, we recorded $16.7 million in goodwill, $7.3 million of identified
intangibles, and $6.7 million of other assets, net, consisting of $3.5 million of cash, $2.0 million of accounts
receivable, $5.6 million of inventory, and ($4.4 million) of net other assets and liabilities.
Our measurement period adjustments for PTI were complete as of December 26, 2020.
The valuation of the intangible assets acquired and related amortization periods are as follows:
(in thousands)
Customer relationships
Trade names
Technology
Other
Total
Valuation
Amortization
Period
(in years)
$
$
4,600
700
1,800
190
7,290
15
5
8
5
The fair values of the customer relationships and trade names were estimated using an income approach based
on the present value of future cash flows.
45
The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing
automotive aftermarket businesses, the assembled workforce of PTI and other factors. The goodwill is not expected
to be deductible for tax purposes.
The financial results of the acquisition have been included in the Condensed Consolidated Financial
Statements since the date of acquisition.
Flight Systems Automotive Group L.L.C.
On August 31, 2018, we acquired 100% of the outstanding stock of Flight Systems Automotive Group L.L.C.
(“Flight Systems” or “Flight”), a privately-held manufacturer and remanufacturer of complex automotive electronics
and diesel fuel system components, based in Lewisberry, Pennsylvania. The purchase price was $27.5 million. We
believe complex electronics components represent important growth opportunities for us and Flight’s product
portfolio delivers valuable alternatives to aftermarket professionals.
The transaction was accounted for as a business combination under the acquisition method of accounting.
Accordingly, the assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase
price recorded as goodwill.
In connection with this acquisition, we recorded $7.4 million in goodwill, $4.1 million of identified
intangibles, and $16.0 million of other net assets, primarily $2.0 million of accounts receivables, $8.4 million of
inventory, $4.4 million of fixed assets, and $1.2 million of net other assets and liabilities. During the year ended
December 28, 2019, we recorded measurement and period adjustments of approximately $1.9 million to increase
goodwill, $0.7 million to decrease inventory, and $1.2 million to decrease identified intangibles. These measurement
period entries are included in the balances above. Our measurement period adjustments for Flight were complete as
of December 28, 2019.
The valuation of the intangible assets acquired and related amortization periods are as follows:
(in thousands)
Customer relationships
Tradenames
Other
Total
Amortization
Period (in
years)
8
5
5
Valuation
$
3,400
460
240
4,100
$
The fair values of the customer relationships and trade names were estimated using an income approach based
on the present value of future cash flows. Under this method, an intangible asset’s fair value is equal to the present
value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its
remaining useful life.
The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing
automotive aftermarket businesses, the assembled workforce of Flight and other factors. The goodwill is expected to
be deductible for tax purposes.
The financial results of the acquisition have been included in the Consolidated Financial Statements since the
date of acquisition.
4. Inventories
Inventories were as follows:
(in thousands)
Bulk product
Finished product
Packaging materials
Total
December 26, 2020
$
December 28, 2019
136,726 $
157,484
4,509
298,719 $
114,308
161,866
4,639
280,813
$
46
5. 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 26, 2020
$
December 28, 2019
$
37,676
131,853
5,468
84,922
259,919
(168,910 )
$
91,009
37,513
126,663
5,308
80,397
249,881
(148,044 )
101,837
Depreciation and amortization expenses associated with property, plant, and equipment were $26.6 million,
$25.4 million, and $25.4 million in fiscal 2020, fiscal 2019, and fiscal 2018, respectively.
6. Leases
We determine whether an arrangement is a lease at inception. This determination generally depends on whether
the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of
time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use
of and to obtain substantially all of the economic benefit from the use of the underlying asset. We have operating
leases for distribution centers, sales offices and certain warehouse and office equipment. Our operating leases have
remaining lease terms of 1 to 11 years, many of which include one or more renewal options. We consider these
renewal options in determining the lease term used to establish our right-of-use assets and lease liabilities when it is
determined that it is reasonably certain that the renewal option will be exercised. Substantially all of our equipment
leases and some of our real estate leases have terms of less than one year. Some of our operating lease agreements
include variable lease costs, primarily taxes, insurance, common area maintenance or increases in rental costs related
to inflation.
Operating leases are included in the right-of-use lease assets, other current liabilities and long-term lease
liabilities on the Consolidated Balance Sheet. Right-of-use assets and lease liabilities are recognized at each lease’s
commencement date based on the present values of its lease payments over its respective lease term. When a
borrowing rate is not explicitly available for a lease, our incremental borrowing rate is used based on information
available at the lease’s commencement date to determine the present value of its lease payments. The incremental
borrowing rate is not a commonly quoted rate and is derived through a combination of inputs including our credit
rating and the impact of full collateralization. The incremental borrowing rate is based on our collateralized
borrowing capabilities over a similar term of the lease payments. We utilized the consolidated group borrowing rate
for all leases as we operate a centralized treasury operation. Operating lease payments are recognized on a straight-
line basis over the lease term. We had no finance leases as of December 26, 2020 or December 28, 2019.
Practical Expedients and Accounting Policy Elections
In accordance with the guidance on leases and as permitted by the FASB, we have elected to use certain
practical expedients and policy elections.
- We have elected to include both lease and non-lease components as a single lease component, as non-
lease components of contracts have not historically been material.
- We have elected to account for leases with terms of one year or less as short-term leases and, as such, are
not included in the right-of-use assets or lease liabilities.
As of December 26, 2020 and December 28, 2019, there were no material variable lease costs or sublease
income. Cash paid for operating leases was $7.7 million and $6.0 million during fiscal 2020 and fiscal 2019,
respectively, which are classified in operating activities on the Consolidated Statements of Cash Flows. The
following table summarizes the lease expense:
47
Supplemental balance sheet information related to our operating leases is as follows:
The following table summarizes the maturities of our lease liabilities for all operating leases as of
(in thousands)
Operating lease expense
Short-term lease expense
Total lease expense
(in thousands)
Operating lease right-of-use assets
Other accrued liabilities
Long-term operating lease liabilities
Total operating lease liabilities
Weighted average remaining lease term (years)
Weighted average discount rate
December 26, 2020:
(in thousands)
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: Imputed interest
December 26, 2020
$
For the Year Ended
December 28, 2019
7,732
3,647
11,379
$
$
7,362
4,547
11,909
December 26, 2020
39,002 $
December 28, 2019
32,198
5,470 $
37,083
42,553 $
8.94
5.55 %
5,348
29,730
35,078
10.83
6.32 %
$
$
$
$
December 26, 2020
$
7,346
6,777
5,041
4,859
4,581
23,998
52,602
(10,049 )
42,553
Present value of lease liabilities
$
For the year ended December 29, 2018, minimum rental payments under operating leases were recognized on
a straight-line basis over the term of the lease including any periods of free rent. Rent expense for operating leases,
including short-term equipment and storage rentals, was $6.9 million in fiscal 2018.
7. Goodwill and Intangible Assets
Goodwill
Goodwill included the following:
(in thousands)
Balance at beginning of period
Goodwill acquired
Measurement period adjustment
Balance at end of period
December 26, 2020
December 28, 2019
$
$
74,458 $
16,622
—
91,080 $
72,606
—
1,852
74,458
48
Intangible Assets
Intangible assets, subject to amortization, included the following:
Intangible assets subject to
amortization
(dollars in thousands)
Customer relationships
Trade names
Technology
Other
Total
December 26, 2020
December 28, 2019
Weighted
Average
Amortization
Period (years)
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
8.7
10.6
7.6
3.4
$ 25,050 $
6,760
2,167
430
$ 34,407 $
7,141 $ 17,909 $ 20,450 $
6,060
5,175
1,585
367
1,844
323
240
279
151
9,200 $ 25,207 $ 27,117 $
4,698 $ 15,752
5,085
293
175
5,812 $ 21,305
975
74
65
Amortization expense associated with intangible assets was $3.4 million, $2.6 million and $2.3 million in
fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The estimated future amortization expense for intangible
assets as of December 26, 2020, is summarized as follows:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Total
8. Long-Term Debt
$
$
3,384
3,384
3,384
3,240
3,062
8,753
25,207
We have a credit agreement, expiring in December 2022, that provides for a revolving credit facility of $100.0
million and, subject to certain requirements, gives us the ability to request increases in revolving credit
commitments of up to an additional $100.0 million. Borrowings under the credit agreement are on an unsecured
basis. At the Company’s election, the interest rate applicable to borrowings under the credit agreement will be either
(1) the Prime Rate as announced by Wells Fargo from time to time, (2) an Adjusted LIBOR Market Index Rate as
measured by the LIBOR Market Index Rate plus the Applicable Margin which fluctuates between 65 basis points
and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated EBITDA, or
(3) an Adjusted LIBOR Rate as measured by the LIBOR Rate plus the Applicable Margin which fluctuates between
65 basis points and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated
EBITDA. During the occurrence and continuance of an event of default, as defined in the credit agreement, all
outstanding revolving credit loans will bear interest at a rate per annum equal to 2.00% in excess of the greater of
(1) the Prime Rate or (2) the Adjusted LIBOR Market Index Rate then applicable. The credit agreement also
contains covenants, including those related to the ratio of certain consolidated fixed charges to consolidated
EBITDA, capital expenditures, and share repurchases, each as defined by the credit agreement. As of December 26,
2020, we were not in default in respect to the credit agreement.
The credit agreement also requires us to pay a fee of 0.10% on the average daily unused portion of the facility,
provided the fee will not be charged on the first $30 million of the revolving credit facility. On June 29, 2020, the
first day of our fiscal third quarter, the Company repaid the $99.0 million of outstanding borrowings under this
revolving credit facility, which borrowings were made earlier in the year to help manage liquidity in light of the
COVID-19 pandemic. Additionally, we paid $0.4 million in interest during the year. The average interest rate while
the debt was outstanding was 1.41%. As of December 26, 2020 and December 28, 2019, we had no borrowings
under the credit agreement and two outstanding letters of credit for approximately $0.8 million in the aggregate
which were issued to secure ordinary course of business transactions. Net of these letters of credit, we had
approximately $99.2 million available under the credit agreement as of December 26, 2020.
49
9. Related Party Transactions
We lease our Colmar, PA facility and a portion of our Lewisberry, PA facility from entities in which Steven L.
Berman, our Executive Chairman, and certain of his family members are owners. Each lease is a non-cancelable
operating lease. Total rental payments to those entities under these lease arrangements were $1.8 million, $1.6
million, and $1.6 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The lease for our corporate
headquarters in Colmar, PA was renewed during November 2016, effective as of January 1, 2018, and will expire on
December 31, 2022. The lease for our Lewisberry, PA operating facility was signed in September 2020 and will
expire on December 31, 2027. In the opinion of our Audit Committee, the terms and rates of these leases were no
less favorable than those which could have been obtained from an unaffiliated party when the lease for our corporate
headquarters in Colmar, PA was renewed during November 2016 and when the lease for our Lewisberry, PA
operating facility was signed in September 2020.
We are a partner in a joint venture with one of our suppliers and own a minority interest in two other
suppliers. Purchases from these companies, and from PTI prior to our full acquisition on January 2, 2020 were $10.7
million, $23.2 million and $20.3 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.
10. Income Taxes
The components of the income tax provision (benefit) are as follows:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
2020
2019
2018
$ 33,698 $ 19,090 $ 33,362
2,618
1,611
37,591
2,091
(194 )
20,987
4,276
491
38,465
(8,475 )
(893 )
(231 )
(9,599 )
1,398
186
(1,642 )
(58 )
$ 28,866 $ 22,045 $ 37,533
2,084
(280 )
(746 )
1,058
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
Federal permanent items
Effect of foreign operations
Other
Effective tax rate
2020
2019
2018
21.0 %
2.0
(0.6 )
(0.2 )
0.1
(1.0 )
21.3 %
21.0 %
1.3
(0.5 )
(0.3 )
(1.1 )
0.4
20.8 %
21.0 %
1.3
(0.4 )
(0.1 )
(0.2 )
0.3
21.9 %
At December 26, 2020, we had $1.1 million of unrecognized tax benefits, all of which would affect our
effective tax rate if recognized.
50
The following table summarizes the change in unrecognized tax benefits for the three years ended
December 26, 2020:
(in thousands)
Balance at beginning of year
Reductions due to lapses in statutes of limitations
Reductions due to 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
$
2020
2019
2018
2,301 $
—
(1,308 )
(202 )
2,390 $
(200 )
—
(28 )
2,301
(95 )
(368 )
(4 )
269
1,060 $
139
2,301 $
556
2,390
$
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of
December 26, 2020, accrued interest and penalties related to unrecognized tax benefits were immaterial.
Deferred income taxes result from timing differences in the recognition of revenue and expense between tax
and financial statement purposes. The sources of temporary differences are as follows:
(in thousands)
Assets:
Inventories
Accounts receivable
Operating lease liability
Accrued expenses
Foreign tax credits
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Liabilities:
Depreciation
Goodwill and intangible assets
Operating lease right of use asset
Other
Gross deferred tax liabilities
Net deferred tax assets
December 26, 2020 December 28, 2019
$
$
11,346 $
16,452
9,352
3,550
631
41,331
(1,256 )
40,075
10,586
12,419
8,560
(121 )
31,444
8,631 $
9,545
10,695
7,273
1,974
844
30,331
(844 )
29,487
10,296
11,742
6,656
416
29,110
377
Based on our history of taxable income and our projection of future earnings, we believe that it is more likely
than not that sufficient taxable income will be generated in the foreseeable future to realize the remaining net
deferred tax assets.
We file income tax returns in the United States, Canada, China, India, and Mexico. All years before 2017 are
closed for U.S. federal tax purposes. Tax years before 2016 are closed for the states in which we file. Tax years
before 2017 are closed for tax purposes in Canada. Tax years before 2017 are closed for tax purposes in China. Tax
years before 2015 are closed for tax purposes in Mexico. All tax years remain open for India.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 in
response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses incurred in
2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of
previously paid income taxes. The CARES Act also includes provisions relating to increased interest expense
deductibility, refundable payroll tax credits, deferment of employer social security payments, and technical
corrections to tax depreciation methods for qualified improvement property. Most significant to the Company is the
accelerated depreciation on qualified improvement property. The Company continues to monitor Coronavirus-
related Federal and state relief opportunities.
51
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.
CBP Matter. During 2019, we commenced a voluntary disclosure process in which we committed to
disclosing to U.S. Customs & Border Protection (“CBP”) certain product misclassifications and reimbursing CBP
for any resulting underpayment of duties that were identified as part of a voluntary internal review conducted by the
Company. The Company recorded an estimated liability of $2.8 million in its Statement of Operations for the year
ended December 28, 2019, which represents the Company’s estimated underpayment of duties, after deducting its
estimated overpayment of duties, to CBP due to misclassifications over the prior five-year period, which is the
applicable statute of limitations, plus applicable interest.
In June 2020, we completed our internal review and submitted our prior disclosure statement to CBP, along
with payment of $2.8 million for underpaid duties and interest. CBP has acknowledged receipt of our prior
disclosure submission but has not yet communicated that our prior disclosure submission is closed. We intend to
work cooperatively with CBP in connection with its review of our prior disclosure submission.
Acquisitions. We have contingent consideration related to certain of our prior acquisitions due to the
uncertainty of the ultimate amount of payment which will become due as earnout payments if performance targets
are achieved. As of December 26, 2020 and December 28, 2019, we have accrued approximately $8.0 million and
$5.6 million, respectively, which represents the fair value of the estimated payments that will become due in
connection with these prior acquisitions if performance targets are achieved. During fiscal 2020 we increased this
accrual by $2.4 million, primarily due to updates to the net sales attributable to the earnout period. In fiscal 2019, we
reduced this accrual by $2.3 million, primarily due to updates in the assumptions used for forecasted net sales
attributable to the earnout period. This accrual balance change during fiscal 2018 was immaterial. The changes in
the accrual balance during fiscal 2020, fiscal 2019, and fiscal 2018 were included in Selling, General and
Administrative expenses in each of the respective periods. If the performance targets are fully achieved, the
remaining maximum contingent payments under these agreements would be $15.3 million.
Other Contingencies. We are a party to or otherwise involved in legal proceedings that arise in the ordinary
course of business, such as various claims and legal actions involving contracts, employment claims, competitive
practices, intellectual property infringement, product liability claims and other matters arising out of the conduct of
our business. In the opinion of management, none of the actions, individually or in the aggregate, taking into
account relevant insurance coverage, would likely have a material financial impact on the Company and we believe
the range of reasonably possible losses from current matters, taking into account relevant insurance coverage, is
immaterial. However, legal matters are subject to inherent uncertainties and there exists the possibility that the
ultimate resolution of any of these matters could have a material adverse impact on the Company’s cash flows,
financial position and results of operations in the period in which any such effects are recorded.
12. Revenue Recognition
Business Description
We are a supplier of replacement parts and fasteners for passenger cars, light trucks, and heavy-duty trucks in
the automotive aftermarket. We group our products into four major classes: powertrain, automotive body, chassis,
and hardware. Our products are sold primarily in the United States through automotive aftermarket retailers,
including through their online platforms, national and regional local warehouse distributors and specialty markets,
and salvage yards. We also distribute automotive replacement parts internationally, with sales primarily into Canada,
Mexico, Europe, the Middle East, and Australia.
52
Our primary source of revenue is from contracts with and purchase orders from customers. In most instances,
our contract with a customer is the customer’s purchase order. Upon acceptance of the purchase order, a contract
exists with a customer as a sales agreement indicates approval and commitment of the parties, identifies the rights of
both parties, identifies the payment terms, has commercial substance, and it is probable that we will collect the
consideration to which we will be entitled in exchange for the goods transferred to the customer.
For certain customers, we may also enter into a sales agreement which outlines pricing considerations as well
as the framework of terms and conditions which apply to future purchase orders for that customer. In these
situations, our contract with the customer is both the sales agreement as well as the specific customer purchase
order. As our contract with a customer is typically for a single transaction or customer purchase order, the duration
of the contract is typically one year or less. As a result, we have elected to apply certain practical expedients and
omit certain disclosures of remaining performance obligations for contracts which have an initial term of one year or
less as permitted by the FASB.
Revenue is recognized from product sales when goods are shipped, title and risk of loss and control have been
transferred to the customer, and collection is reasonably assured. We estimate the transaction price at the inception
of a contract or upon fulfilling a purchase order, including any variable consideration, and will update the estimate
for changes in circumstances.
We record estimates for cash discounts, defective and slow-moving product returns, promotional rebates, core
return deposits and other discounts in the period the related product revenue is recognized (“Customer Credits”).
The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits
are shown as an increase of accrued customer rebates and returns. Customer Credits are estimated based on
contractual provisions, historical experience, and our assessment of current market conditions. Actual Customer
Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers
for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost
of goods sold. We have concluded that our estimates of variable consideration are not constrained according to the
definition in the new standard.
All of our revenue was recognized under the point of time approach in accordance with U.S. generally
accepted accounting principles during fiscal 2020, fiscal 2019 and fiscal 2018. Also, we do not have significant
financing arrangements with our customers, as our credit terms are all less than one year. Lastly, we do not receive
noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our
contracts.
Practical Expedients and Accounting Policy Elections
In accordance with the guidance on revenue recognition and as permitted by the FASB, we have elected to use
certain practical expedients and policy elections, as follows:
- We have elected to not adjust the promised amount of consideration for the effects of a significant
financing component as we expect, at contract inception, that the period between when we transfer a
promised good or service to the customer and when the customer pays for that good or service will be one
year or less.
- We have elected to expense costs to obtain a contract as incurred when the expected period of benefit, and
therefore the amortization period, is one year or less.
- We have elected to exclude from the measurement of the transaction price all taxes assessed by a
governmental authority that are both imposed on and concurrent with a specific revenue-producing
transaction and collected by the entity for a customer, including sales, use, value-added, excise and various
other taxes.
- We have elected to account for shipping and handling activities that occur after the customer has obtained
control of a good as a fulfilment activity rather than a separate performance obligation.
53
Disaggregated Revenue
The following tables present our disaggregated net sales by type of major good / product line, and geography.
For the Year Ended
(in thousands)
Powertrain
Chassis
Automotive Body
Hardware
Net Sales
(in thousands)
Net Sales to U.S. Customers
Net Sales to Non-U.S. Customers
Net Sales
December 26, 2020 December 28, 2019 December 29, 2018
393,979
278,584
256,344
44,798
973,705
442,221 $
324,399
266,699
59,429
1,092,748 $
395,975 $
297,350
251,506
46,498
991,329 $
$
$
For the Year Ended
December 26, 2020 December 28, 2019 December 29, 2018
913,181
60,524
973,705
1,031,183 $
61,565
1,092,748 $
929,908 $
61,421
991,329 $
$
$
During fiscal 2020, three customers (Advance, AutoZone and O’Reilly) each accounted for more than 10% of
net sales and in the aggregate accounted for 56% of net sales in fiscal 2020. In fiscal 2019 and fiscal 2018, four
customers (Advance, AutoZone, NAPA, and O'Reilly) each accounted for more than 10% of net sales and in the
aggregate accounted for approximately 66% in fiscal 2019 and 63% in fiscal 2018.
13. Capital Stock
Controlling Interest by Officers, Directors and Family Members. As of both December 26, 2020 and
December 28, 2019, Steven Berman, the Executive Chairman of the Company, and members of his family
beneficially owned approximately 18% of the outstanding shares of our common stock and can influence matters
requiring approval of shareholders, including the election of the Board of Directors and the approval of significant
transactions.
Undesignated Stock. We have 50,000,000 shares authorized of undesignated capital stock for future issuance.
The designation, rights and preferences of such shares will be determined by our Board of Directors.
Incentive Stock Plan. Prior to May 16, 2018, we issued stock compensation grants under our 2008 Stock
Option and Stock Incentive Plan. On May 16, 2018, our shareholders approved our 2018 Stock Option and Stock
Incentive Plan (the “2018 Plan” or the “Plan”), which supersedes our 2008 Stock Option and Stock Incentive Plan.
All future stock compensation grants will be issued under the 2018 Plan. Under the terms of the Plan, our Board of
Directors may grant up to 1,200,000 shares of common stock in the form of shares of restricted stock, restricted
stock units, stock appreciation rights and 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.
Stock options are exercisable upon the terms set forth in each grant agreement approved by the Board of Directors,
but in no event more than ten years from the date of grant. Restricted stock and restricted stock units vest in
accordance with the terms set forth in each applicable award agreement approved by our Board of Directors. At
December 26, 2020, 853,471 shares were available for grant under the Plan.
Restricted Stock Awards and Restricted Stock Units
Prior to March 2020, we issued awards of restricted stock to certain employees and members of our Board of
Directors. Grants were made in the form of time-based restricted stock awards and performance-based restricted
stock awards. For all restricted stock awards, we retain the restricted stock, and any dividends paid thereon, until the
vesting restrictions have been met. For time-based restricted stock awards, compensation cost is recognized on a
straight-line basis over the vesting period and is calculated using the closing price per share of our common stock on
the grant date. Prior to 2019, we issued performance-based restricted stock awards tied to growth in adjusted pre-tax
income. Compensation costs related to those awards is recognized over the performance period and is calculated
using the closing price per share of our common stock on the grant date and an estimate of the probable outcome of
the performance conditions as of the reporting date. In 2019, we introduced performance-based restricted stock
awards that vest based on our total shareholder return ranking relative to the S&P Mid-Cap 400 Growth Index over a
three-year performance period. For those awards, compensation cost is recognized on a straight-line basis over the
54
performance period and is calculated using the simulated fair value per share of our common stock based on the
application of a Monte Carlo simulation model. This valuation technique includes estimating the movement of stock
prices and the effects of volatility, interest rates and dividends.
Beginning in March 2020, we began issuing restricted stock units to certain employees and members of our
Board of Directors. For time-based restricted stock units, compensation cost is recognized on a straight-line basis
over the vesting period and is calculated using the closing price per share of our common stock on the grant date.
Also, in March 2020, we began issuing performance-based restricted stock units that vest based on our total
shareholder return ranking relative to the S&P Mid-Cap 400 Growth Index over a three-year performance period.
For performance-based restricted stock units tied to total shareholder return, compensation cost is recognized on a
straight-line basis over the performance period and is calculated using the simulated fair value per share of our
common stock based on the application of a Monte Carlo simulation model as discussed in the paragraph above.
The following table summarizes the weighted average valuation assumptions used to calculate the fair value of
total shareholder return performance-based restricted stock awards and performance-based restricted stock units
granted:
For the Years Ended
Share price
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life
December 26, 2020
$
December 28, 2019
82.03
61.68 $
0.0 %
31.5 %
0.9 %
0.0 %
27.7 %
2.5 %
2.8 years
2.8 years
The share price is the company’s closing share price as of the valuation date. The risk-free rate is based on the
U.S. Treasury security with terms equal to the expected time of vesting as of the grant date. The weighted-average
grant-date fair value of total shareholder return performance-based restricted stock units granted during fiscal 2020
was $65.09.
Compensation cost related to performance-based and time-based restricted stock awards and restricted stock
units was $3.2 million, $2.1 million and $2.6 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The
compensation costs were classified as selling, general and administrative expense in the Consolidated Statements of
Operations. No cost was capitalized during fiscal 2020, fiscal 2019 or fiscal 2018.
The following table summarizes our restricted stock awards and restricted stock unit activity for the three
years ended December 26, 2020:
Balance at December 30, 2017
Granted
Vested
Cancelled
Balance at December 29, 2018
Granted
Vested
Cancelled
Balance at December 28, 2019
Granted
Vested
Cancelled
Balance at December 26, 2020
Shares
Weighted
Average Price
59.94
73.51
62.56
75.39
63.94
81.92
55.72
58.03
76.70
64.66
71.25
76.44
72.77
153,727 $
89,798 $
(45,707 ) $
(27,081 ) $
170,737 $
92,396 $
(41,586 ) $
(44,056 ) $
177,491 $
83,875 $
(27,477 ) $
(16,154 ) $
217,735 $
As of December 26, 2020, there was approximately $6.9 million of unrecognized compensation cost related to
unvested restricted stock and unvested restricted stock units, which is expected to be recognized over a weighted-
average period of approximately 2.3 years.
55
Cash flows resulting from tax deductions in excess of the tax effect of compensation cost recognized in the
financial statements are classified as operating cash flows. The excess tax benefit generated from restricted stock
awards and restricted stock units was immaterial for all periods presented.
Stock Options
We grant stock options to certain employees. We expense the grant-date fair value of stock options as
compensation cost over the vesting or performance period. Compensation cost charged against income for stock
options was $1.0 million, $0.7 million and $0.5 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The
compensation costs were classified as selling, general and administrative expense in the Consolidated Statements of
Operations. No cost was capitalized during fiscal 2020, fiscal 2019 or fiscal 2018.
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 following table summarizes the weighted average valuation assumptions used to calculate the fair value of
options granted and the associated weighted-average grant-date fair values:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options
Weighted-average grant-date fair value
For the Years Ended
December 26, 2020 December 28, 2019 December 29, 2018
0 %
27 %
2.6 %
3.0 years
15.88
0 %
28 %
2.3 %
5.4 years
0 %
29 %
0.8 %
5.3
17.84 $
24.32 $
$
The following table summarizes our stock option activity for the three years ended December 26, 2020:
Shares
Option Price
per Share
Weighted
Average
Remaining
Terms
(years)
Aggregate
Intrinsic
Value
Weighted
Average
Price
Balance at December 30, 2017
Granted
Exercised
Cancelled
Balance at December 29, 2018
Granted
Exercised
Cancelled
Balance at December 28, 2019
Granted
Exercised
Cancelled
Balance at December 26, 2020
Options exercisable at December 26, 2020
$72.55
(960 )
122,547 $5.67 – $82.59
188,469 $7.74 – $82.94
$
81,995 $68.93 – $82.94 $
$
(15,113 ) $5.67 – $78.64
$
$
44,025 $73.72 – $84.93 $
(38,009 ) $7.74 – $78.76
$
(12,773 ) $41.59 – $82.94 $
181,712 $41.59 – $82.94 $
109,352 $61.68 – $83.06 $
(31,521 ) $41.59 – $82.94 $
(8,764 ) $61.68 – $74.21 $
250,779 $41.59 – $84.93 $
78,066 $41.59 – $84.93 $
57.74
73.84
39.38
72.55
66.14
81.84
58.96
75.52
70.78
63.25
50.77
65.24
70.21
72.06
4.9 $ 4,847,742
2.5 $ 1,366,281
As of December 26, 2020, there was approximately $2.3 million of unrecognized compensation cost related to
unvested stock options, which is expected to be recognized over a weighted-average period of approximately 2.8
years.
56
Cash received from option exercises was $1.2 million, $0.1 million, and $0.2 million in fiscal 2020, fiscal
2019 and fiscal 2018, respectively. The tax benefit generated from option exercises was immaterial for all periods
presented. 2020 20192018
Employee Stock Purchase Plan. In May 2017, our shareholders approved the Dorman Products, Inc.
Employee Stock Purchase Plan (the “ESPP”), which makes available 1,000,000 shares of our common stock for sale
to eligible employees. The purpose of the ESPP, which is qualified under Section 423 of the Internal Revenue
Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions and limited cash
contributions by our employees. These contributions are used to purchase shares of the Company’s common stock at
a 15% discount from the lower of the market price at the beginning or end of the purchase window. Beginning in
March 2018, share purchases under the plan are made twice annually. There were 79,089 shares, 21,200 shares and
21,173 shares purchased under this plan during fiscal 2020, fiscal 2019 and fiscal 2018, respectively. Compensation
cost under the ESPP plan was $3.3 million, $0.3 million and $0.4 million in fiscal 2020, fiscal 2019 and fiscal 2018,
respectively. The tax benefit generated from ESPP purchases was $0.5 million in 2020. There was no tax benefit
generated from ESPP purchases in fiscal 2019 or fiscal 2018.
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 26,
2020. Annual company 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 $3.6 million, $3.1 million and $4.3 million in fiscal
2020, fiscal 2019 and fiscal 2018, respectively. At December 26, 2020, the 401(k) Plan held 195,368 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. 401(k) Plan participants can no longer purchase shares of Dorman common
stock as an investment option under 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. The following table summarizes the repurchase and cancellation of common stock:
Shares repurchased and cancelled
Total cost of shares repurchased and cancelled
(in millions)
Average price per share
For the Years Ended
December 26, 2020 December 28, 2019
22,380
23,360
December 29, 2018
26,280
$
$
1.9
81.12
$
$
1.9
87.26
$
$
2.0
74.79
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. Through several expansions and extensions, our Board of Directors has expanded the program up to
$500 million and extended the program through December 31, 2022. 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. At
December 26, 2020, $207.1 million was available for repurchase under this program. The following table
summarizes the repurchase and cancellation of common stock:
Shares repurchased and cancelled
Total cost of shares repurchased and cancelled
(in millions)
Average price per share
14. Earnings Per Share
For the Years Ended
December 26, 2020 December 28, 2019 December 29, 2018
622,223
499,564
439,275
$
$
36.8
83.73
$
$
39.4
78.84
$
$
43.4
69.73
Basic earnings per share was calculated by dividing our net income by the weighted average number of
common shares outstanding during the period, excluding unvested restricted stock and unvested restricted stock
units which are considered to be contingently issuable. To calculate diluted earnings per share, common share
57
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. Stock-
based awards of approximately 35,975 shares, 92,000 shares and 116,000 shares were excluded from the calculation
of diluted earnings per share as of December 26, 2020, December 28, 2019 and December 29, 2018, respectively, as
their effect would have been anti-dilutive.
The following table sets forth the computation of basic earnings per share and diluted earnings per share:
(in thousands, except per share data)
Numerator:
Net income
Denominator:
For the Year Ended
December 26, 2020 December 28, 2019 December 29, 2018
$
106,870 $
83,762 $
133,602
Weighted average basic shares outstanding
Effect of compensation awards
Weighted average diluted shares outstanding
32,280
93
32,373
32,606
82
32,688
Earnings Per Share:
Basic
Diluted
15. Business Segments
$
$
3.31 $
3.30 $
2.57 $
2.56 $
33,097
110
33,207
4.04
4.02
We have determined that our business comprises a single reportable operating segment, namely, the sale of
replacement parts and fasteners for passenger cars, light trucks, and heavy-duty trucks in the automotive aftermarket
industry.
Net sales to countries outside the United States, primarily to Canada and Mexico, and to a lesser extent into
Europe, the Middle East, and Australia, in fiscal 2020, fiscal 2019 and fiscal 2018 were $61.6 million, $61.4 million
and $60.5 million, respectively.
58
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 26, 2020, 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 26, 2020, our internal control over
financial reporting was effective.
Our independent registered public accounting firm, KPMG LLP, has issued an attestation report on our
internal control over financial reporting. Their report appears below.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act), that occurred during the quarter ended December 26, 2020 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
59
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Dorman Products, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Dorman Products, Inc. and subsidiaries’ (the Company) internal control over financial reporting as
of December 26, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 26, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 26, 2020 and December 28,
2019, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in
the three-year period ended December 26, 2020, and the related notes and financial statement schedule II
(collectively, the consolidated financial statements), and our report dated February 22, 2021 expressed an
unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 22, 2021
60
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.
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 2021
Annual Meeting of Shareholders, including, but not necessarily limited to, the sections entitled “Proposal I: Election
of Directors,” “Director Compensation,” “Committees of the Board of Directors – Audit Committee” and “Security
Ownership of Certain Beneficial Owners and Management – Delinquent Section 16(a) Reports.”
We have adopted a written code of ethics that is applicable to our directors, officers and employees. 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, Principal Accounting Officer, Controller and any other person
performing similar functions (the “Code”). In accordance with the SEC's rules and regulations a copy of the Code is
posted on our website www.dormanproducts.com. Dorman will provide to any person without charge, upon request,
a copy of the Code. Requests for copies of the Code should be directed to: Attn: Secretary, Dorman Products, Inc.,
3400 East Walnut Street, Colmar, PA 18915. We intend to disclose any changes in or waivers from the Code on our
website at www.dormanproducts.com. The information on the 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.
ITEM 11. Executive Compensation.
The required information is incorporated by reference from our definitive proxy statement for our 2021
Annual Meeting of Shareholders, including, but not necessarily limited to, the sections entitled “Director
Compensation,” “Executive Compensation: Compensation Discussion and Analysis,” “Executive Compensation:
Compensation Tables,” “Risk Assessment in Compensation Policies and Practices for Employees,” 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 2021 Annual Meeting of Shareholders, including, but not necessarily limited to,
the section entitled “Security Ownership of Certain Beneficial Owners and Management – Security Ownership
Table.”
Equity Compensation Plan Information
The following table details information regarding our existing equity compensation plans as of December 26,
2020:
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected
in column (a))
(b)
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
84,322 $
166,457 $
—
—
250,779
71.31
69.69
—
—
853,471
878,536
—
—
1,732,007
Plan Category
Equity compensation plans approved by
security holders
2008 Stock Option and Stock Incentive Plan
2018 Stock Option and Stock Incentive Plan
Dorman Products, Inc. Employee Stock Purchase Plan
Equity compensation plans not approved by
security holders
Total
61
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The required information is incorporated by reference from our definitive proxy statement for our 2021
Annual Meeting of Shareholders, including, but not necessarily limited to, the sections entitled “Certain
Relationships and Related Transactions” and “Corporate Governance - 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 2021
Annual Meeting of Shareholders, including, but not necessarily limited to, the sections entitled “Principal
Accountant Fees and Services” and “Pre-Approval Policies and Procedures.”
62
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 fiscal years ended December 26, 2020, December 28,
2019 and December 29, 2018.
Consolidated Balance Sheets as of December 26, 2020 and December 28, 2019.
Consolidated Statements of Shareholders' Equity for the fiscal years ended December 26, 2020,
December 28, 2019 and December 29, 2018.
Consolidated Statements of Cash Flows for the fiscal years ended December 26, 2020, December 28,
2019, and December 29, 2018.
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. Reference is made to ITEM 15(b) below.
(b) Exhibits. The Exhibit Index, which immediately precedes the signature page, is incorporated by reference
into this Report.
(c) Financial Statement Schedule. Reference is made to ITEM 15(a)(2) above.
ITEM 16. Form 10-K Summary
None
63
Number
Title
3.1
3.2
4.1
4.2
4.3
10.1
10.1.1
10.2
10.3†
10.3.1†
10.3.2†
10.3.3†
10.3.4†
10.3.5†
10.3.6†
Amended and Restated Articles of Incorporation, as amended. Incorporated by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K filed on May 19, 2017.
Dorman Products, Inc. Amended and Restated By-Laws, as amended April 7, 2020. Incorporated by
reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on April 9, 2020.
Specimen Common Stock Certificate of the Company. Incorporated by reference to Exhibit 4.1 to 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
Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008.
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange
Act of 1934.
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 Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on November 16, 2012.
Lease Renewal Notice, dated November 14, 2016, between the Company and BREP I, for premises
located at 3400 East Walnut Street, Colmar, Pennsylvania. Incorporated by reference to Exhibit 10.1
filed with the Company’s Current Report on Form 8-K filed on November 14, 2016.
Credit Agreement dated as of December 7, 2017, by and between the Company and Wells Fargo Bank,
National Association. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on December 8, 2017.
Dorman Products, Inc. 2008 Stock Option and Stock Incentive Plan. Incorporated by reference to
Exhibit 10.1 to 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 Exhibit 10.1 to 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
Exhibit 10.1 to 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
the Dorman Products, Inc. 2008 Stock Option and Stock Incentive
Plan. Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8
(Registration No. 333-160979).
to
Form of Restricted Stock Agreement pursuant to the Dorman Products, Inc. 2008 Stock Option and
Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement
on Form S-8 (Registration No. 333-160979).
Amendment No. 1 to the Dorman Products, Inc. 2008 Stock Option and Stock Incentive Plan.
Incorporated by reference to Exhibit 10.2 to 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.
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May
20, 2014.
10.4†
Dorman Products, Inc. 2018 Stock Option and Stock Incentive Plan. Incorporated by reference to
Exhibit A of the Company’s Definitive Proxy Statement filed on Schedule 14A on March 22, 2018.
10.4.1†
Form of Non-Qualified Stock Option Award for grants under the Dorman Products, Inc. 2018 Stock
Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 14, 2018.
64
Number
Title
10.4.2†
10.4.3†
10.4.4†
10.4.5†
10.4.6†
10.4.7†
10.4.8†
10.4.9†
Form of Incentive Stock Option Award for grants under the Dorman Products, Inc. 2018 Stock Option
and Stock Incentive Plan. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on May 14, 2018.
Form of Restricted Stock Award for grants under the Dorman Products, Inc. 2018 Stock Option and
Stock Incentive Plan. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed on May 14, 2018.
Form of Performance Restricted Stock Award for grants under the Dorman Products, Inc. 2018 Stock
Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K filed on May 14, 2018.
Form of Restricted Stock Unit Award for grants under the Dorman Products, Inc. 2018 Stock Option and
Stock Incentive Plan. Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on
Form 8-K filed on May 14, 2018.
Form of Performance Restricted Stock Unit Award for grants under the Dorman Products, Inc. 2018
Stock Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.6 to the Company’s
Current Report on Form 8-K filed on May 14, 2018.
Form of 2019 Chief Executive Officer Restricted Stock Award Agreement under the Dorman Products,
Inc. 2018 Stock Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on February 25, 2019.
Form of Dorman Products, Inc. Non-Qualified Stock Option Award Pursuant to the Dorman Products,
Inc. 2018 Stock Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on March 2, 2020.
Form of Dorman Products, Inc. Restricted Stock Unit Award Pursuant to the Dorman Products, Inc.
2018 Stock Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on March 2, 2020.
10.4.10† Form of Dorman Products, Inc. Performance Restricted Stock Unit Award Pursuant to the Dorman
Products, Inc. 2018 Stock Option and Stock Incentive Plan. Incorporated by reference to Exhibit 10.3 to
the Company’s Current Report on Form 8-K filed on March 2, 2020.
10.4.11† Form of Dorman Products, Inc. Restricted Stock Unit Award for Non-Employee Directors Pursuant to
the Dorman Products, Inc. 2018 Stock Option and Stock Incentive Plan. Incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 10-Q for the quarter ended June 27, 2020.
10.5†
10.6†
10.7†
10.8†
10.9†
Dorman Products, Inc. Nonqualified Deferred Compensation Plan. Incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011.
Dorman Products, Inc. 2018 Cash Bonus Plan. Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on March 22, 2018.
Amended and Restated Employment Agreement, dated December 28, 2015, between the Company and
Steven Berman. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-
K filed on December 28, 2015.
Offer Letter, dated May 2, 2016, between the Company and Kevin Olsen. Incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 25, 2016.
Employment Agreement, dated January 10, 2019, between the Company and Kevin Olsen. Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 11, 2019.
10.10†
Offer Letter, dated January 24, 2019, between the Company and David Hession. Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 19, 2019.
65
Number
10.11†
10.12†
21
23
31.1
31.2
32
101
Title
Separation Agreement, dated February 25, 2011, between the Company and Jeffrey Darby. Incorporated
by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 28, 2013.
Offer Letter, dated April 8, 2019, between the Company and Joseph P. Braun. Incorporated by reference
to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28,
2019.
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 26, 2020, formatted Inline XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Statements of Operations for the years ended December 26, 2020, December 28, 2019 and
December 29, 2018; (ii) the Consolidated Balance Sheets as of December 26, 2020 and December 28,
2019; (iii) the Consolidated Statements of Shareholders’ Equity for the years ended December 26, 2020,
December 28, 2019 and December 29, 2018; (iv) the Consolidated Statements of Cash Flows for the
years ended December 26, 2020, December 28, 2019 and December 29, 2018; and (v) the Notes to
Consolidated Financial Statements.
104
The cover page from the Company’s Annual Report on Form 10-K as of and for the fiscal year ended
December 26, 2020, formatted in Inline XBRL (included as Exhibit 101).
† Management Contracts and Compensatory Plans, Contracts or Arrangements.
NOTE: This 2020 Annual Report to Shareholders does not contain the exhibits filed or furnished with the
Company’s annual report on Form 10-K for the fiscal year ended December 26, 2020. Copies of these exhibits are
available electronically at www.sec.gov or www.dormanproducts.com or by writing to Dorman Products, Inc.,
3400 East Walnut Street, Colmar, PA 18915, Attention: Secretary.
66
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 22, 2021
Dorman Products, Inc.
By: /s/ Kevin M. Olsen
Kevin M. Olsen
President and Chief Executive Officer
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
Title
Date
/s/ Kevin M. Olsen
Kevin M. Olsen
President and Chief Executive Officer and Director
(principal executive officer)
February 22, 2021
/s/ David M. Hession
David M. Hession
/s/ Steven L. Berman
Steven L. Berman
/s/ Lisa M. Bachmann
Lisa M. Bachmann
/s/ John J. Gavin
John J. Gavin
/s/ Paul R. Lederer
Paul R. Lederer
/s/ Richard T. Riley
Richard T. Riley
/s/ Kelly A. Romano
Kelly A. Romano
/s/ G. Michael Stakias
G. Michael Stakias
Senior Vice President, Chief Financial Officer and
Treasurer
(principal financial and accounting officer)
February 22, 2021
Executive Chairman
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
Director
Director
Director
Director
Director
Director
67
SCHEDULE II: Valuation and Qualifying Accounts
(in thousands)
Allowance for doubtful accounts:
Balance, beginning of period
Provision
Charge-offs
Acquisitions and other
Balance, end of period
Allowance for customer credits:
Balance, beginning of period
Provision
Charge-offs
Acquisitions and other
Balance, end of period
December 26, 2020
For the Year Ended
December 28, 2019
December 29, 2018
$
$
$
$
957 $
315
(111 )
98
1,259 $
105,950 $
308,783
(258,982 )
—
155,751 $
982 $
39
(64 )
—
957 $
90,596 $
274,243
(258,889 )
—
105,950 $
1,656
(570 )
(151 )
47
982
95,537
203,677
(208,665 )
47
90,596
68
NON‐GAAP FINANCIAL MEASURES
This Annual Report includes adjusted diluted earnings per share and free cash flow, each a “Non‐GAAP Financial Measure” as defined
under the rules of the U.S. Securities and Exchange Commission. These non‐GAAP financial measures should not be used as a
substitute for measures in accordance with generally accepted accounting principles ("GAAP"), or considered in isolation, for the
purpose of analyzing our cash flows or results of operations. Additionally, these non‐GAAP measures may not be comparable to
similarly titled measures reported by other companies. Reconciliations of these non‐GAAP measures to the most directly comparable
GAAP financial measures follow. We have presented these non‐GAAP financial measures because we believe this presentation, when
reconciled to the corresponding GAAP measure, provides useful information to investors by offering additional ways of viewing our
results, trends, and underlying growth relative to prior and future periods and to our peers. Management uses these non‐GAAP
financial measures in making financial, operating, and planning decisions and in evaluating our performance.
Adjusted Diluted Earnings Per Share:
Diluted earnings per share (GAAP)
Pretax acquisition‐related intangible assets amortization [1]
Pretax acquisition‐related transaction and other costs [2]
Pretax (gain) loss on equity method investment [3]
Noncash impairment related to equity method investment [4]
Tax adjustment (related to above items) [5]
Discrete tax adjustments [6]
Adjusted diluted earnings per share (Non‐GAAP)*
*Amounts may not add due to rounding
$
$
$
$
$
Fiscal Year Ended
2020
3.30
0.10
0.14
(0.08)
0.06
(0.06)
(0.03)
3.45
2019
2.56
0.08
0.04
‐
‐
(0.03)
‐
2.65
2018
4.02
0.06
0.14
0.03
‐
(0.05)
(0.01)
4.20
2017
3.13
0.01
0.05
‐
‐
(0.02)
0.20
3.37
2016
3.07
‐
‐
‐
‐
‐
‐
3.07
$
$
$
$
$
[1] – Pretax acquisition‐related intangible asset amortization results from allocating the purchase price of acquisitions to the acquired tangible and intangible
assets of the acquired business and recognizing the cost of the intangible asset over the period of benefit.
[2] – Pretax acquisition‐related transaction and other costs include costs incurred to complete and integrate acquisitions, adjustments to contingent consideration
obligations, inventory fair value adjustments and facility consolidation expenses.
[3] – Pretax (gain) loss on equity method investment results from the acquisition of the remaining outstanding shares of a previously unconsolidated entity. The
estimated fair value of the net assets acquired was either higher or lower than the carry value of our prior investment in the entity.
[4] – Noncash impairment related to equity method investment represents our share of an impairment recognized by an equity investment investee.
[5] – Tax adjustments represent the aggregate tax effect of all Non‐GAAP adjustments reflected in the table above.
[6] – Discrete tax adjustments include the impact of changes in tax legislation (e.g., Tax Cuts and Jobs Act of 2017).
Free Cash Flow:
($ thousands)
Cash provided by operating activities (GAAP)
Less: capital expenditures
Free cash flow (non‐GAAP)
2020
Fiscal Year Ended
2018
2019
2017
2016
$
$
151,966
(15,450)
136,516
$
95,306
(29,560)
65,746
$
$
78,112
(26,106)
52,006
$
$
94,241
(24,450)
69,791
$
$
$
121,539
(20,059)
101,480
2020 ANNUAL REPORT
EXECUTIVE OFFICERS
Steven L.
Berman
Executive
Chairman
Kevin M.
Olsen
President & CEO
David M.
Hession
Senior Vice
President & CFO
Joseph P.
Braun
Senior Vice
President,
General Counsel
Jeffrey L.
Darby
Senior Vice
President, Sales
and Marketing
Michael B.
Kealey
Executive Vice
President,
Commercial
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 18, 2021, there were 168 holders of
record of our common stock.
Transfer Agent:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
Auditors:
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
BOARD OF
DIRECTORS
Steven L. Berman, Executive Chairman
Kevin M. Olsen, Director
President & CEO, Dorman Products, Inc.
Lisa M. Bachmann, Director
Former Executive VP, Big Lots, Inc.
John J. Gavin, Director
Chairman of GMS Inc.
Paul R. Lederer, Director
Retired Executive VP, Federal-Mogul Corporation
Richard T. Riley, Director
Retired Executive Chairman, LoJack Corporation
Kelly A. Romano, Director
Founder & CEO, BlueRipple Capital, LLC
G. Michael Stakias, Director
President & CEO, Liberty Partners
Investor Relations:
Dorman Products, Inc.
3400 E. Walnut Street, Colmar, PA 18915-1800
Phone: 215-997-1800, Ext. 5451
Fax: 215-997-1741
Web: dormanproducts.com
Email: investorrelations@dormanproducts.com
Recent financial data, press releases, reports filed with the U.S. Securities and Exchange Commission,
corporate governance documents and historical information are available on the Dorman 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.
WWW.DORMANPRODUCTS.COM
2020-Annual-Report_Dormanwww.DormanProducts.comDorman Products, Inc. | 3400 East Walnut Street | Colmar, PA 18915 Corporate Office and Customer Service: 1-800-523-2492 ©2021 No reproduction in whole or in part without prior written approval.