What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-02 · 110 added, 59 removed, 263 unchanged (39% of the section changed)

3 unchanged sentences

AND COMPREHENSIVE INCOME

Three Months Ended

(in thousands, except per share data) April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

(in thousands, except per share data) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Net sales $ 480,568 $ 417,419 $ 947,306 $ 818,998

20 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data) April 1, 2023 December 31, 2022

(in thousands, except for share data) July 1, 2023 December 31, 2022

Current assets:

37 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended April 1, 2023

Three Months Ended July 1, 2023

Common Stock Additional Paid-In

2 unchanged sentences

(in thousands, except share data) Shares

Balance at December 31, 2022 31,430,632 $ 314 $ 88,750 $ 956,870 $ ( 3,303 ) $ 1,042,631

Balance at April 1, 2023 31,469,310 $ 315 $ 90,416 $ 961,597 $ ( 3,184 ) $ 1,049,144

Exercise of stock options 1,399 — 81 — — 82

5 unchanged sentences

Net income — — — 32,770 — 32,770

Balance at April 1, 2023 31,469,310 $ 315 $ 90,416 $ 961,597 $ ( 3,184 ) $ 1,049,144

Three Months Ended March 26, 2022

Balance at July 1, 2023 31,488,164 $ 315 $ 94,452 $ 993,923 $ ( 2,618 ) $ 1,086,072

Three Months Ended June 25, 2022

Common Stock Additional Paid-In

2 unchanged sentences

(in thousands, except share data) Shares

Balance at March 26, 2022 31,479,916 $ 315 $ 78,906 $ 879,923 $ 256 $ 959,400

Exercise of stock options 14,808 — 957 — — 957

Compensation expense under Incentive Stock Plan — — 2,118 — — 2,118

Purchase and cancellation of common stock ( 75,321 ) ( 1 ) ( 136 ) ( 7,141 ) — ( 7,278 )

Issuance of non-vested stock, net of cancellations 6,732 — — — — —

Other stock-related activity, net of tax ( 911 ) — 347 ( 493 ) — ( 146 )

Other comprehensive loss — — — — ( 1,999 ) ( 1,999 )

Net income — — — 37,905 — 37,905

Balance at June 25, 2022 31,425,224 $ 314 $ 82,192 $ 910,194 $ ( 1,743 ) $ 990,957

Six Months Ended July 1, 2023

Common Stock Additional Paid-In

Capital Retained

Earnings Accumulated Other Comprehensive Income (Loss) Total

(in thousands, except share data) Shares

Balance at December 31, 2022 31,430,632 $ 314 $ 88,750 $ 956,870 $ ( 3,303 ) $ 1,042,631

2 unchanged sentences

Purchase and cancellation of common stock ( 9,840 ) — ( 18 ) ( 810 ) — ( 828 )

Cancellation of non-vested stock, net of issuances ( 2,511 ) — 377 — — 377

Issuance of non-vested stock, net of cancellations 75,328 1 1,003 — — 1,004

Other stock-related activity, net of tax ( 24,985 ) — ( 1,848 ) ( 590 ) — ( 2,438 )

1 unchanged sentence

Net income — — — 38,453 — 38,453

Balance at March 26, 2022 31,479,916 $ 315 $ 78,906 $ 879,923 $ 256 $ 959,400

Balance at July 1, 2023 31,488,164 $ 315 $ 94,452 $ 993,923 $ ( 2,618 ) $ 1,086,072

Six Months Ended June 25, 2022

Common Stock Additional Paid-In

Capital Retained

Earnings Accumulated Other Comprehensive Income (Loss) Total

(in thousands, except share data) Shares

Balance at December 25, 2021 31,607,509 $ 316 $ 77,451 $ 856,409 $ ( 1,440 ) $ 932,736

Exercise of stock options 17,286 — 957 — — 957

Compensation expense under Incentive Stock Plan — — 4,270 — — 4,270

Purchase and cancellation of common stock ( 186,435 ) ( 2 ) ( 336 ) ( 17,857 ) — ( 18,195 )

Issuance of non-vested stock, net of cancellations 4,221 — 377 — — 377

Other stock-related activity, net of tax ( 17,357 ) — ( 527 ) ( 1,470 ) — ( 1,997 )

Other comprehensive loss — — — — ( 303 ) ( 303 )

Net income — — — 73,112 — 73,112

Balance at June 25, 2022 31,425,224 $ 314 $ 82,192 $ 910,194 $ ( 1,743 ) $ 990,957

See accompanying Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

(in thousands) April 1, 2023 March 26, 2022

Six Months Ended

(in thousands) July 1, 2023 June 25, 2022

Cash Flows from Operating Activities:

2 unchanged sentences

Depreciation, amortization and accretion 26,969 19,600

Fair value adjustment to contingent consideration ( 12,400 ) —

Provision for doubtful accounts 2,357 56

Provision (benefit) for deferred income taxes 2,980 ( 551 )

Provision for stock-based compensation 5,435 4,270

29 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED APRIL 1, 2023 AND MARCH 26, 2022

FOR THE THREE AND SIX MONTHS ENDED JULY 1, 2023 AND JUNE 25, 2022

Basis of Presentation

7 unchanged sentences

In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included.

Operating results for the three months ended April 1, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any future period.

Operating results for the three and six months ended July 1, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any future period.

We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers and the introduction of new products and product lines to customers.

1 unchanged sentence

On October 4, 2022 (the “Closing Date”), Dorman acquired 100 % of the issued and outstanding equity interests of Super ATV, LLC ("SuperATV") (the “Transaction”), for aggregate consideration of $ 509.8 million (net of $ 6.8 million cash acquired), plus a potential earn-out payment to the sellers of SuperATV not to exceed $ 100 million in the aggregate, which remains subject to the achievement by SuperATV of certain revenue and gross margin targets in the years ending December 31, 2023 and December 31, 2024.

In the three months ended April 1, 2023, we received $ 0.3 million in cash as proceeds from the closing net working capital adjustments.

In the six months ended July 1, 2023, we received $ 0.3 million in cash as proceeds from the closing net working capital adjustments.

SuperATV is a leading independent supplier to the powersports aftermarket with a family of highly respected brands spanning functional accessories and upgrades, as well as replacement parts for specialty vehicles.

1 unchanged sentence

We have allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, as of December 31, 2022, is based upon preliminary information and is subject to change within the permitted measurement period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, as of July 1, 2023, is based upon preliminary information and is subject to change within the permitted measurement period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained.

The fair values that remain preliminary include tax-related liabilities and contingent liabilities.

21 unchanged sentences

Transactions under these agreements were accounted for as sales of accounts receivable and the related accounts receivable were removed from our Condensed Consolidated Balance Sheets at the times of the sales transactions.

Under these agreements, we sold $ 237.7 million and $ 275.2 million of accounts receivable during the three months ended April 1, 2023 and March 26, 2022, respectively.

Selling, general and administrative expenses include factoring costs associated with these accounts receivable sales programs of $ 13.5 million and $ 4.9 million during the three months ended April 1, 2023 and March 26, 2022, respectively.

The increase in factoring costs for the three months ended April 1, 2023 compared to the prior year period was driven by higher interest rates during the three months ended April 1, 2023.

Sales of accounts receivable under these agreements, and related factoring costs, which were included in selling, general and administrative expenses, were as follows:

Three Months Ended Six Months Ended

(in thousands) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Sales of accounts receivable $ 241,937 $ 262,897 $ 479,677 $ 538,126

Factoring costs 11,895 8,268 25,419 13,161

Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of our products and are stated at the lower of cost or net realizable value.

Inventories were as follows:

(in thousands) April 1, 2023 December 31, 2022

(in thousands) July 1, 2023 December 31, 2022

Raw materials $ 30,415 $ 34,267

9 unchanged sentences

Foreign currency translation 621

Balance at April 1, 2023 $ 443,336

Balance at July 1, 2023 $ 443,889

Intangible Assets

Intangible assets included the following:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Intangible assets subject to amortization Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value

6 unchanged sentences

Total $ 355,317 $ 42,763 $ 312,554 $ 354,517 $ 32,108 $ 322,409

Amortization expense was $ 5.5 million and $ 3.0 million during the three months ended April 1, 2023 and March 26, 2022, respectively.

As of April 1, 2023 and December 31, 2022, the weighted average interest rate on the outstanding borrowings under our credit facility was 6.41 % and 5.78 %, respectively.

Amortization expense was $ 5.5 million and $ 3.1 million during the three months ended July 1, 2023 and June 25, 2022, respectively, and $ 11.0 million and $ 6.1 million during the six months ended July 1, 2023 and June 25, 2022, respectively.

As of July 1, 2023 and December 31, 2022, the weighted average interest rate on the outstanding borrowings under our credit facility was 6.95 % and 5.78 %, respectively.

Commitments and Contingencies

We have contingent consideration related to an acquisition due to the uncertainty of the ultimate amount of any payments that will become due as earnout payments if performance targets are achieved.

If the remaining performance targets for the acquisition are fully achieved, the maximum additional contingent payments to be made under the transaction documents would be $ 100.0 million in aggregate.

As of April 1, 2023, we accrued $ 20.5 million, representing the fair value of the estimated payments that we expect could become due in connection with the transaction.

For the three months ended April 1, 2023, we recorded a charge of $ 0.5 million of accretion on the estimated payment liability, with the charge included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

We have contingent consideration related to acquisitions due to the uncertainty of the ultimate amount of any payments that will become due as earnout payments if performance targets are achieved.

If the remaining performance targets for the acquisitions are fully achieved, the maximum additional contingent payments to be made under the transaction documents would be $ 102.0 million in aggregate.

As of July 1, 2023 and December 31, 2022, we accrued $ 8.0 million and $ 20.0 million, respectively, representing the fair value of the estimated payments that we expect could become due in connection with the transactions.

For the six months ended July 1, 2023, we recorded a net decrease of $ 12.0 million to the contingent consideration liability, comprising a $ 12.4 million decrease in fair value based on the modeling of a range of performance outcomes relative to the achievement of targets established in the purchase agreement, partially offset by $ 0.4 million of accretion on the liability resulting from the passage of time.

The net benefit was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The contingent consideration liability is measured on a recurring basis and recorded at fair value.

The inputs used to calculate the fair value of the contingent consideration liability are considered to be Level 3 inputs due to the lack of relevant observable market activity and significant management judgment.

The approach to valuing the contingent consideration uses unobservable factors such as projected revenues and cost of goods sold over the term of the earnout period, discounted for the period over which the contingent consideration is measured, and volatility rates.

Based upon these assumptions, the contingent consideration is then valued using a Monte Carlo simulation.

An increase in future revenue and gross profit may result in a higher estimated fair value while a decrease in future revenue and gross profit may result in a lower estimated fair value of the contingent consideration liability.

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.

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 or results of operations in the period in which any such effects are recorded.

1 unchanged sentence

The following tables present our disaggregated revenue by type of major good / product line, and geography.

Three Months Ended

(in thousands) April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

(in thousands) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Powertrain $ 181,684 $ 156,555 $ 352,719 $ 308,783

3 unchanged sentences

Total $ 480,568 $ 417,419 $ 947,306 $ 818,998

Three Months Ended

(in thousands) April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

(in thousands) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Net sales to U.S.

6 unchanged sentences

We issue RSAs and RSUs to participants in our equity plans in the form of time-based RSAs and RSUs and performance-based RSAs and RSUs.

Compensation cost related to RSA and RSU grants was $ 1.7 million and $ 1.6 million for the three months ended April 1, 2023 and March 26, 2022, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The following table summarizes our RSA and RSU activity for the three months ended April 1, 2023:

Compensation cost related to RSA and RSU grants was $ 2.6 million and $ 1.7 million for the three months ended July 1, 2023 and June 25, 2022, respectively, and $ 4.3 million and $ 3.3 million for the six months ended July 1, 2023 and June 25, 2022, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The following table summarizes our RSA and RSU activity for the six months ended July 1, 2023:

Shares Weighted

3 unchanged sentences

Canceled ( 13,711 ) $ 82.15

Balance at April 1, 2023 265,092 $ 97.88

For the three months ended April 1, 2023, we granted 29,399 performance-based RSUs with a grant date fair value of $ 113.15 per share.

For the three months ended March 26, 2022, we granted 23,995 performance-based RSUs with a grant date fair value of $ 111.31 per share.

As of April 1, 2023, there was $ 20.2 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.6 years.

Balance at July 1, 2023 265,293 $ 97.36

For the six months ended July 1, 2023, we granted 29,399 performance-based RSUs with a grant date fair value of $ 113.15 per share.

For the six months ended June 25, 2022, we granted 23,995 performance-based RSUs with a grant date fair value of $ 111.31 per share.

As of July 1, 2023, there was $ 18.6 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.3 years.

Stock Options

We grant stock options to participants in our equity plans.

Compensation cost related to stock option grants was $ 0.4 million for both the three months ended April 1, 2023 and March 26, 2022, and was included as selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The following table summarizes our stock option activity for the three months ended April 1, 2023 :

Compensation cost related to stock option grants was $ 0.6 million and $ 0.4 million for the three months ended July 1, 2023 and June 25, 2022, respectively, and $ 1.0 million and $ 0.8 million for the six months ended July 1, 2023 and June 25, 2022, respectively, and was included as selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The following table summarizes our stock option activity for the six months ended July 1, 2023 :

Shares Weighted

6 unchanged sentences

Exercised ( 23,837 ) $ 72.15

Balance at April 1, 2023 322,088 $ 86.47 6.1 $ 1,935

Exercisable at April 1, 2023 133,913 $ 80.31 5.0 $ 1,398

As of April 1, 2023, there was $ 5.7 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted average period of 3.2 years.

Balance at July 1, 2023 318,323 $ 86.55 5.9 $ 1,210

Exercisable at July 1, 2023 133,943 $ 80.43 4.8 $ 868

As of July 1, 2023, there was $ 5.1 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted average period of 3.0 years.

Employee Stock Purchase Plan ("ESPP")

During the three and six months ended July 1, 2023, we issued 14,975 shares under the ESPP.

During the six months ended June 25, 2022, we issued 4,615 shares under the ESPP.

Earnings Per Share

1 unchanged sentence

To calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding.

Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards.

For the three months ended April 1, 2023 and March 26, 2022, there were approximately 237,000 shares and 27,000 shares, respectively, that were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive.

equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards.

For the three months ended July 1, 2023 and June 25, 2022, there were approximately 353,000 shares and 37,000 shares, respectively, and for the six months ended July 1, 2023 and June 25, 2022 there were approximately 295,000 shares and 32,000 shares, respectively, that were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive.

The following table sets forth the computation of basic earnings per share and diluted earnings per share:

Three Months Ended

(in thousands, except per share data) April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

(in thousands, except per share data) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Net income $ 32,770 $ 37,905 $ 38,453 $ 73,112

11 unchanged sentences

The following table summarizes the repurchase and cancellation of common stock by the Company for the periods indicated:

Three Months Ended

April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Shares repurchased and canceled 4,715 7,621 9,840 20,385

4 unchanged sentences

The share repurchase program does not obligate us to acquire any specific number of shares.

At April 1, 2023, $ 228.0 million was available for repurchase under this share repurchase program.

The following table summarizes the repurchase and cancellation of common stock under the share repurchase program:

Three Months Ended

April 1, 2023 March 26, 2022

At July 1, 2023, $ 228.0 million was available for repurchase under this share repurchase program.

The following

table summarizes the repurchase and cancellation of common stock under the share repurchase program:

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Shares repurchased and canceled — 67,700 — 166,050

1 unchanged sentence

Average price per share $ — $ 96.38 $ — $ 96.68

At April 1, 2023, we had $ 3.4 million of net unrecognized tax benefits, all of which would lower our effective tax rate if recognized.

At July 1, 2023, we had $ 3.5 million of net unrecognized tax benefits, $ 3.4 million of which would lower our effective tax rate if recognized.

We recognize interest and penalties related to uncertain tax positions in income tax expense.

As of April 1, 2023, accrued interest and penalties related to uncertain tax positions were not material.

As of July 1, 2023, accrued interest and penalties related to uncertain tax positions were not material.

We file income tax returns in the United States, Canada, China, India, and Mexico.

2 unchanged sentences

The statute of limitations for tax years before 2018 is closed for the states in which we file.

The statute of limitations for tax years before 2019 is closed for income tax purposes in Canada, China, and India.

The statute of limitations for tax years before 2020 is closed for income tax purposes in Canada and China.

The statute of limitations for tax years before 2019 is closed for income tax purposes in India.

The statute of limitations for tax years before 2018 is closed for income tax purposes in Mexico.

6 unchanged sentences

The lease for our Lewisberry, PA operating facility was signed in September 2020 and will expire on December 31, 2027.

We also lease our facilities in Madison, IN and Shreveport, LA, from entities in which Lindsay Hunt, our President and Chief Executive Officer, Specialty Vehicles, and certain of her family members are owners.

Each lease is a non-cancelable operating lease.

Total rental payments to those entities under these lease arrangements will be $ 2.6 million in fiscal 2023.

The leases for our operating facilities in Madison, IN and Shreveport, LA were renewed in October 2022 in connection with the acquisition of SuperATV and will expire on October 31, 2027.

We signed a warehouse storage and services agreement with a counterparty that is majority-owned by a family member of Lindsay Hunt.

The agreement provides for indoor storage space and material handling services at agreed upon rates.

Total payments under the arrangement are expected to be $ 0.2 million in fiscal 2023.

The agreement was signed in October 2020 and expires in October 2023.

We are a partner in a joint venture with one of our suppliers and own a minority interest in two other suppliers.

1 unchanged sentence

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.

The carrying value of borrowings under our credit facility approximates fair value because borrowings under our credit facility bear interest at rates indexed to a market rate (Term SOFR).

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.

The carrying value of borrowings under our credit facility approximates fair value because these borrowings bear interest at rates indexed to a market rate (Term SOFR).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements