www.dormanproducts.com
Giving repair professionals and vehicle owners greater freedom
to fix cars and trucks by Driving New Solutions™.
2021
ANNUAL REPORT
WWW.DORMANPRODUCTS.COM2021 ANNUAL REPORTTo Our Shareholders,Fiscal 2021 was a year of record financial results for Dorman. I couldn’t be more pleased given the many challenges our organization faced. These included COVID 19 outbreaks, inflation, tight labor conditions, and global supply chain disruptions that put cost pressure on our business and impacted our ability to deliver our products swiftly. Our team faced those challenges straight on and focused on controlling costs and driving efficiencies where we could, while continuing to execute our strategic initiatives. We flexed our supply chain and logistics relationships, innovated and brought new solutions to the aftermarket to enhance our product offering, enabling us to grow faster than the overall market. Our efforts, combined with the overall strength of the aftermarket, enabled us to overcome these challenges and produce record financial results for fiscal 2021. This year was also marked by the completion of the largest acquisition in Dorman’s history with the addition of Dayton Parts. Dayton enhances our heavy-duty offering and presents additional opportunities for us to bring innovation to the aftermarket. We couldn’t be more excited about the Dayton business and believe it is a great fit for Dorman due to the similarity of the two companies with respect to how they are organized, their cultures, and how well Dayton complements and adds to our already robust product offering. Dayton significantly expands our heavy-duty manufacturing and distribution platform and gives us best-in-class heavy-duty supplier capabilities, with strengthened fleet and distributor relationships across the United States and Canada. Our combined financial results are already exceeding our expectations. LETTER TOSHAREHOLDERSOther highlights from the year include: • Growing organic net sales by 16% (excluding Dayton), outpacing the overall estimated market growth. • Delivering 34% growth in adjusted diluted earnings per share over 2020.• Increasing the number of new innovative products launched by 24% year-over-year.• Growing net sales of complex electronics parts by 20% over 2020. • Continuing to strengthen talent throughout the organization. A key part of our overall business strategy is to introduce new and innovative solutions and products to the aftermarket and, during 2021, we continued to invest heavily in research and development to support that objective. Today’s vehicles are more complex, requiring greater engineering expertise and sometimes greater investments and longer times to develop. We embrace the challenge of developing complex parts since we believe our engineering capabilities are a competitive advantage for us, and our investment is rewarded since more complex parts tend to have higher average selling prices. Being a successful innovator includes brand recognition and raising brand awareness. As part of our initiative to strengthen Dorman’s well-established brand within the industry, we’ve expanded our technician training program via key channel partnerships, training over 50,000 automotive repair technicians in 2021. We’ve also increased our presence in the digital arena, launching original content like our Dorman® OE FIX™ Guide where we promote the Dorman brand, highlight our new products, and provide advice and cost-effective solutions for automotive repairs.Turning to capital allocation, our strategy remains to focus on internal and external growth opportunities, with organic investment remaining a top priority followed by acquisitions that meet our strategic criteria. The acquisition of Dayton was the M&A highlight of 2021, and with the new $600 million credit facility we put in place in 2021 we believe we have the liquidity to execute against our strategic growth initiatives, including the ability to respond quickly to M&A opportunities as they arise. Returning excess cash to shareholders opportunistically through our share buyback program also remains a cornerstone of our strategy. In 2021, we repurchased 605,628 shares of our common stock for a total of $61.6 million and had $145.6 million of availability remaining under our current share repurchase authorization as of December 25, 2021. Looking ahead, the strong underlying automotive aftermarket industry fundamentals that we observed in 2021 are continuing into 2022. Our “sweet-spot” remains vehicles aged 8 to 13 years old, which we believe will grow at a higher rate than the overall aftermarket over the next few years as this segment of the car parc continues to recover from the impact of the Great Recession of 2008. Our business outlook remains favorable and we’re encouraged not only by the strong demand trends but also by the new and innovative products and solutions that we expect to roll out to our customers. Of course, we’ll continue to monitor worldwide events and react swiftly to mitigate supply-side constraints and logistics issues. Thus far, our pricing actions and cost-saving initiatives have allowed us to offset the inflation that we have been seeing from freight, material commodity, and wage rate pressures since the second half of 2021. Our ability to successfully navigate and work around these issues is based on the experience of our global team as well as the long-standing relationships with our supply partners.Overall, while the global environment and impact of inflation remain somewhat uncertain, we’re confident that we have the right team and tools in place to navigate this environment and execute our strategic initiatives. We believe that our Culture of Contribution, unending focus on innovation, and commitment to excellence will position us for continued success. I want to thank our Contributors, customers, suppliers, shareholders, and other key stakeholders for your unwavering confidence and support. Kevin M. Olsen President & CEOThis 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. Adjusted diluted earnings per share is a Non-GAAP measure. A reconciliation of adjusted diluted earnings per share to diluted earnings per share is included on the page preceding the inside back cover of this Annual Report.ANNUAL REPORT2021 ANNUAL REPORT Other highlights from the year include:
• Growing organic net sales by 16% (excluding
Dayton), outpacing the overall estimated market
growth.
• Delivering 34% growth in adjusted diluted earnings
per share over 2020.
• Increasing the number of new innovative products
launched by 24% year-over-year.
• Growing net sales of complex electronics parts by
20% over 2020.
• Continuing to strengthen talent throughout the
organization.
A key part of our overall business strategy is to
introduce new and innovative solutions and products
to the aftermarket and, during 2021, we continued
to invest heavily in research and development to
support that objective. Today’s vehicles are more
complex, requiring greater engineering expertise and
sometimes greater investments and longer times to
develop. We embrace the challenge of developing
complex parts since we believe our engineering
capabilities are a competitive advantage for us, and
our investment is rewarded since more complex parts
tend to have higher average selling prices.
Being a successful innovator includes brand
recognition and raising brand awareness. As part of
our initiative to strengthen Dorman’s well-established
brand within the industry, we’ve expanded our
technician training program via key channel
partnerships, training over 50,000 automotive
repair technicians in 2021. We’ve also increased
our presence in the digital arena, launching original
content like our Dorman® OE FIX™ Guide where
we promote the Dorman brand, highlight our new
products, and provide advice and cost-effective
solutions for automotive repairs.
Turning to capital allocation, our strategy remains to
focus on internal and external growth opportunities,
with organic investment remaining a top priority
followed by acquisitions that meet our strategic
criteria. The acquisition of Dayton was the M&A
highlight of 2021, and with the new $600 million
credit facility we put in place in 2021 we believe we
have the liquidity to execute against our strategic
growth initiatives, including the ability to respond
quickly to M&A opportunities as they arise.
Returning excess cash to shareholders
opportunistically through our share buyback
program also remains a cornerstone of our strategy.
In 2021, we repurchased 605,628 shares of our
common stock for a total of $61.6 million and
had $145.6 million of availability remaining under
our current share repurchase authorization as of
December 25, 2021.
Looking ahead, the strong underlying automotive
aftermarket industry fundamentals that we observed
in 2021 are continuing into 2022. Our “sweet-spot”
remains vehicles aged 8 to 13 years old, which we
believe will grow at a higher rate than the overall
aftermarket over the next few years as this segment
of the car parc continues to recover from the impact
of the Great Recession of 2008. Our business
outlook remains favorable and we’re encouraged not
only by the strong demand trends but also by the new
and innovative products and solutions that we expect
to roll out to our customers.
Of course, we’ll continue to monitor worldwide events
and react swiftly to mitigate supply-side constraints
and logistics issues. Thus far, our pricing actions
and cost-saving initiatives have allowed us to offset
the inflation that we have been seeing from freight,
material commodity, and wage rate pressures since
the second half of 2021. Our ability to successfully
navigate and work around these issues is based on
the experience of our global team as well as the long-
standing relationships with our supply partners.
Overall, while the global environment and impact
of inflation remain somewhat uncertain, we’re
confident that we have the right team and tools in
place to navigate this environment and execute our
strategic initiatives. We believe that our Culture
of Contribution, unending focus on innovation,
and commitment to excellence will position us for
continued success. I want to thank our Contributors,
customers, suppliers, shareholders, and other key
stakeholders for your unwavering 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. Adjusted diluted earnings per share is a Non-GAAP measure. A reconciliation of adjusted diluted
earnings per share to diluted earnings per share is included on the page preceding the inside back cover of this Annual Report.
2021-Annual-Report_Dorman.indd 3
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WWW.DORMANPRODUCTS.COM2021 ANNUAL REPORT
WWW.DORMANPRODUCTS.COM2021 ANNUAL REPORTDorman’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 brand. Today the company is publicly listed on the Nasdaq stock exchange under the ticker DORM.THE STORY OFDORMAN PRODUCTSFiscal Year Ended(in thousands, except per share data)20212020201920182017Statement of Operations Data: Net sales$1,345,249$1,092,748 $991,329 $973,705 $903,221 Sales Growth23.1%10.2%1.8%7.8%5.1% Gross profit462,916383,116 339,825 373,281 358,649 Gross profit margin34.4%35.1%34.3%38.3%39.7% Income from operations171,551133,373 105,828 171,143 176,240 Operating margin12.8%12.2%10.7%17.6%19.5% Net income131,532106,870 83,762 133,602 106,599 Earnings per share: Diluted $ 4.12$3.30 $ 2.56 $ 4.02 $ 3.13 Adjusted diluted† $ 4.64$3.45 $ 2.65 $ 4.20 $ 3.37 Balance Sheet and Cash Flow Data: Cash and cash equivalents $58,782 $155,576 $68,353 $43,458 $71,691 Outstanding debt under revolving credit facility239,360–––– Cash provided by operating activities100,338151,966 95,306 78,112 94,241 Capital expenditures19,84015,450 29,560 26,106 24,450 Free cash flow†80,498136,516 65,746 52,006 69,791 Cash used for acquisitions, net of cash acquired345,48314,808 – 28,040 59,987 Share repurchases under repurchase program61,58336,781 39,387 43,386 74,728 † Non-GAAP measures. See NOTE below. 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.Dorman is now a global automotive solutions leader, with more than a dozen facilities and 3,360 employees worldwide*. Headquartered in Colmar, Pennsylvania, Dorman offers more than 118,000 distinct products*, covering both light-duty and heavy-duty vehicles, from chassis to body, from underhood to undercar, and from hardware to complex 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.SELECTED CONSOLIDATED FINANCIAL DATA*As of December 25, 2021.ANNUAL REPORT2021 ANNUAL REPORT WWW.DORMANPRODUCTS.COM2021 ANNUAL REPORTDorman’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 brand. Today the company is publicly listed on the Nasdaq stock exchange under the ticker DORM.THE STORY OFDORMAN PRODUCTSFiscal Year Ended(in thousands, except per share data)20212020201920182017Statement of Operations Data: Net sales$1,345,249$1,092,748 $991,329 $973,705 $903,221 Sales Growth23.1%10.2%1.8%7.8%5.1% Gross profit462,916383,116 339,825 373,281 358,649 Gross profit margin34.4%35.1%34.3%38.3%39.7% Income from operations171,551133,373 105,828 171,143 176,240 Operating margin12.8%12.2%10.7%17.6%19.5% Net income131,532106,870 83,762 133,602 106,599 Earnings per share: Diluted $ 4.12$3.30 $ 2.56 $ 4.02 $ 3.13 Adjusted diluted† $ 4.64$3.45 $ 2.65 $ 4.20 $ 3.37 Balance Sheet and Cash Flow Data: Cash and cash equivalents $58,782 $155,576 $68,353 $43,458 $71,691 Outstanding debt under revolving credit facility239,360–––– Cash provided by operating activities100,338151,966 95,306 78,112 94,241 Capital expenditures19,84015,450 29,560 26,106 24,450 Free cash flow†80,498136,516 65,746 52,006 69,791 Cash used for acquisitions, net of cash acquired345,48314,808 – 28,040 59,987 Share repurchases under repurchase program61,58336,781 39,387 43,386 74,728 † Non-GAAP measures. See NOTE below. 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.Dorman is now a global automotive solutions leader, with more than a dozen facilities and 3,360 employees worldwide*. Headquartered in Colmar, Pennsylvania, Dorman offers more than 118,000 distinct products*, covering both light-duty and heavy-duty vehicles, from chassis to body, from underhood to undercar, and from hardware to complex 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.SELECTED CONSOLIDATED FINANCIAL DATA*As of December 25, 2021.ANNUAL REPORT2021 ANNUAL REPORT WWW.DORMANPRODUCTS.COM2021 ANNUAL REPORTInvestor Relations: Dorman Products, Inc. 3400 E. Walnut Street, Colmar, PA 18915-1800 Phone: 215-997-1800, Ext. 5451 Fax: 215-997-1741 Web: investors.dormanproducts.com Email: investorrelations@dormanproducts.comRecent 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.Steven L. BermanExecutive ChairmanKevin M. OlsenPresident & CEODavid M. HessionSenior Vice President & CFOJoseph P. BraunSenior Vice President, General CounselJeffrey L. DarbySenior Vice President, Sales and MarketingMichael B. KealeyExecutive Vice President, CommercialEXECUTIVE OFFICERSSteven L. Berman, Executive ChairmanKevin M. Olsen, DirectorPresident & Chief Executive OfficerLisa M. Bachmann, DirectorFormer Executive VP, Big Lots, Inc.John J. Gavin, DirectorChairman of GMS Inc.Paul R. Lederer, DirectorRetired Executive VP, Federal-Mogul CorporationRichard T. Riley, DirectorRetired Executive Chairman, LoJack CorporationKelly A. Romano, DirectorFounder & CEO, BlueRipple Capital, LLCG. Michael Stakias, DirectorPresident & CEO, Liberty PartnersJ. Darrell Thomas, DirectorRetired VP & Treasurer, Harley-Davidson, Inc.BOARD OF DIRECTORSDORMAN PRODUCTS’ENHANCED CAPABILITYOur capabilities drive our brand and commitment to growing the aftermarket.INNOVATING FOR THE FUTURE• Deep R&D Investment• Installer Centric MindsetSTART-UP MINDSET• Employee Empowerment• Speed to MarketMARKET LEADERS• Growing the Aftermarket• Category Breadth118K+ PRODUCTS >16 NEW PARTS DAILY~3,360 EMPLOYEES $1.345 BILLION IN NET SALESSHAREHOLDER INFORMATIONStock Listing: The common stock of Dorman Products, Inc. is traded on the Nasdaq Global Select Market under the symbol DORM.Number of Shareholders: At March 24, 2022, there were 169 holders of record of our common stock.Transfer Agent: EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120Auditors: KPMG LLP 1601 Market Street Philadelphia, PA 19103DORMAN AT A GLANCEAS OF THE END OF FISCAL YEAR (12/25/2021)ANNUAL REPORT2021 ANNUAL REPORT 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 25, 2021
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: Trading Symbol(s)
Common Stock, $0.01 Par Value 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.
Emerging growth company
☐
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 26, 2021 was
$2,214,395,974.
As of February 17, 2022, the registrant had 31,545,603 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 2022 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days after December 25, 2021, 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 25, 2021
PART I
Page
Business
ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4.1 Information about Our Executive Officers
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
ITEM 5.
ITEM 6.
ITEM 7.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of
Operations
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
ITEM 8.
Changes in and Disagreements with Accountants on Accounting and Financial
ITEM 9.
Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accounting Fees and Services
ITEM 15. Exhibits and Financial Statement Schedules
ITEM 16. Form 10-K Summary
PART IV
3
11
265
265
276
276
276
28
30
310
409
40
67
67
70
70
71
70
71
72
72
72
73
The Company’s fiscal year ends on the last Saturday of the calendar year.
References to
Fiscal 2019
Fiscal 2020
Fiscal 2021
Refers to the year ended
December 28, 2019
December 26, 2020
December 25, 2021
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, inflation, 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 and light-,
medium-, and heavy-duty trucks in the automotive aftermarket industry. As of December 25, 2021, we
marketed approximately 118,000 distinct parts compared to approximately 81,000 as of December 26,
2020, 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. The
increase in the number of distinct parts in 2021 was largely driven by our acquisition of Dayton Parts. 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 professional installers
and consumers only from original equipment manufacturers or used parts from salvage yards and include,
among other parts, leaf springs, 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 2021,
approximately 73% 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, including through their online platforms;
national, regional and local warehouse distributors; 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 according to the 2022 Auto Care Association Factbook, accounted for projected industry sales of
approximately $324.8 billion in 2021, and parts for medium and heavy-duty trucks, which accounted for
projected industry sales of approximately $94.4 billion in 2021. We sell products into both sectors, with a
majority of our products being designed for the passenger car and light truck sector. Our acquisition of
Dayton Parts in 2021 increased our product offerings in the medium and heavy-duty truck sector.
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.
The largest purchasers of medium- and heavy-duty vehicle aftermarket parts are OE manufacturers,
independent distributors, including organizations associated with large buying groups and other
distributors, as well as independent component specialists and rebuilders, and auto parts stores. The service
work performed on medium- and heavy-duty vehicles is generally completed by end user businesses that
utilize these vehicles in their operations, fleets, and independent garages and distributors, who buy parts
from the purchasers above or in some instances directly from suppliers like us.
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
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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 2021 as compared to 2020. 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.
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 often seek to purchase products from fewer but stronger
suppliers.
Brands and Products
We market our products under the DORMAN® and Dayton Parts® brand names 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.
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DORMAN® Conduct-Tite® - A wide array of electrical components for common repairs as well as
for enthusiasts to customize and upgrade their vehicles.
Dayton Parts® - Complete product offering of brake, spring, steering, suspension, driveline and hitch
& coupling product lines.
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:
Percentage of Net Sales
Year Ended
December 25, 2021
December 26, 2020
Powertrain
Chassis
Automotive Body
Hardware
Total
40 %
34 %
22 %
4 %
100 %
December 28, 2019
40 %
30 %
25 %
5 %
100 %
40 %
30 %
25 %
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,
leaf springs, and other suspension, steering, and brake components. Our line of automotive body products
includes door handles and hinges, window lift motors, window regulators, switches and handles, wiper
components, lighting, electrical, and other interior and exterior automotive body components. Hardware
products include threaded bolts and auto body 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,
historically has enabled us to grow 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. All new product ideas are reviewed by our product management staff and a cross-functional
in-house team to determine potential improvements and inclusions that will create a better user experience.
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
Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
1,625
3,614
5,239
1,433
2,046
3,479
990
3,325
4,315
In 2021, we introduced several new product categories to the aftermarket including: a new upgraded
Dorman® OE FIX™ aluminum oil filter housing solution, aftermarket-exclusive hub rotor and caliper
bracket bolt kits, and new complex electronic solutions, such as cruise control distance sensors, blind spot
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detection modules and other advanced driver assistance system (ADAS) products. Each of these solutions
gives installers and consumers additional choice when searching for reliable, affordable replacements.
Other innovative technologies we released in 2021 include diesel exhaust fluid (DEF) emission
components, including heaters and pumps, and new electronic power steering rack solutions. We also
continued our efforts to find ways to further simplify customer installation efforts through new combination
solutions, such as pre-pressed axle and bearing assemblies.
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 2021, we extended our lines in strategic core categories such as window regulators,
chassis and control arms, valve covers, manifolds, 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 heavy-duty solutions in fiscal 2021 through the acquisition of Dayton Parts,
which lines include leaf springs, brake drums, and various other steering and suspension products. In
addition to these new solutions from Dayton Parts, we also introduced hundreds of new products into our
Dorman® HD Solutions™ line, including a new Diesel Decoder™ tool that enables scanning of engine
diagnostics, new exhaust gas recirculation (EGR) valves, and various new engine and emission sensors.
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 25, 2021:
(i) approximately 56% of our net sales was generated from sales to automotive aftermarket retailers,
including major chains such as Advance, AutoZone and O'Reilly;
(ii) approximately 33% 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 including
through national, regional, and local warehouse distributors, such as FleetPride, and specialty
service shops, and sales to other markets, which include, among others, salvage yards and the
parts distribution systems of OE parts manufacturers as well as mass merchants, such as
Walmart, for our home electrical wiring components.
As of December 25, 2021, we had a sales and sales support team of over 120 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 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.
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As of December 25, 2021, we serviced more than 4,500 active accounts. During fiscal 2021, three
customers each accounted for more than 10% of net sales and in the aggregate accounted for approximately
54% of net sales.
Manufacturing and Procurement
Most 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 2021, as a percentage of our total dollar volume of purchases,
approximately 26% 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 manufacturers 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 2021, 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 2021.
Packaging, Inventory and Shipping
Finished products acquired from third-party suppliers 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 either stocked in the warehouse portions of our facilities or in distribution
centers maintained by our third-party logistics providers 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 by contract carrier, common carrier or parcel service. Products are generally
shipped to each customer's main warehouses for redistribution within its network. In certain circumstances,
at the request of a customer, we ship directly to that 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 a remanufactured replacement part 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
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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
While COVID-19 did not adversely affect demand for our products for the year ended December 25,
2021, during the year we did experience pandemic-related pressures in the global supply network that
caused logistical issues, including higher freight costs, supplier lead time delays of products and inflation
with respect to materials and labor costs, which impacted our results. As countries continue to combat
COVID-19, and as government-imposed regulations regarding, among other things, COVID-19 testing,
vaccine mandates and related workplace restrictions change around the world, there is still a risk that the
pandemic may impact the overall demand environment as well as our ability to maintain staffing at our
facilities, to source parts and other materials to meet demand levels, to maintain inventory levels and to
fulfill contractual requirements. We will continue to closely monitor updates regarding the spread of
COVID-19 and its variants, the distribution of vaccines developed to combat COVID-19, and applicable
vaccine mandates, and we will adjust our operations according to guidelines from local, state and federal
officials. In light of the foregoing, we may take actions that alter our business operations or that we
determine are in the best interests of our employees, customers, suppliers and shareholders.
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 25,
2021, we held 74 patents and 14 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.
9
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 25, 2021, we had 3,360 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
December 25, 2021
U.S.
Non-U.S.
Total
2,534
162
162
161
208
3,227
78
2
39
14
—
133
2,612
164
201
175
208
3,360
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 2021, we adopted an
environmental, health and safety policy outlining our commitment to policies and practices that support the
health and safety of our employees, contractors and the community, and the protection of the environment
in the communities where we operate. We also implemented a human rights policy for the organization
outlining our commitment to operating with respect for human rights.
In response to COVID-19, we implemented and continue to maintain enhanced safety measures in all
our facilities to promote the health and welfare of our employees. We provided employees with
communications and education programs designed to encourage employees to get vaccinated against
COVID-19 when eligible and provided on-site vaccination clinics at our facilities. In addition, we maintain
a COVID-19 sick leave policy providing continued salary and benefits to eligible employees.
Diversity and Inclusion
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. As part of our commitment to diversity,
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in 2021, we appointed our first Vice President of Development and Diversity, responsible for leading our
diversity and inclusion strategy. Moreover, in 2021, we launched our “All In” initiative, a summit focused
on inviting our employees to think and engage more with ideas such as diversity and inclusion to foster a
collaborative environment.
As part of our commitment to a culture of inclusion, our Contributor Resource Group ("CRG")
Program broadens and enhances company-wide interaction opportunities for our employees. Our CRG is
open to all and involves activities for employees whose background is the focus of the CRG and those who
are supportive of the groups that have been formed. These company-wide networks build on and coordinate
with local teams that are already active in our operations and include groups such as those focused on the
experiences of Women, Veteran’s, Multi-Cultural and Early Career Employees.
Talent and Development
Our talent strategy is focused on attracting the best talent, developing their skillsets and experiences
and rewarding their performance. We focus significant attention on attracting and retaining talented and
experienced individuals to manage and support our operations, and our leadership team routinely reviews
employee turnover rates at various levels of the organization. Leadership 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.
We conduct an executive compensation benchmarking review annually to help ensure we are providing
market-based compensation including base salary, short-term incentive and long-term incentives. We also
participate in annual compensation surveys for all positions and strive to compensate our top talent and key
roles competitively. Moreover, we believe our long-term incentives are structured in a manner to provide
time-based vesting schedules that are retentive.
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
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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 number of vehicles on the
road, 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, 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), Meritor, Inc., Automann Inc. 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.
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.
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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 2021, three customers each accounted for more than 10% of net
sales and in the aggregate accounted for approximately 54% 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 structure that will enable
us to offer competitive prices. Our inability to maintain a competitive cost structure or to pass through
increases in costs to our customers 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'
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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 mutations to the virus, the efficacy and
distribution of vaccines and treatments 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, workplace
mandates, 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, or refuse to comply with any COVID-19 workplace mandates, 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 a 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 material 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. For example, certain suppliers in China have been or may in the future be impacted by power
shortages and rolling blackouts as a result of increased demand on factories that export products from China
to economies beginning to reopen after following COVID-19 closures. 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
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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, 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 impacting transportation capacity and costs, such as strikes,
political events, international trade disputes, war, terrorism, natural disasters, adverse weather conditions,
congestion, 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. For example, during 2021, like many other companies, we experienced significantly
higher freight and transportation costs as a result of global transportation and logistics constraints primarily
resulting from the COVID-19 pandemic, which also impacted our ability to readily transport 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.
Significant inflation could adversely affect our business and financial results.
Inflation can adversely affect us by increasing our operating costs, including our materials, freight
and labor costs, which could have an adverse impact on our business or financial results. Inflation also can
have a negative impact on customers’ willingness to purchase our products. In a highly inflationary
environment, we may be unable to raise the sales prices of our products at or above the rate of inflation,
which could reduce our profit margins.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, could
adversely affect our results of operations.
In fiscal 2021, approximately 74% of our products were purchased from suppliers in a variety of non-
U.S. 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.
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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 have 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 2020 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 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
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be adversely affected, which could have a material adverse effect upon our business, financial condition
and results of operations.
Design and 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 design and 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
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 our
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 various areas, including 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 cyber-attack or other security breach of one of our vendors’ systems causes a
disruption in its operations or 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 disrupt our operations or 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.
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
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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 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 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. Moreover, our business may be adversely affected if we fail to
develop adequate branding strategies following acquisitions of companies with their own established
brands. 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.
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 2021, approximately 74% of our products were purchased from suppliers in a variety of non-
U.S. 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 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 those foreign currencies in the future,
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the prices charged by our suppliers under new purchase orders may change in equivalent U.S. dollars. For
example, 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 in the future.
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 labor shortages, a
delay in transportation or an increase in costs of transportation, labor, raw materials or finished
product or otherwise disrupt our business operations; and
disease, epidemics and health-related concerns could result in closed factories, reduced
workforces, scarcity of raw materials and scrutiny and embargoing of goods produced in
infected areas.
If these risks limit or prevent us from acquiring products from foreign suppliers or significantly
increase the cost of our products, our operations could be seriously disrupted until alternative suppliers are
found, which could 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
71% of total accounts receivable as of December 25, 2021 and 82% of total accounts receivable as of
December 26, 2020. In the ordinary course of business, management monitors, among other things, credit
terms and credit limits for these and other customers. In addition, from time to time, some of our customers
request increases in their credit limits. Such requests may pose incremental risks to us, 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 our 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.
Increasing our indebtedness could negatively affect our financial health.
We have a credit agreement with Bank of America, N.A., as administrative agent, which provides
for a $600 million revolving credit facility. As of December 25, 2021, there was $239.4 million in
outstanding borrowings under the credit agreement and two outstanding letters of credit for $0.8 million
in the aggregate.
Borrowings under our credit agreement are at variable rates of interest and expose us to interest rate
risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase
even though the amount borrowed remains the same, and, as a result, our net income and cash flows,
including cash available for servicing our indebtedness, will correspondingly decrease.
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Furthermore, our outstanding indebtedness and any additional indebtedness we incur may have
negative consequences on our business, including, among others: requiring us to use cash to pay the
principal of and interest on our indebtedness, thereby reducing the amount of cash available for other
purposes; limiting our ability to obtain additional financing for working capital, capital expenditures,
acquisitions, stock repurchases, and general corporate or other purposes; and limiting our flexibility in
planning for, or reacting to, changes in our business, industries or the market.
Our ability to make payments of principal and interest on our indebtedness depends upon our future
performance, which is subject to economic and political conditions, industry cycles and financial, business
and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow
from operations to service our indebtedness, we may be required to, among other things: refinance or
restructure all or a portion of our indebtedness; reduce or delay planned capital or operating expenditures;
reduce, suspend or eliminate our stock repurchase program; or sell selected assets. Such measures might
not be sufficient to enable us to service our indebtedness. In addition, any such refinancing, restructuring
or sale of assets might not be available on economically favorable terms or at all, and if prevailing interest
rates at the time of any such refinancing or restructuring are higher than our current rates, interest expense
related to such refinancing or restructuring would increase. The occurrence of any of such events could
have a material adverse effect upon our business, financial condition, results of operations.
Our credit agreement contains covenants that will restrict our operational flexibility. If we cannot
comply with these covenants, we may be in default under our credit agreement.
Our credit agreement contains affirmative and negative covenants, including with regard to
requirements that we maintain specified financial ratios, which limit and restrict our operations and may
hamper our ability to engage in activities that may be in our long-term best interests. Events beyond our
control could affect our ability to meet these and other covenants under the credit agreement. Moreover,
our credit agreement is guaranteed by our material domestic subsidiaries and is supported by a security
interest in substantially all of our and their personal property and assets, subject to certain exceptions.
Our failure to comply with our covenants and other obligations under the credit agreement may result
in an event of default thereunder. A default, if not cured or waived, may permit acceleration of our
indebtedness and provide our lenders with the ability to foreclose on the collateral securing their loans. If
our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay
down the indebtedness (together with accrued interest and fees), or that we will have the ability to refinance
the accelerated indebtedness on terms favorable to us or at all. This 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 experiences financial difficulties or otherwise modifies
or terminates these agreements, we may experience material 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
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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.
The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that, after specified
dates, LIBOR settings will cease to be provided by any administrator or will no longer be representative
of the underlying market and economic reality that such settings are intended to measure. Accordingly,
many existing LIBOR obligations will transition to another benchmark after June 30, 2023. Regulators
have also stated that, for certain purposes, market participants should transition away from U.S. dollar
LIBOR sooner.
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 17, 2022, Steven L. Berman, our Executive Chairman, and his family members
beneficially owned approximately 17% 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. Moreover, sales of substantial
amounts of the shares beneficially owned by Mr. Berman and his family members, including shares held in
family trusts and foundations, or the perception that such sales could occur, may lower the prevailing 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,
decreased transportation capacity, tariffs, labor shortages and 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.
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Our operations, revenues and operating results, and the operations of our third-party
manufacturers, suppliers, warehouse and distribution providers, 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, warehouse and distribution providers, 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 and transportation prices, acts of war, terrorism, cyber incidents,
pandemics, power outages, 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, warehouse and distribution providers, or customers, it could result in harm to people or the natural
environment, delays in shipments of products to customers or suspension of operations. In addition, such
events could result in our inability to fill orders on a timely basis or at all and result in penalties owed to
our customers and the loss of net sales. Any of the foregoing could have a material adverse effect upon our
business, financial condition and results of operations.
We rely extensively on computer systems to manage inventory, process transactions and timely
provide products to our customers. These systems are subject to damage or interruption from power outages,
telecommunications failures, computer viruses, security breaches, cyber-attacks or other catastrophic
events. If these 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 to these 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.
23
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, information technology and operations personnel. Although we periodically conduct
compensation benchmarking and surveys, competition for qualified personnel is often intense, our
compensation programs may not be adequately designed, and we may not be successful in hiring and
retaining these people. In addition, we have seen increased demand and competition for qualified workers
in our manufacturing and distribution centers, where we have experienced labor shortages resulting from
COVID-19 and other economic factors. To the extent such increase in demand or competitive conditions
drives higher wages for those 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, such as Dayton Parts, 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 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.
24
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 export controls and economic sanctions laws and regulations include
restrictions and 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
25
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 25, 2021, we had 28 warehouse and office facilities located throughout the United
States, Canada, China, Taiwan and India. Five of these facilities are owned and the remainder are leased.
Our principal facilities are as follows:
Location
Portland, TN
Warsaw, KY
Colmar, PA
Shiremanstown, PA
Durant, OK
Lewisberry, PA
Florence, KY
Harrisburg, PA
Lewisville, TX
Franklin, KY
Louisiana, MO
Las Vegas, NV
Reno, NV
Kankakee, IL
Sanford, NC
Edmonton, AB
St-Leonard, QC
Mississauga, ON
Virginia Beach, VA
Surrey, BC
Shanghai, China
Springfield, MO
Magnolia, TX
Description
Size
997,310 sq. ft.
710,500 sq. ft.
Warehouse and office
Warehouse and office
Corporate headquarters
Warehouse and office 342,000 sq. ft.
318,872 sq. ft.
Warehouse and office
208,000 sq. ft.
Warehouse and office
170,500 sq. ft.
Warehouse and office
101,250 sq. ft.
Warehouse
101,132 sq. ft.
Manufacturing Facility
101,029 sq. ft.
Warehouse and office
100,000 sq. ft.
Warehouse
90,000 sq. ft.
Warehouse and office
89,728 sq. ft.
Warehouse and office
54,354 sq. ft.
Warehouse and office
53,574 sq. ft.
Manufacturing Facility
52,000 sq. ft.
Warehouse and office
48,400 sq. ft.
Warehouse and office
47,747 sq. ft.
Warehouse
43,524 sq. ft.
Warehouse and office
20,000 sq. ft.
Warehouse and office
19,201 sq. ft.
Manufacturing Facility
16,000 sq. ft.
Office
10,000 sq. ft.
Warehouse and office
9,600 sq. ft.
Warehouse and office
Ownership
Leased
Owned
Leased (1)
Leased
Owned
Leased (2)
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Leased
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 $4.87 per
square foot ($1.7 million per year) in fiscal 2021. 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 paid rent of $4.68 per square foot ($0.7
million per year) in fiscal 2021. 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.
26
ITEM 3. Legal Proceedings.
The information set forth under the heading “Other Contingencies” appearing in Note 10.
“Commitments and Contingencies,” to the Notes to Consolidated Financial Statements contained in PART
IV, ITEM 15 of this report is incorporated herein by reference.
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, 2022:
Name
Steven L. Berman
Kevin M. Olsen
Joseph P. Braun
Jeffrey L. Darby
David M. Hession
Michael B. Kealey
Age
Position with the Company
62
50
47
54
53
47
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
27
Automotive, an automotive parts supplier, beginning in 1990 and held positions in sales and marketing
management.
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 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.
28
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 17, 2022, there were 210 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 dividends in the future 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,
provisions of our existing credit agreement 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 NASDAQ US Benchmark Auto
Parts TR index and the NASDAQ Composite Market Index for the period from December 31, 2016 to
December 25, 2021. The NASDAQ US Benchmark Auto Parts TR index replaces the Morningstar Auto
Parts Index used previously by the Company in this analysis, as Morningstar has changed its methodology
for its index.
The NASDAQ US Benchmark Auto Parts TR index is comprised of 27 public companies and the
information was furnished by Zacks Investment Research, Inc. The graph assumes $100 invested on
December 31, 2016 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. The Morningstar Auto Parts Index is
comprised of 140 public companies and the information was furnished by Morningstar, Inc.
The stock price performance shown in the graph is not necessarily indicative of future price
performance.
29
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.
Stock Repurchases
During the three months ended December 25, 2021, 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)
32,000 $ 149,849,852
19,471 $ 147,745,660
19,650 $ 145,566,100
71,121 $ 145,566,100
Total Number
of Shares
Purchased
34,661 $
21,945 $
25,586 $
82,192
Average
Price Paid
per Share
98.20
107.45
111.04
Period
September 26, 2021 through October 23, 2021 (1)
October 24, 2021 through November 20, 2021 (2)
November 21, 2021 through December 25, 2021 (3)
Total
(1) Includes 121 shares of our common stock withheld from participants for income tax withholding
purposes in connection with the vesting of restricted stock awards (“RSAs”) during the period. The
RSAs were granted to participants in prior periods pursuant to our 2008 Stock Option and Stock
Incentive Plan (the “2008 Plan”). Also includes 2,540 shares purchased from the Dorman Products,
Inc. 401(k) Plan and Trust (as described in Note 12, Capital Stock, to the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K “401(k) Plan”).
(2) Includes 148 shares of our common stock withheld from participants for income tax withholding
purposes in connection with the vesting of RSAs during the period. The RSAs were granted to
participants in prior periods pursuant to our 2018 Stock Option and Stock Incentive Plan (the “2018
Plan”). Also includes 2,326 shares purchased from the 401(k) Plan.
(3) Includes 3,918 shares of our common stock withheld from participants for income tax withholding
purposes in connection with the vesting of RSAs during the period. The RSAs were granted to
participants in prior periods pursuant to the 2008 Plan and 2018 Plan. Also includes 2,018 shares
purchased from the 401(k) 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. 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.
ITEM 6. [Reserved]
30
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 2021 and
2020 results and comparisons of fiscal 2021 results to fiscal 2020 results. Discussions of fiscal 2019 results
and comparisons of fiscal 2020 results to fiscal 2019 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 26, 2020.
Overview
We are one of the leading suppliers of replacement parts and fasteners for passenger cars and light-,
medium-, and heavy-duty trucks in the automotive aftermarket industry. As of December 25, 2021, we
marketed approximately 118,000 distinct parts compared to approximately 81,000 as of December 26,
2020, 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, leaf springs, intake manifolds, exhaust manifolds, window
regulators, radiator fan assemblies, tire pressure monitor sensors, exhaust gas recirculation (EGR) coolers,
and complex electronics modules.
We generate the majority of 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.
We operate on a 52-53-week period ended on the last Saturday of the calendar year. The fiscal years
ended December 25, 2021 (“fiscal 2021”), December 26, 2020 (“fiscal 2020”) and December 28, 2019
(“fiscal 2019”) were 52-week periods.
Business Performance Summary
Net sales increased 23% to $1,345.2 million in fiscal 2021 from $1,092.7 million in fiscal 2020, while
net income increased 23% to $131.5 million in fiscal 2021 from $106.9 million in fiscal 2020. Additionally,
in fiscal 2021 we generated cash flows from operations of $100.3 million and repurchased 605,628 common
shares under our share repurchase program for $61.6 million.
31
Impacts of COVID-19
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.
While COVID-19 did not adversely affect demand for our products for the year ended December 25,
2021, during the period we did experience pandemic-related pressures in the global supply network that
caused logistical issues, including higher freight costs, supplier lead time delays of products, and inflation
with respect to materials and labor costs, which impacted our results. We currently expect those pressures
to continue to exist into fiscal 2022. As countries continue to combat COVID-19, and as government-
imposed regulations regarding, among other things, COVID-19 testing, vaccine mandates and related
workplace restrictions change around the world, there is still a risk that the pandemic may impact the overall
demand environment as well as our ability to maintain staffing at our facilities, to source parts and other
materials to meet demand levels, to maintain inventory levels and to fulfill contractual requirements. We
will continue to closely monitor updates regarding the spread of COVID-19 and its variants, the distribution
of vaccines developed to combat COVID-19, and applicable vaccine mandates, and we will adjust our
operations according to guidelines from local, state and federal officials. In light of the foregoing, we may
take 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 2021, we introduced 4,315 new distinct parts to our customers and end-users, including 990
“New-to-the-Aftermarket” parts. 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 35 electronic modules, with some high-end luxury vehicles containing over 100 modules.
Our 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 2021, we introduced 87 distinct parts in this product line. We expect to continue
to invest in the medium- and heavy-duty product category, as evidenced by our acquisition of Dayton Parts
in fiscal 2021.
32
Acquisitions
Our growth is also impacted by acquisitions. For example, on August 10, 2021, we acquired Dayton
Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the
aftermarket. See Note 2, Business Acquisitions and Investments under Notes to Consolidated Financial
Statements for additional information. 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 12.2 years as of October 2021 from 12.0
years as of October 2020 despite increasing new car sales. Additionally, while the number of VIO in the
United States increased 4% in 2021 to 291.9 million from 279.8 million in 2020, the number of VIO that
are 11 years old or older decreased from 60% in 2020 to 57% in 2021.
Miles Driven
The number of miles driven is another important statistic that impacts our business. According the
U.S. Department of Transportation, the number of miles driven through October 2021 increased 11.2% year
over year. Generally, as vehicles are driven more miles, the more likely it is that parts will fail and there
will be increased demand for replacement parts, including our parts.
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 slow-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
33
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 those foreign currencies in the future,
the prices charged by our suppliers for products under 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.
Since our consolidated financial statements are denominated in U.S. dollars, the assets, liabilities, net
sales, and expenses which are denominated in currencies other than the U.S. dollar must be converted into
U.S. dollars using exchange rates for the current period. As a result, fluctuations in foreign currency
exchange rates may impact our financial results.
Impact of Labor Market and Inflationary Costs
We have experienced broad-based inflationary impacts during the year ended December 25, 2021,
due primarily to global transportation and logistics constraints, which have resulted in significantly higher
34
transportation costs; tariffs; material costs; and wage inflation from an increasingly competitive labor
market. We expect increased freight, higher labor costs and material inflation costs to continue to negatively
impact our results through fiscal 2022. We attempt to offset inflationary pressures with cost saving
initiatives, price increases to customers and the use of alternative suppliers. Although we have implemented
pass-through price increases to offset inflationary cost impacts, the price increases have often been
implemented after we have experienced higher costs resulting in a lag effect to the full recovery of these
costs. Furthermore, pricing increases that we implemented to pass through the increased costs had no added
profit dollars and consequently resulted in lower gross and operating margin percentages. There can be no
assurance that we will be successful in implementing pricing increases in the future to recover increased
inflationary costs.
Impact of Tariffs
In the third quarter of 2018, the Office of the United States Trade Representative (USTR) began
imposing additional tariffs on products imported from China, including many of our products, ranging from
7.5% to 25%. The tariffs enacted to date increase the cost of many of the 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 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 USTR granted temporary tariff relief for certain categories of products being
imported from China. The tariff relief granted by the USTR expired on most categories of products being
imported from China at the end of 2020. However, the USTR has publicly stated that it is considering
reinstating temporary tariff relief on a subset of the previously exempt categories of products imported from
China after October 12, 2021 following its review of public comments submitted to the USTR prior to
December 1, 2021. As of the date of this filing, the USTR has not reinstated exemptions from tariffs on the
subset of previously exempt categories of products imported from China. 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 tariffs are reduced or tariff 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 25, 2021
December 26, 2020
(in thousands, except percentage data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
* Percentage of sales information may not add due to rounding
$ 1,345,249
882,333
462,916
291,365
171,551
2,162
(377 )
169,766
38,234
$ 131,532
100.0 % $ 1,092,748
65.6 % 709,632
34.4 % 383,116
21.7 % 249,743
12.8 % 133,373
599
(2,962 )
12.6 % 135,736
2.8 %
28,866
9.8 % $ 106,870
0.2 %
0.0 %
100.0 %
64.9 %
35.1 %
22.9 %
12.2 %
0.1 %
-0.3 %
12.4 %
2.6 %
9.8 %
35
Fiscal Year Ended December 25, 2021 Compared to Fiscal Year Ended December 26, 2020
Net sales increased 23% to $1,345.2 million in fiscal 2021 from $1,092.7 million in fiscal 2020. The
increase in net sales reflected the addition of Dayton Parts as well as robust customer demand across all our
product channels. Year-over-year net sales growth excluding Dayton Parts for fiscal 2021 was 16%. The
absence of the government imposed shut-downs that negatively impacted fiscal 2020 was also a significant
contributor to the year-over-year growth.
Gross profit margin was 34.4% of net sales in fiscal 2021 compared to 35.1% of net sales in fiscal
2020. Gross margin contraction was driven by broad-based inflationary impacts due to global transportation
and logistics constraints and higher costs from fair value adjustments to inventory recorded in connection
with the Dayton Parts acquisition in fiscal 2021. These factors were partially offset by cost saving initiatives
and price increases. Additionally, we benefitted from the absence of out-of-pocket costs incurred due to the
COVID-19 pandemic in fiscal 2020.
Selling, general and administrative expenses were $291.4 million, or 21.7% of net sales, in fiscal 2021
compared to $249.7 million, or 22.9% of net sales, in fiscal 2020. The decrease in SG&A as a percentage
of net sales was due to the operating leverage from the $252.5 million increase in net sales in fiscal 2021
as compared to fiscal 2020. Additionally, we saw benefits in SG&A as a percentage of net sales from the
absence of out-of-pocket costs related to the COVID-19 pandemic incurred in fiscal 2020. These benefits
were partially offset by wage and benefits inflation and costs related to the completion of the Dayton Parts
acquisition and subsequent integration activities in fiscal 2021.
Our effective tax rate increased to 22.5% in fiscal 2021 from 21.3% in fiscal 2020. The higher
effective tax rate for fiscal 2021 was the result of higher state tax expense and nondeductible transaction
costs related to the Dayton Parts acquisition. The lower fiscal 2020 effective tax rate was the result of a
nontaxable book gain and the write-off of a deferred tax liability in connection with our acquisition of the
controlling interest in Power Train Industries, Inc. (“PTI”) in January 2020, and a foreign tax credit carry-
back claim.
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 25, 2021 decreased to $58.8 million from $155.6 million at
December 26, 2020. Working capital was $411.5 million at December 25, 2021 compared to $600.3 million
at December 26, 2020. Shareholders’ equity was $932.7 million at December 25, 2021 and $853.6 million
at December 26, 2020. 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 10, “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
36
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 2021 and fiscal 2020, we sold
approximately $935.8 million and $740.0 million, respectively, under these programs. If receivables had
not been sold, $598.8 million and $505.1 million of additional receivables would have been outstanding at
December 25, 2021 and December 26, 2020, respectively, based on standard payment terms. We had
capacity to sell more accounts receivable under these programs if the needs of the business warranted.
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
On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a new credit
agreement that provides for a $600 million revolving credit facility, including a letter of credit sub-facility
of up to $60 million (the “New Facility”). The New Facility replaced our previous $100 million revolving
credit facility. The New Facility matures on August 10, 2026, is guaranteed by the Company’s material
domestic subsidiaries (together with the Company, the “Credit Parties”) and is supported by a security
interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.
Borrowings under the New Facility bear interest at a rate per annum equal to, at the Company’s option,
either a LIBOR rate (subject to a 0.00% floor) or a base rate, in each case plus an applicable margin of,
initially (i) in the case of LIBOR rate, 1.250% or (ii) in the case of base rate loans, 0.250%. The applicable
margin for (i) base rate loans ranges from 0.000% to 1.000% per annum and (ii) for LIBOR loans ranges
from 1.000% to 2.000% per annum, in each case, based on the Total Net Leverage Ratio (as defined in the
New Facility). The interest rate at December 25, 2021 was LIBOR plus 125 basis points (1.35%). The
commitment fee is initially equal to 0.150% and thereafter ranges from 0.125% to 0.250% based on the
Total Net Leverage Ratio.
The New Facility contains affirmative and negative covenants, including, but not limited to, covenants
regarding capital expenditures, share repurchases, and financial covenants related to the ratio of
consolidated interest expense to consolidated EBITDA and the ratio of total net indebtedness to
consolidated EBITDA, each as defined by the New Facility.
As of December 25, 2021, we were not in default with respect to the credit agreement. As of
December 25, 2021, there was $239.4 million in outstanding borrowings under the New Facility and two
outstanding letters of credit for $0.8 million in the aggregate which were issued to secure ordinary course
of business transactions. Net of outstanding borrowings and letters of credit, we had $359.8 million
available under the New Facility at December 25, 2021.
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 provided by (used in) financing activities
Effect of foreign exchange on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
$
December 25, 2021
$
December 26, 2020
100,338 $
(365,323 )
168,235
(44 )
(96,794 ) $
151,966
(30,258 )
(34,485 )
—
87,223
During fiscal 2021, cash provided by operating activities was $100.3 million compared to $152.0
million during fiscal 2020. The $51.7 million decrease was driven by higher inventory purchases in the
37
current year to maintain customer fill rates and meet continued strong demand, partially offset by higher
proceeds from accounts receivable due to higher sales of accounts receivable during the year.
Investing activities used $365.3 million and $30.3 million of cash in fiscal 2021 and 2020,
respectively.
Capital spending in fiscal 2021 primarily consisted of $5.0 million in tooling associated with
new products, $5.7 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 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.
During fiscal 2021, we used $345.5 million to acquire Dayton Parts, net of cash acquired, and
during fiscal 2020, we used $14.8 million to acquire the remaining 60% of the outstanding
equity of PTI, net of cash acquired.
Financing activities provided cash of $168.2 million in fiscal 2021 and used cash of $34.5 million in
fiscal 2020.
During fiscal 2021, we borrowed $252.4 million under the New Facility to help fund the
acquisition of Dayton Parts in August 2021, and subsequently repaid $13.0 million of that
borrowing during fiscal 2021. Additionally, during fiscal 2021, we paid $61.5 million to
repurchase 604,628 common shares under our share repurchase plan.
In fiscal 2020, we paid $36.8 million to repurchase 439,275 common shares under the
program.
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.
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 25, 2021 and December 26, 2020. 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.
38
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 owners. Total annual rental payments
each year to those companies under the lease arrangements were $2.3 million and $1.8 million in fiscal
2021 and fiscal 2020, respectively.
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 $18.9
million in fiscal 2021 and $10.7 million in fiscal 2020.
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 judgments 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. Refer to Note 2 to the
Consolidated Financial Statements for additional information.
New and Recently Adopted Accounting Pronouncements
None noted.
39
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 or alternative discount
rates. Under the terms of our credit agreement, a change in either the lender’s base rate or, LIBOR would
affect the rate at which we could borrow funds thereunder. A one percentage point increase in LIBOR or
base rate would have increased our interest expense on our variable rate debt under our credit agreement
by approximately $1.1 million in fiscal 2021.
Under the terms of our customer sponsored programs to sell accounts receivable, a change in either
LIBOR or the discount rates would affect the amount of financing costs we incur, and the amount of cash
we receive upon the sales of accounts receivable under these programs. A one percentage point increase in
LIBOR or the discount rates on the accounts receivable sales programs would have increased our financing
costs by approximately $6.7 million, $5.1 million and $4.4 million in fiscal 2021, fiscal 2020 and fiscal
2019, respectively.
These estimates assume 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.
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 25, 2021.
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.”
40
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 25, 2021 and December 26, 2020, the related consolidated statements of
operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 25, 2021, 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 25, 2021 and
December 26, 2020, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 25, 2021, 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 25,
2021, 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,
2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
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 matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate 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 critical audit matters 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 matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
41
Accrual for customer credits for defective product returns
As disclosed in Notes 1 and 11 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 25, 2021, accrued customer rebates and returns were
$188,080 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.
Fair value of customer relationships intangible asset
As discussed in Note 2 to the consolidated financial statements, on August 10, 2021, the Company
acquired 100% of the equity interests of Dayton Parts (“Dayton”), in a business combination. The
Company acquired a customer relationships intangible asset associated with the generation of future
income from Dayton’s existing customers. The estimated acquisition-date fair value for the customer
relationships intangible asset was approximately $124,100 thousand. The Company used a multiperiod
excess earnings valuation methodology to determine the estimated fair value of the customer
relationships intangible asset.
We identified the evaluation of the estimated fair value of the customer relationships intangible asset
acquired in the Dayton business combination as a critical audit matter. There was a high degree of
subjective auditor judgment related to certain assumptions used in the valuation model. These
assumptions included the forecasted revenue growth rates, customer attrition rate, and the discount rate
applied. In addition, valuation professionals with specialized skill and knowledge were also required to
perform sensitivity analyses to assist us in determining the significant assumptions used to value the
customer relationships intangible asset, assess certain assumptions, and evaluate evidence obtained.
42
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 acquisition-date valuation process, including controls related to the development of the
above assumptions. We evaluated the amount and timing of forecasted revenue growth rates used by
the Company by comparing them to publicly available information for comparable companies, industry
reports, and historical results. We involved valuation professionals with specialized skills and
knowledge, who assisted in:
• performing sensitivity analyses over the Company’s assumptions used to determine the estimated fair
value of the customer relationships intangible asset to assess the impact of changes in those assumptions
on the Company’s determination of fair value
• evaluating the expected customer attrition rate used in the determination of fair value, by comparing
it to an independently developed attrition rate using historical sales data
• assessing the discount rate used in the determination of fair value, by comparing it to a discount rate
that was independently developed using publicly available market data for comparable entities.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Philadelphia, Pennsylvania
February 22, 2022
43
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Other comprehensive income:
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
991,329
$
651,504
339,825
233,997
105,828
231
(210 )
105,807
22,045
83,762
1,092,748 $
709,632
383,116
249,743
133,373
599
(2,962 )
135,736
28,866
106,870 $
1,345,249 $
882,333
462,916
291,365
171,551
2,162
(377 )
169,766
38,234
131,532 $
$
Change in foreign currency translation adjustment
Comprehensive Income
$
$
(1,440 ) $
130,092 $
— $
106,870 $
—
83,762
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
4.13 $
4.12 $
3.31 $
3.30 $
31,810
31,961
32,280
32,373
2.57
2.56
32,606
32,688
See accompanying Notes to Consolidated Financial Statements.
44
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 25, 2021
December 26, 2020
$
58,782 $
155,576
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$1,326 and $1,260
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
Revolving credit facility
Other accrued liabilities
Total current liabilities
Long-term operating lease liabilities
Other long-term liabilities
Deferred tax liabilities, net
Commitments and contingencies (Note 10)
Shareholders' equity:
$
$
Common stock, par value $0.01; authorized 50,000,000 shares;
issued and outstanding 31,607,509 and 32,168,740 shares in 2021
and 2020, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
$
472,764
531,988
13,048
1,076,582
114,864
59,029
197,332
178,809
—
46,503
1,673,119 $
177,389 $
26,636
188,080
239,360
33,583
665,048
52,443
4,916
17,976
316
77,451
856,409
(1,440 )
932,736
1,673,119 $
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
322
64,085
789,152
—
853,559
1,220,661
See accompanying Notes to Consolidated Financial Statements.
45
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
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
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
Other comprehensive loss
Net income
Balance at December 25, 2021
Common Stock
Shares
Issued
Additional
Paid-In
Capital
Par
Value
Retained
Earnings
33,004,861 $ 330 $ 47,861 $ 679,432 $
—
14,227 —
123
Accumulated
Other
Comprehensive
Loss
Total
— $ 727,623
123
—
— —
3,077
—
—
3,077
(521,944 )
(5 )
(939 ) (40,395 )
— (41,339 )
1,376
1,107
69,826
1
(10,707 ) —
— —
—
(2,146 )
— 83,762
32,556,263 326 52,605 720,653
—
27,787 —
1,184
1,377
—
—
(1,039 )
— 83,762
— 773,584
1,184
—
— —
7,586
—
—
7,586
(462,635 )
(5 )
(833 ) (37,838 )
— (38,676 )
53,572
1
(6,247 ) —
— —
—
3,462
81
(533 )
— 106,870
32,168,740 322 64,085 789,152
—
41,700 —
2,455
3,463
—
—
(452 )
— 106,870
— 853,559
2,455
—
— —
8,228
—
—
8,228
(617,080 )
(6 )
(1,111 ) (61,639 )
— (62,756 )
28,914 —
(14,765 ) —
— —
— —
—
3,261
(2,636 )
533
—
—
— 131,532
31,607,509 $ 316 $ 77,451 $ 856,409 $
—
—
(1,440 )
3,261
(2,103 )
(1,440 )
— 131,532
(1,440 ) $ 932,736
See accompanying Notes to Consolidated Financial Statements.
46
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
$
131,532 $
106,870 $
83,762
(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 for doubtful accounts
(Benefit) provision from deferred income taxes
Provision for stock-based compensation
Payment of contingent consideration
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
Cash used in investing activities
Cash Flows from Financing Activities:
Proceeds of revolving credit line
Payments of revolving credit line
Payment of contingent consideration
Payment of debt issuance costs
Other stock related activity
Proceeds from exercise of stock options
Purchase and cancellation of common stock
Cash provided by (used in) financing
activities
Effect of exchange rate changes on Cash and Cash
Equivalents
Net (Decrease) Increase in Cash and Cash
Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Cash Flow Information
35,193
—
181
(11,970 )
8,228
(2,418 )
10,918
(153,823 )
(2,680 )
(5,004 )
47,000
31,275
11,906
100,338
(345,483 )
(19,840 )
(365,323 )
252,360
(13,000 )
(7,982 )
(4,215 )
1,266
2,455
(62,649 )
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 )
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 )
168,235
(34,485 )
(40,851 )
(44 )
—
—
(96,794 )
155,576
58,782 $
87,223
68,353
155,576 $
24,895
43,458
68,353
338
28,923
Cash paid for interest expense
Cash paid for income taxes
$
$
1,782 $
46,225 $
753 $
28,341 $
See accompanying Notes to Consolidated Financial Statements.
47
DORMAN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2021
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 and light-, medium-, and heavy-duty trucks in the automotive
aftermarket industry.
We operate on a 52-53-week period ending on the last Saturday of the calendar year. The fiscal years
ended December 25, 2021 (“fiscal 2021”), December 26, 2020 (“fiscal 2020”) and December 28, 2019
(“fiscal 2019”) were each 52-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 (“GAAP”)
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 2021, fiscal 2020 and fiscal 2019, we sold $935.8 million, $740.0 million and
$676.4 million, respectively, under these programs. Selling, general and administrative expenses include
financing costs associated with these accounts receivable sales programs of $11.7 million, $13.2 million
and $16.7 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. Financing costs are impacted
both by interest rates and the timing of when accounts receivable are sold in comparison to the original due
dates of those accounts receivable.
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 the 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
48
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 its fair value. The assets and liabilities of a
disposal group classified as held for sale 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 would no longer be depreciated.
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. For 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 2021
and fiscal 2020, we assessed the qualitative factors which could affect the fair values of our reporting unit
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 12 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 $20.8 million and $19.6 million as of December 25, 2021 and
December 26, 2020, 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 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 $9.4 million and $8.5 million as of December 25, 2021 and
December 26, 2020, respectively. These investments provided us $4.6 million, $1.3 million and $3.2
million of income during fiscal 2021, fiscal 2020, and fiscal 2019, respectively. In January 2020, we
49
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, we have 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 both December 25, 2021 and 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 25, 2021 and December 26, 2020 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 2021, fiscal 2020 or fiscal 2019.
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 contains 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 $23.1 million, $20.7 million and $21.0 million have been recorded in
selling, general and administrative expenses in the Consolidated Statements of Operations for fiscal 2021,
fiscal 2020, and fiscal 2019, respectively.
Stock-Based Compensation. At December 25, 2021 and December 26, 2020, we had awards
outstanding under two stock-based employee compensation plans, which are described more fully in Note
12, Capital Stock. We record compensation expense for all awards granted. The value of restricted stock
awards (“RSAs”) and restricted stock units (“RSUs”) issued was based on the fair value of our common
stock on the grant date. For performance-based RSAs 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 RSUs, for
which the performance measure is total shareholder return, is determined using a Monte Carlo simulation
model. The fair value of stock options granted is 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
50
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 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 71% and 82% of net accounts receivable as of December 25, 2021 and December 26, 2020,
respectively. We continually monitor the credit terms and credit limits to these and other customers.
In fiscal 2021 and fiscal 2020, approximately 74% and 77%, respectively, of our products were
purchased from suppliers located in a variety of foreign countries, with the largest portion coming from
China.
Fair Value Disclosures. The carrying value of financial instruments such as cash 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. Business Acquisitions and Investments
DPL Holding Corporation (“Dayton Parts”)
On August 10, 2021, we acquired 100% of the equity interests of Dayton Parts, a manufacturer of
chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket for a purchase
price of $344.9 million in cash (net of $8.8 million of acquired cash), after certain customary post-
acquisition purchase price adjustments.
The acquisition was funded by cash on hand as well as through the refinancing of our revolving credit
facility discussed further in Note 7.
The transaction was accounted for as a business combination under the acquisition method of
accounting. We have allocated the purchase price to tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values.
During the year ended December 25, 2021, we recorded measurement and period adjustments of
approximately $2.1 million to decrease goodwill, $0.6 million to decrease the purchase price due to
customary net working capital adjustments, $0.1 million to increase other current liabilities, and $1.6
million to decrease deferred tax liabilities. Our measurement period adjustments for Dayton Parts were
complete as of December 25, 2021.
51
The table below details the fair values of the assets acquired and the liabilities assumed at the
acquisition date, including applicable measurement period adjustments:
(in thousands)
Accounts receivable
Inventories
Prepaids and other current assets
Property, plant and equipment
Goodwill
Identifiable intangible assets
Operating lease right-of-use assets
Other assets
Accounts payable
Accrued compensation
Other current liabilities
Long-term operating lease liabilities
Deferred tax liabilities
Net cash consideration
$
$
23,216
79,625
2,302
29,900
106,816
160,400
21,248
848
(11,970 )
(2,784 )
(7,604 )
(18,444 )
(38,665 )
344,888
The estimated valuation of the intangible assets acquired, and related amortization periods are as
follows:
(in thousands)
Customer relationships
Product portfolio
Trade names
Total
Fair Value
Amortization Period
(in years)
$
$
124,100
25,300
11,000
160,400
20
20
10
The fair values assigned to intangible assets were estimated by discounting expected cash flows based
on the relief from royalty and multi-period excess earnings valuation methodologies. These valuation
methods rely on management judgment, including expected future cash flows resulting from existing
customer relationships, customer attrition rates, contributory effects of other assets utilized in the business,
royalty rates and other factors.
The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to
the Company’s and Dayton Parts’ existing automotive aftermarket businesses, the assembled workforce of
Dayton Parts and other factors. The goodwill is not expected to be deductible for tax purposes.
The financial results of the acquisition have been included in the consolidated financial statements
since the date of acquisition. The net sales and net income of Dayton Parts included in the consolidated
financial statements for the fiscal year ended December 25, 2021 were $78.0 million and $0.0 million,
respectively.
The unaudited pro forma information for the periods set forth below gives effect to the Dayton Parts
acquisition as if it had occurred as of December 28, 2019, the beginning of the fiscal 2020 period.
The pro forma information is presented for informational purposes only and is not necessarily
indicative of the results of operations that would have been achieved had the acquisition been consummated
as of that time.
For the Year Ended
(in thousands, unaudited)
Net sales
Net income
Diluted earnings per share
52
December 26, 2020
December 25, 2021
$
$
$
1,468,415 $
147,090 $
4.60 $
1,260,077
100,334
3.10
The fiscal 2021 unaudited pro forma net income set forth above was adjusted to exclude the impact
of acquisition date fair value adjustments to inventory, and to also remove acquisition-related transaction
costs. The 2020 unaudited pro forma net income was adjusted to include the impact of these items.
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.
The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to
existing automotive aftermarket businesses, the assembled workforce of PTI and other factors. The
goodwill is not expected to be deductible for tax purposes.
The financial results of the acquisition have been included in the Consolidated Financial Statements
since the date of acquisition.
3. Inventories
Inventories were as follows:
(in thousands)
Raw materials
Bulk product
Finished product
Packaging materials
Total
December 25, 2021
December 26, 2020
12,746 $
225,879
287,415
5,948
531,988 $
—
136,726
157,484
4,509
298,719
$
$
53
4. 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 25, 2021
$
December 26, 2020
$
58,788
146,999
7,303
90,471
303,561
(188,697 )
$
114,864
37,676
131,853
5,468
84,922
259,919
(168,910 )
91,009
Depreciation and amortization expenses associated with property, plant, and equipment were $26.3
million, $26.6 million, and $25.4 million in fiscal 2021, fiscal 2020, and fiscal 2019, respectively.
5. 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 the asset and to obtain substantially all of the economic benefit from
its use. 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 10 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 commonly quoted 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 material finance leases as of December 25, 2021 or December 26, 2020.
Practical Expedients and Accounting Policy Elections
We have made certain accounting policy elections and are using certain practical expedients permitted
under GAAP, as follows:
Include both lease and non-lease components as a single lease component, as non-lease
components of contracts have not historically been material.
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 25, 2021 and December 26, 2020 there were no material variable lease costs or
sublease income. Cash paid for operating leases was $9.2 million, $7.7 million and $6.0 million during
54
fiscal 2021, 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:
(in thousands)
Operating lease expense
Short-term lease expense
Total lease expense
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
7,362
$
4,547
11,909
7,732 $
3,647
11,379 $
9,549 $
3,172
12,721 $
$
Supplemental balance sheet information related to our operating leases is as follows:
(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 25, 2021
59,029 $
December 26, 2020
39,002
10,065 $
52,443
62,508 $
7.55
3.73 %
5,470
37,083
42,553
8.94
5.55 %
The following table summarizes the maturities of our lease liabilities for all operating leases as of
December 25, 2021:
(in thousands)
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
December 25, 2021
$
12,097
10,388
8,933
7,374
7,293
26,867
72,952
(10,444 )
62,508
$
In February of 2022, we signed a binding letter of intent for warehouse and distribution services that
increases future lease payments for operating leases by a total of approximately $53 million over 12 years.
6. Goodwill and Intangible Assets
Goodwill
Goodwill included the following:
(in thousands)
Balance at beginning of period
Goodwill acquired
Measurement period adjustments for Dayton acquisition
Foreign currency translation
Balance at end of period
$
$
December 25, 2021
December 26, 2020
91,080 $
108,945
(2,130 )
(563 )
197,332 $
74,458
16,622
—
—
91,080
55
Intangible Assets
Intangible assets, subject to amortization, included the following:
Intangible assets subject to
amortization
(dollars in thousands)
Customer relationships
Trade names
Product Portfolio
Technology
Other
Total
December 25, 2021
December 26, 2020
Weighted
Average
Amortization
Period (years)
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
18.6
10.0
19.9
6.9
2.7
$ 149,150 $
17,760
25,300
2,167
430
$ 194,807 $
12,139 $ 137,011 $ 25,050 $
6,760
2,592 15,168
—
460 24,840
2,167
1,596
571
430
194
236
15,998 $ 178,809 $ 34,407 $
7,141 $ 17,909
5,175
1,585
—
—
1,844
323
279
151
9,200 $ 25,207
Amortization expense associated with intangible assets was $6.5 million, $3.4 million and $2.6
million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. The estimated future amortization expense
for intangible assets as of December 25, 2021, is summarized as follows:
(in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
7. Long-Term Debt
$
$
11,954
11,954
11,810
11,453
10,418
121,220
178,809
On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a new credit
agreement that provides for a $600 million revolving credit facility, including a letter of credit sub-facility
of up to $60 million (the “New Facility”). The New Facility replaced our previous $100 million revolving
credit facility. The New Facility matures on August 10, 2026 and is guaranteed by the Company’s material
domestic subsidiaries (together with the Company, the “Credit Parties”) and is supported by a security
interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.
Borrowings under the New Facility bear interest at a rate per annum equal to, at the Company’s option,
either a LIBOR rate (subject to a 0.00% floor) or a base rate, in each case plus an applicable margin of,
initially (i) in the case of LIBOR rate, 1.250% or (ii) in the case of base rate loans, 0.250%. The applicable
margin for (i) base rate loans ranges from 0.000% to 1.000% per annum and (ii) for LIBOR loans ranges
from 1.000% to 2.000% per annum, in each case, based on the Total Net Leverage Ratio (as defined in the
New Facility). The commitment fee is initially equal to 0.150% and thereafter ranges from 0.125% to
0.250% based on the Total Net Leverage Ratio. As of December 25, 2021, the interest rate on the
outstanding borrowings under the New Facility was 1.35% and the commitment fee was 0.15%.
The New Facility contains affirmative and negative covenants, including, but not limited to, covenants
regarding capital expenditures, share repurchases, and financial covenants related to the ratio of
consolidated interest expense to consolidated EBITDA and the ratio of total net indebtedness to
consolidated EBITDA, each as defined by the New Facility. As of December 25, 2021, we were not in
default with respect to the New Facility.
56
8. 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
$2.3 million, $1.8 million, and $1.6 million in fiscal 2021, fiscal 2020 and fiscal 2019, 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.
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 $18.9 million, $10.7 million and $23.2 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.
9. Income Taxes
The components of the income tax provision (benefit) are as follows:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
$
$
43,374 $
5,755
1,075
50,204
(9,609 )
(1,368 )
(993 )
(11,970 )
38,234 $
33,698 $
4,276
491
38,465
(8,475 )
(893 )
(231 )
(9,599 )
28,866 $
19,090
2,091
(194 )
20,987
2,084
(280 )
(746 )
1,058
22,045
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
December 25, 2021
For the Year Ended
December 26, 2020
December 28, 2019
21.0 %
2.1
(0.4 )
—
(0.2 )
—
22.5 %
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 %
At December 25, 2021, we had $1.2 million of unrecognized tax benefits, all of which would affect
our effective tax rate if recognized.
57
The following table summarizes the change in unrecognized tax benefits for the three years ended
December 25, 2021:
(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
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
2,390
$
(200 )
—
(28 )
2,301 $
—
(1,308 )
(202 )
1,060 $
—
—
(30 )
$
174
1,204 $
269
1,060 $
139
2,301
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of
December 25, 2021, 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
Net operating losses
Foreign tax credits
State tax credits
Capital loss carryforward
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 (liabilities)
assets
December 25, 2021 December 26, 2020
$
13,689 $
18,589
14,526
7,515
1,892
469
819
467
57,966
(1,837 )
56,129
14,541
45,522
13,733
309
74,105
11,346
16,452
9,352
3,671
304
631
625
—
42,381
(1,256 )
41,125
10,586
12,419
8,560
929
32,494
$
(17,976 ) $
8,631
A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
When determining the amount of net deferred tax assets that are more likely than not to be realized, the
Company assesses all positive and negative evidence. This evidence includes, but is not limited to, prior
earnings history, expected future earnings, carryback and carryforward periods and the feasibility of
ongoing tax strategies that could potentially enhance the likelihood of the realization of the deferred tax
asset. Management has determined it was necessary to establish a valuation allowance against the foreign
tax credits, various state tax credits and a capital loss from investment.
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.
During the year, we adjusted the valuation allowance against the deferred tax assets noted above by
$0.6 million primarily due to the increase in capital loss carryforward.
58
As of December 25, 2021, the Company has tax-effected net operating loss carryforwards of $1.7
million and $0.2 million for U.S federal and state jurisdictions, respectively. Tax-effected federal net
operating losses of $0.1 million begin to expire in 2035. The remaining federal net operating losses do not
expire. The state net operating loss carryforwards expire in various years starting in 2037.
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 2017 are closed for the states in which we
file. Tax years before 2018 are closed for tax purposes in Canada. Tax years before 2018 are closed for tax
purposes in China. Tax years before 2016 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.
10. 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. We have cooperated with CBP in
connection with its review of our prior disclosure submission, including providing additional information
as requested. CBP has not yet communicated that its review of our prior disclosure submission is completed.
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. During the fiscal year ended December 25, 2021, we paid $10.4 million in contingent
consideration in connection with prior acquisitions based upon performance targets. As of December 26,
59
2020, we had accrued approximately $8.0 million, which represented our estimate at the time of the fair
value of the estimated payments that would have become due in connection with these prior acquisitions if
performance targets are achieved. Changes in the accrual balance during fiscal 2020 and fiscal 2019 were
included in Selling, General and Administrative expenses in each of the respective periods. If the remaining
performance targets are fully achieved, the maximum additional contingent payments to be made under the
related acquisition agreements would be $3.6 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.
11. Revenue Recognition
Business Description
We are a supplier of replacement parts and fasteners for passenger cars and light-, medium- 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.
Our primary source of revenue is from contracts with and purchase orders from customers. In most
instances, our contract with a customer is the customer’s purchase order. Upon acceptance of the purchase
order, a contract exists with a customer as a sales agreement indicates approval and commitment of the
parties, identifies the rights of both parties, identifies the payment terms, and has commercial substance. At
this point, we believe it is probable that we will collect the consideration to which we will be entitled in
exchange for the goods transferred to the customer.
For certain customers, we may also enter into a sales agreement that 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 that have an initial term of one year or less as permitted by GAAP.
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
60
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 standard.
All of our revenue was recognized under the point of time approach during fiscal 2021, fiscal 2020
and fiscal 2019. Also, we do not have significant financing arrangements with our customers. Our credit
terms are all less than one year. Lastly, we do not receive noncash consideration (such as materials or
equipment) from our customers to facilitate the fulfillment of our contracts.
Practical Expedients and Accounting Policy Elections
We have made certain accounting policy elections and are using certain practical expedients permitted
under GAAP, as follows:
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.
Expense costs to obtain a contract as incurred when the expected period of benefit, and therefore
the amortization period, is one year or less.
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.
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.
Disaggregated Revenue
The following tables present our disaggregated net sales by type of major good / product line, and
geography.
(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
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
395,975
297,350
251,506
46,498
991,329
442,221 $
324,399
266,699
59,429
1,092,748 $
539,235 $
458,986
288,599
58,429
1,345,249 $
$
$
For the Year Ended
December 25, 2021 December 26, 2020 December 28, 2019
929,908
$
61,421
991,329
1,031,183 $
61,565
1,092,748 $
1,269,050 $
76,199
1,345,249 $
$
During fiscal 2021 and fiscal 2020, three customers each accounted for more than 10% of net sales
and in the aggregate accounted for 54% and 56% of net sales in fiscal 2021 and fiscal 2020, respectively.
In fiscal 2019, four customers each accounted for more than 10% of net sales and in the aggregate accounted
for approximately 66% of net sales.
12. Capital Stock
Controlling Interest by Officers, Directors and Family Members. As of December 25, 2021 and
December 26, 2020, Steven Berman, the Executive Chairman of the Company, and members of his family
61
beneficially owned approximately 17% and 18% of the outstanding shares of our common stock,
respectively and could 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 25, 2021,
727,834 shares were available for grant under the Plan.
Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”)
Prior to March 2020, we issued RSAs to certain employees and members of our Board of Directors.
Grants were made in the form of time-based RSAs and performance-based RSAs. For all RSAs, we retain
the restricted stock, and any dividends paid thereon, until the vesting restrictions have been met. For time-
based RSAs, 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 RSAs 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 RSAs 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 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 RSUs to certain employees and members of our Board
of Directors. For time-based RSUs, 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 RSUs 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 RSUs 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.
62
The following table summarizes the weighted average valuation assumptions used to calculate the fair
value of total shareholder return performance-based RSAs and performance-based RSUs granted:
Share price
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life
December 25, 2021
$
101.45 $
0.0 %
38.9 %
0.2 %
2.8 years
For the Year Ended
December 26, 2020
December 28, 2019
82.03
61.68 $
0.0 %
31.5 %
0.9 %
2.8 years
0.0 %
27.7 %
2.5 %
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 RSAs and RSU’s
granted during fiscal 2021, fiscal 2020, and fiscal 2019 were $131.02, $65.09, and $81.44, respectively.
Compensation cost related to performance-based and time-based RSAs and RSUs was $6.1 million,
$3.2 million and $2.1 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively, and was included in
selling, general and administrative expense in the Consolidated Statements of Operations. No cost was
capitalized during fiscal 2021, fiscal 2020 or fiscal 2019.
The following table summarizes our RSA and RSU activity for the three years ended December 25,
2021:
Balance at December 29, 2018
Granted
Vested
Canceled
Balance at December 28, 2019
Granted
Vested
Canceled
Balance at December 26, 2020
Granted
Vested
Canceled
Balance at December 25, 2021
Weighted
Average Fair
Value
Shares
170,737 $
92,396 $
(41,586 ) $
(44,056 ) $
177,491 $
83,875 $
(27,477 ) $
(16,154 ) $
217,735 $
81,694 $
(45,970 ) $
(46,782 ) $
206,677 $
63.94
81.92
55.72
58.03
76.70
64.66
71.25
76.44
72.77
106.23
70.62
74.85
85.97
As of December 25, 2021, there was approximately $9.7 million of unrecognized compensation cost
related to unvested RSAs and RSUs, which is expected to be recognized over a weighted-average period of
approximately 2.3 years.
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
RSAs and RSUs 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 $1.3 million, $1.0 million and $0.7 million in fiscal 2021, fiscal 2020 and fiscal 2019,
respectively, and was included in selling, general and administrative expense in the Consolidated
Statements of Operations. No cost was capitalized during fiscal 2021, fiscal 2020 or fiscal 2019.
63
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 Year Ended
December 25, 2021
December 26, 2020
December 28,
2019
0 %
34 %
0.7 %
0 %
29 %
0.8 %
$
5.3 years
31.68
$
5.3 years
17.84
$
0 %
28 %
2.3 %
5.4 years
24.32
The following table summarizes our stock option activity for the three years ended December 25,
2021:
Balance at December 29, 2018
Granted
Exercised
Canceled
Balance at December 28, 2019
Granted
Exercised
Canceled
Balance at December 26, 2020
Granted
Exercised
Canceled
Balance at December 25, 2021
Exercisable at December 25, 2021
Shares
188,469
Option Price
per Share
$7.74 – $82.94
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
$
$
$
$
$
$
$
$
$
59,578 $95.98 – $103.61 $
$
(67,504 ) $41.59 – $82.94
(9,457 ) $61.68 – $101.45 $
233,396 $61.68 – $103.61 $
$
70,488 $61.68 – $84.93
Weighted
Average
Remaining
Terms
(years)
Aggregate
Intrinsic
Value (in
thousands)
Weighted
Average
Price
66.14
81.84
58.96
75.52
70.78
63.25
50.77
65.24
70.21
101.36
70.04
79.02
77.85
73.40
5.5 $ 6,664
4.1 $ 2,328
As of December 25, 2021, there was approximately $1.7 million of unrecognized compensation cost
related to unvested stock options, which is expected to be recognized over a weighted-average period of
approximately 2.3 years.
Cash received from option exercises was $2.5 million, $1.2 million, and $0.1 million in fiscal 2021,
fiscal 2020 and fiscal 2019, respectively. The tax benefit generated from option exercises was immaterial
for all periods presented.
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 were
64
made twice annually, with the purchase windows being April to September and October to March. In 2021,
the decision was made to modify the timing of those two purchase windows to align them with the calendar
year. As a result, beginning January 2022, the two purchase windows are January to June and July to
December. In order to effectuate that alignment, the purchase window beginning in October 2021 was
shortened from six months to three months and ended December 2021. There were 40,303 shares, 79,089
shares and 21,200 shares purchased under this plan during fiscal 2021, fiscal 2020 and fiscal 2019,
respectively. Compensation cost under the ESPP plan was $0.9 million, $3.3 million and $0.3 million in
fiscal 2021, fiscal 2020 and fiscal 2019, respectively. The tax benefit generated from ESPP purchases was
immaterial in fiscal 2021, fiscal 2020, and fiscal 2019, respectively.
Common Stock Repurchases. We periodically repurchase, at the then current market price, and
cancel common stock issued to the Dorman Products, Inc. 401(k) Plan and Trust (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:
For the Year Ended
Shares repurchased and canceled
Total cost of shares repurchased and canceled
(in thousands)
Average price per share
December 25, 2021 December 26, 2020
23,360
11,452
December 28, 2019
22,380
$
$
1,172
102.38
$
$
1,895
81.12
$
$
1,953
87.26
At December 25, 2021, the 401(k) Plan held 183,916 shares of our common stock.
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 25, 2021, $145.6 million was available for
repurchase under this program.
The following table summarizes the repurchase and cancellation of common stock:
Shares repurchased and canceled
Total cost of shares repurchased and canceled
(in thousands)
Average price per share
December 25, 2021
605,628
For the Years Ended
December 26, 2020
439,275
December 28, 2019
499,564
$
$
61,583
101.68
$
$
36,781
83.73
$
$
39,387
78.84
401(k) Retirement Plans. The 401(k) Plan and the Dayton Parts, LLC 401(k) Savings Plan (the
“Dayton 401(k) Plan”) are both defined contribution profit sharing and 401(k) plans that together cover
substantially all of our employees as of December 25, 2021. Annual company contributions under both the
401(k) Plan and Dayton 401(k) Plan are discretionary in nature, in accordance with the respective plan
documents. Total expense related to the 401(k) Plan and Dayton 401(k) Plan were $6.3 million, $5.7 million
and $4.5 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.
13. Earnings Per Share
Basic earnings per share was calculated by dividing our net income by the weighted average number
of common shares outstanding during the period, excluding unvested RSAs which are considered to be
contingently issuable. To calculate diluted earnings per share, common share equivalents are added to the
65
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 14,250 shares, 35,975 shares and 92,000 shares were excluded from the calculation of
diluted earnings per share for fiscal 2021, fiscal 2020 and fiscal 2019, 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 25, 2021 December 26, 2020 December 28, 2019
$
131,532 $
106,870 $
83,762
Weighted average basic shares outstanding
Effect of compensation awards
Weighted average diluted shares outstanding
31,810
151
31,961
32,280
93
32,373
Earnings Per Share:
Basic
Diluted
14. Business Segments
$
$
4.13 $
4.12 $
3.31 $
3.30 $
32,606
82
32,688
2.57
2.56
We have determined that our business comprises a single reportable operating segment, namely, the
sale of replacement parts and fasteners for passenger cars and, light-, medium-, 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 2021, fiscal 2020 and fiscal 2019 were $76.2 million,
$61.6 million and $61.4 million, respectively.
Net long-lived assets outside the United States, consisting of net property, plant and equipment was
$1.0 million as of December 25, 2021. There were no long-lived assets outside of the United States as of
December 26, 2020.
66
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.
On August 10, 2021, we completed our acquisition of DPL Holding Corporation (“Dayton Parts”).
We are in the process of evaluating the existing controls and procedures of Dayton Parts and integrating
Dayton Parts into our internal control over financial reporting. In accordance with SEC Staff guidance
permitting a company to exclude an acquired business from management’s assessment of the effectiveness
of internal control over financial reporting for one year following the date on which the acquisition is
completed, we have excluded Dayton Parts from our assessment of the effectiveness of internal control
over financial reporting as of December 25, 2021. Dayton Parts represented approximately 26% of the
Company’s consolidated total assets as of December 25, 2021, and approximately 6% of the Company’s
consolidated net sales for the year ended December 25, 2021. Refer to Note 2 to the Consolidated Financial
Statements for additional information.
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). Management, with the participation of our
Chief Executive Officer and Chief Financial Officer, conducted an evaluation, as of December 25, 2021,
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. Based on this evaluation, management concluded that our internal control over
financial reporting was effective as of December 25, 2021.
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
Except for the acquisition of Dayton Parts noted above, 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 25, 2021, that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
67
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 25, 2021, 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 25, 2021, 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 25, 2021 and
December 26, 2020, the related consolidated statement of operations and comprehensive income,
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 25,
2021, and the related notes and financial statement schedule II (collectively, the consolidated financial
statements), and our report dated February 22, 2022 expressed an unqualified opinion on those consolidated
financial statements.
The Company acquired DPL Holding Corporation during 2021, and management excluded from its
assessment of the effectiveness of the Company’s internal control over financial reporting as of December
25, 2021, DPL Holding Corporation’s internal control over financial reporting associated with 26% of total
assets and 6% of total net sales included in the consolidated financial statements of the Company as of and
for the year ended December 25, 2021. Our audit of internal control over financial reporting of the Company
also excluded an evaluation of the internal control over financial reporting of DPL Holding Corporation.
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
68
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, 2022
69
ITEM 9B. Other Information.
None
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None
70
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 2022 Annual Meeting of Shareholders, including, but not necessarily limited to, the
sections entitled “Proposal I: Election of Directors,” “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, the “Dorman Products, Inc. Code of Ethics and Business
Conduct” 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”). Each of these codes 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
2022 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 2022 Annual Meeting of Shareholders, including, but not necessarily
limited to, the section entitled “Security Ownership of Certain Beneficial Owners and Management –
Security Ownership Table.”
71
Equity Compensation Plan Information
The following table details information regarding our existing equity compensation plans as of
December 25, 2021:
(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
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The required information is incorporated by reference from our definitive proxy statement for our
2022 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
2022 Annual Meeting of Shareholders, including, but not necessarily limited to, the sections entitled
“Principal Accountant Fees and Services” and “Pre-Approval Policies and Procedures.”
72
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 (PCAOB ID: 185).
Consolidated Statements of Operations for the fiscal years ended December 25, 2021,
December 26, 2020 and December 28, 2019.
Consolidated Balance Sheets as of December 25, 2021 and December 26, 2020.
Consolidated Statements of Shareholders' Equity for the fiscal years ended December 25, 2021,
December 26, 2020 and December 28, 2019.
Consolidated Statements of Cash Flows for the fiscal years ended December 25, 2021,
December 26, 2020, and December 28, 2019.
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
73
Number Title
2.1
3.1
3.2
4.1
4.2
4.3
10.1
Agreement and Plan of Merger, dated June 25, 2021, by and among Dorman Products, Inc.,
Senators Merger Sub, Inc., DPL Holding Corporation and SBF II Representative Corp., solely
in its capacity as Equityholder Representative. Incorporated by reference to Exhibit 2.1 to the
company’s Current Report on Form 8-K filed on June 28, 2021.
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. Incorporated by reference to Exhibit 4.3 to the Company’s Current
Report on Form 10-K filed on February 22, 2021.
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.
10.1.1
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.
10.2
10.3
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.
Credit Agreement, dated August 10, 2021 by and among Dorman Products, Inc., the lenders from
time to time party thereto, and Bank of American, N.A., as administrative agent. Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 10,
2021.
10.4†
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).
10.4.1†
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).
74
Number Title
10.4.2†
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).
10.4.3†
Form of Non-Qualified Stock Option Agreement for Outside Directors and Important
Consultants and/or Advisors pursuant to the Dorman Products, Inc. 2008 Stock Option and Stock
Incentive Plan. Incorporated by reference to Exhibit 10.1 to the Company’s Registration
Statement on Form S-8 (Registration No. 333-160979).
10.4.4†
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).
10.4.5†
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.
10.4.6†
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.
10.5†
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.
10.5.1†
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.
10.5.2†
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.
10.5.3†
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.
10.5.4†
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.
10.5.5†
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.
10.5.6†
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.
75
Number Title
10.5.7†
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.
10.5.8†
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.
10.5.9†
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.
10.5.10† 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.
10.5.11† 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.
10.5.12† Amended Form of Dorman Products, Inc. Non-Qualified Stock Option Award Pursuant to the
Dorman Products, Inc. 2018 Stock Option and Stock Incentive Plan.
10.5.13† Amended Form of Dorman Products, Inc. Restricted Stock Unit Award Pursuant to the Dorman
Products, Inc. 2018 Stock Option and Stock Incentive Plan.
10.5.14† Amended Form of Dorman Products, Inc. Performance Restricted Stock Unit Award Pursuant
to the Dorman Products, Inc. 2018 Stock Option and Stock Incentive Plan.
10.6†
10.7†
10.8†
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.
10.9†
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.
10.10†
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.
76
Number Title
10.11†
Amended and Restated Employment Agreement between the Company and Kevin M. Olsen
dated December 13, 2021. Incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on December 13, 2021.
10.12†
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.
10.13†
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.
10.14†
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.
10.15†
Dorman Products, Inc. Executive Severance Plan. Incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on December 13, 2021.
10.16†
Non-Disclosure, Invention Assignment and Restrictive Covenant Agreement – Michael B.
Kealey.
21
23
31.1
31.2
32
101
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 25, 2021, formatted Inline XBRL (eXtensible Business Reporting
Language): (i) the Consolidated Statements of Operations for the years ended December 25,
2021, December 26, 2020 and December 28, 2019; (ii) the Consolidated Balance Sheets as of
December 25, 2021 and December 26, 2020; (iii) the Consolidated Statements of Shareholders’
Equity for the years ended December 25, 2021, December 26, 2020 and December 28, 2019; (iv)
the Consolidated Statements of Cash Flows for the years ended December 25, 2021,
December 26, 2020 and December 28, 2019; 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 25, 2021, formatted in Inline XBRL (included as Exhibit 101).
† Management Contracts and Compensatory Plans, Contracts or Arrangements.
NOTE: This 2021 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 25, 2021. 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.
77
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, 2022
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, Chief Executive Officer and Director February 22, 2022
(principal executive officer)
/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
/s/ J. Darrell Thomas
J. Darrell Thomas
Senior Vice President, Chief Financial Officer
and Treasurer
(principal financial and accounting officer)
February 22, 2022
Executive Chairman
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
Director
Director
Director
Director
Director
Director
Director
78
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
Balance, end of period
December 25, 2021
For the Year Ended
December 26, 2020
December 28, 2019
$
$
$
$
1,260 $
177
(111 )
—
1,326 $
957 $
315
(111 )
99
1,260 $
982
39
(64 )
—
957
155,751 $
334,615
(302,286 )
188,080 $
105,950 $
308,783
(258,982 )
155,751 $
90,596
274,243
(258,889 )
105,950
79
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 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.
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]
Pretax 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
2021
Fiscal Year Ended
2019
2020
2018
2017
$
$
$
$
$
4.12
0.20
0.47
-
-
(0.14)
-
4.64
3.30
0.10
0.14
(0.08)
0.06
(0.06)
(0.03)
3.45
2.56
0.08
0.04
-
-
(0.03)
-
2.65
4.02
0.06
0.14
0.03
-
(0.05)
(0.01)
4.20
3.13
0.01
0.05
-
-
(0.02)
0.20
3.37
$
$
$
$
$
[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] – Pretax 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)
2021
$
100,338
(19,840)
80,498
$
Fiscal Year Ended
2019
2020
2018
2017
$
$
151,966
(15,450)
136,516
95,306
$
(29,560)
$
65,746
78,112
$
(26,106)
$
52,006
$
94,241
(24,450)
69,791
$
WWW.DORMANPRODUCTS.COM2021 ANNUAL REPORTInvestor Relations: Dorman Products, Inc. 3400 E. Walnut Street, Colmar, PA 18915-1800 Phone: 215-997-1800, Ext. 5451 Fax: 215-997-1741 Web: investors.dormanproducts.com Email: investorrelations@dormanproducts.comRecent 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.Steven L. BermanExecutive ChairmanKevin M. OlsenPresident & CEODavid M. HessionSenior Vice President & CFOJoseph P. BraunSenior Vice President, General CounselJeffrey L. DarbySenior Vice President, Sales and MarketingMichael B. KealeyExecutive Vice President, CommercialEXECUTIVE OFFICERSSteven L. Berman, Executive ChairmanKevin M. Olsen, DirectorPresident & Chief Executive OfficerLisa M. Bachmann, DirectorFormer Executive VP, Big Lots, Inc.John J. Gavin, DirectorChairman of GMS Inc.Paul R. Lederer, DirectorRetired Executive VP, Federal-Mogul CorporationRichard T. Riley, DirectorRetired Executive Chairman, LoJack CorporationKelly A. Romano, DirectorFounder & CEO, BlueRipple Capital, LLCG. Michael Stakias, DirectorPresident & CEO, Liberty PartnersJ. Darrell Thomas, DirectorRetired VP & Treasurer, Harley-Davidson, Inc.BOARD OF DIRECTORSDORMAN PRODUCTS’ENHANCED CAPABILITYOur capabilities drive our brand and commitment to growing the aftermarket.INNOVATING FOR THE FUTURE• Deep R&D Investment• Installer Centric MindsetSTART-UP MINDSET• Employee Empowerment• Speed to MarketMARKET LEADERS• Growing the Aftermarket• Category Breadth118K+ PRODUCTS >16 NEW PARTS DAILY~3,360 EMPLOYEES $1.345 BILLION IN NET SALESSHAREHOLDER INFORMATIONStock Listing: The common stock of Dorman Products, Inc. is traded on the Nasdaq Global Select Market under the symbol DORM.Number of Shareholders: At March 24, 2022, there were 169 holders of record of our common stock.Transfer Agent: EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120Auditors: KPMG LLP 1601 Market Street Philadelphia, PA 19103DORMAN AT A GLANCEAS OF THE END OF FISCAL YEAR (12/25/2021)ANNUAL REPORT2021 ANNUAL REPORT 2021-Annual-Report_Dormanwww.DormanProducts.comDorman Products, Inc. | 3400 East Walnut Street | Colmar, PA 18915 Corporate Office and Customer Service: 1-800-523-2492 ©2022 No reproduction in whole or in part without prior written approval.