Dorman Products, Inc. 10-Q

ITEM 1. Financial Statements DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended (in thousands, except per share data) June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Net sales $ 310,635 $ 233,182 $ 598,647 $ 490,912 Cost of goods sold 200,510 154,034 384,002 326,967 Gross profit 110,125 79,148 214,645 163,945 Selling, general and administrative expenses 69,517 61,525 132,386 121,260 Income from operations 40,608 17,623 82,259 42,685 Other income (expense), net 90 ( 297 ) 54 2,334 Income before income taxes 40,698 17,326 82,313 45,019 Provision for income taxes 9,080 3,441 17,965 8,359 Net income $ 31,618 $ 13,885 $ 64,348 $ 36,660 Earnings per share: Basic $ 0.99 $ 0.43 $ 2.01 $ 1.13 Diluted $ 0.99 $ 0.43 $ 2.00 $ 1.13 Weighted average shares outstanding: Basic 31,942 32,269 31,995 32,312 Diluted 32,089 32,338 32,136 32,388 See accompanying Notes to Condensed Consolidated Financial Statements 3 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED ) (in thousands, except for share data) June 26, 2021 December 26, 2020 Assets Current assets: Cash and cash equivalents $ 155,539 $ 155,576 Accounts receivable, less allowance for doubtful accounts of $ 1,220 and $ 1,260 , respectively 446,242 460,878 Inventories 356,759 298,719 Prepaids and other current assets 16,069 7,758 Total current assets 974,609 922,931 Property, plant and equipment, net 88,164 91,009 Operating lease right-of-use assets 38,295 39,002 Goodwill 91,080 91,080 Intangible assets, net of accumulated amortization of $ 10,886 and $ 9,194 , respectively 23,513 25,207 Deferred tax asset, net 12,396 12,450 Other assets 41,420 38,982 Total assets $ 1,269,477 $ 1,220,661 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 126,463 $ 117,878 Accrued compensation 12,634 19,711 Accrued customer rebates and returns 165,577 155,751 Other accrued liabilities 27,854 29,305 Total current liabilities 332,528 322,645 Long-term operating lease liabilities 35,950 37,083 Other long-term liabilities 4,462 3,555 Deferred tax liabilities, net 3,552 3,819 Commitments and contingencies (Note 5) Shareholders’ equity: Common stock, $ 0.01 par value; 50,000,000 shares authorized; 31,891,890 and 32,168,740 shares issued and outstanding in 2021 and 2020, respectively 319 322 Additional paid-in capital 71,947 64,085 Retained earnings 820,719 789,152 Total shareholders’ equity 892,985 853,559 Total liabilities and shareholders' equity $ 1,269,477 $ 1,220,661 See accompanying Notes to Condensed Consolidated Financial Statements 4 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED ) Three Months Ended June 26, 2021 Common Stock Additional (in thousands, except share data) Shares Issued Par Value Paid-In Capital Retained Earnings Total Balance at March 27, 2021 32,115,528 $ 321 $ 67,596 $ 815,894 $ 883,811 Exercise of stock options 5,732 — 420 — 420 Compensation expense under Incentive Stock Plan — — 2,380 — 2,380 Purchase and cancellation of common stock ( 266,871 ) ( 2 ) ( 480 ) ( 26,793 ) ( 27,275 ) Issuance of non-vested stock, net of cancellations 38,120 — 2,493 — 2,493 Other stock-related activity, net of tax ( 619 ) — ( 462 ) — ( 462 ) Net income — — — 31,618 31,618 Balance at June 26, 2021 31,891,890 $ 319 $ 71,947 $ 820,719 $ 892,985 Three Months Ended June 27, 2020 Common Stock Additional (in thousands, except share data) Shares Issued Par Value Paid-In Capital Retained Earnings Total Balance at March 28, 2020 32,434,665 $ 325 $ 53,454 $ 737,596 $ 791,375 Exercise of stock options — — — — — Compensation expense under Incentive Stock Plan — — 1,504 — 1,504 Purchase and cancellation of common stock ( 1,620 ) ( 1 ) ( 2 ) ( 83 ) ( 86 ) Issuance of non-vested stock, net of cancellations 10,129 2 504 — 506 Other stock-related activity, net of tax ( 2,761 ) — ( 54 ) 2 ( 52 ) Net income — — — 13,885 13,885 Balance at June 27, 2020 32,440,413 $ 326 $ 55,406 $ 751,400 $ 807,132 Six Months Ended June 26, 2021 Common Stock Additional (in thousands, except share data) Shares Issued Par Value Paid-In Capital Retained Earnings Total Balance at December 26, 2020 32,168,740 $ 322 $ 64,085 $ 789,152 $ 853,559 Exercise of stock options 17,346 — 736 — 736 Compensation expense under Incentive Stock Plan — — 4,491 — 4,491 Purchase and cancellation of common stock ( 305,031 ) ( 3 ) ( 549 ) ( 30,697 ) ( 31,249 ) Issuance of non-vested stock, net of cancellations 20,521 — 2,493 — 2,493 Other stock related activity, net of tax ( 9,686 ) — 691 ( 2,084 ) ( 1,393 ) Net income — — — 64,348 64,348 Balance at June 26, 2021 31,891,890 $ 319 $ 71,947 $ 820,719 $ 892,985 Six Months Ended June 27, 2020 Common Stock Additional (in thousands, except share data) Shares Issued Par Value Paid-In Capital Retained Earnings Total Balance at December 28, 2019 32,556,263 $ 326 $ 52,605 $ 720,653 $ 773,584 Exercise of stock options 10 — — — — Compensation expense under Incentive Stock Plan — — 2,718 — 2,718 Purchase and cancellation of common stock ( 98,329 ) ( 1 ) ( 177 ) ( 5,687 ) ( 5,865 ) Cancellation of non-vested stock, net of issuances ( 11,845 ) 1 504 — 505 Other stock related activity, net of tax ( 5,686 ) — ( 244 ) ( 226 ) ( 470 ) Net income — — — 36,660 36,660 Balance at June 27, 2020 32,440,413 $ 326 $ 55,406 $ 751,400 $ 807,132 See accompanying Notes to Condensed Consolidated Financial Statements 5 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended (in thousands) June 26, 2021 June 27, 2020 Cash Flows from Operating Activities: Net income $ 64,348 $ 36,660 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization and accretion 16,850 15,035 Gain on equity method investment — ( 2,498 ) Provision for doubtful accounts 31 105 Benefit for deferred income taxes ( 213 ) ( 1,074 ) Provision for stock-based compensation 4,491 2,718 Changes in assets and liabilities: Accounts receivable 14,605 151,818 Inventories ( 58,039 ) 11,564 Prepaids and other current assets ( 8,288 ) 2,462 Other assets ( 3,451 ) ( 4,779 ) Accounts payable 8,818 ( 8,665 ) Accrued customer rebates and returns 9,826 7,557 Accrued compensation and other liabilities ( 9,891 ) 8,498 Cash provided by operating activities 39,087 219,401 Cash Flows from Investing Activities: Acquisition, net of cash acquired — ( 14,308 ) Property, plant and equipment additions ( 10,153 ) ( 7,143 ) Cash used in investing activities ( 10,153 ) ( 21,451 ) Cash Flows from Financing Activities: Proceeds of revolving credit line — 99,000 Proceeds from exercise of stock options 736 — Other stock-related activity 1,141 120 Purchase and cancellation of common stock ( 30,848 ) ( 5,865 ) Cash (used in) provided by financing activities ( 28,971 ) 93,255 Net (Decrease) Increase in Cash and Cash Equivalents ( 37 ) 291,205 Cash and Cash Equivalents, Beginning of Period 155,576 68,353 Cash and Cash Equivalents, End of Period $ 155,539 $ 359,558 Supplemental Cash Flow Information Cash paid for interest expense $ 140 $ 433 Cash paid for income taxes $ 26,436 $ 1,750 See accompanying Notes to Condensed Consolidated Financial Statements 6 DORMAN PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 26, 2021 AND JUNE 27, 2020 (UNAUDITED) 1. Basis of Presentation As used herein, unless the context requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc. and its subsidiaries. Our ticker symbol on the NASDAQ Global Select Market is “DORM.” The accompanying unaudited condensed consolidated financial statements have been prepared under U.S. generally accepted accounting principles (“GAAP”) for interim financial information and under the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, they do not include all the information and footnotes required by GAAP for complete financial statements. 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 and six months ended June 26, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2021 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. The introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020. 2. Business Acquisitions and Investments DPL Holding Corporation (“Dayton Parts”) On June 25, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 100 % of the equity interests of Dayton Parts, a manufacturer of undercarriage and other parts designed to serve the heavy-duty vehicle sector of the aftermarket, for aggregate consideration of $ 338 million, subject to certain customary adjustments based on, among other things, the amount of cash, indebtedness and working capital in the business of Dayton Parts as of the closing date of the transaction. The transaction is subject to customary closing conditions, including the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. We expect the transaction to close in the second half of 2021. In connection with entering into the Merger Agreement, we have entered into a commitment letter, dated as of June 25, 2021, with certain lenders as counterparties, whereby the lenders have committed to provide us with a new $ 600 million revolving credit facility (the “ New Facility ”) contingent on the satisfaction of customary conditions. The New Facility would replace our existing $ 100 million revolving credit facility. We may finance all or a portion of the merger transaction and related fees and expenses with borrowings under the New Facility. Power Train Industries, Inc. (“PTI”) On January 2, 2020, we acquired the remaining outstanding stock of PTI not already owned by the Company. 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 $ 2.5 million in other (expense) income, net during the quarter ended March 28, 2020 from the increase in fair value of our original 40% interest in PTI. We previously accounted for our 40% interest as an equity-method investment. 3. Sales of Accounts Receivable We have entered several customer-sponsored programs administered by unrelated financial institutions that permit us to sell certain accounts receivable at discounted rates to the financial institutions. Transactions under these agreements were accounted for as sales of accounts receivable and the related accounts receivable were removed from our Condensed Consolidated Balance Sheet at the times of the sales transactions. Under these agreements, we sold $ 433.7 million and $ 496.4 million of accounts receivable during the six months ended June 26, 2021 and June 27, 2020, respectively. All credit terms with our customers are 365 days or less. Selling, general and administrative expenses include financing costs associated with these accounts receivable sales programs of $ 2.9 million and $ 6.8 million during the three months ended June 26, 2021 and June 27, 2020, respectively, and $ 5.5 million and $ 9.6 million during the six months ended June 26, 2021 and June 27, 2020, respectively. 4. Inventories 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) June 26, 2021 December 26, 2020 Bulk product $ 163,429 $ 136,726 Finished product 188,250 157,484 Packaging materials 5,080 4,509 Total $ 356,759 $ 298,719 7 5 . Commitments and Contingencies Acquisitions We have contingent consideration related to certain of our prior acquisitions due to the uncertainty of the ultimate amount of payment which will become due as earnout payments if performance targets are achieved. As of June 26, 2021 and December 26, 2020, we accrued $ 10.4 million and $ 8.0 million, respectively, representing the fair value of the estimated payments that we expected would become due in connection with prior acquisitions based upon performance targets. For the three and six months ended June 26, 2021, we increased this accrual by $ 2.4 million, primarily due to the expected payout based on negotiations with the applicable counterparties. The changes in the accrual balance were included in Selling, General and Administration expenses. If the performance targets are fully achieved, the maximum contingent payments under these agreements would be $ 16.0 million using foreign currency exchange rates at June 26, 2021. 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 the possibility exists 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. 6 . Revenue Recognition Our primary source of revenue is from contracts with and purchase orders from customers. In many 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 it indicates approval and commitment of the parties, identifies the rights of both parties, identifies the payment terms, has commercial substance, and makes it probable that we will collect the consideration to which we will be entitled in exchange for the goods transferred to the customer. We record estimates for cash discounts, defective and slow-moving product returns, promotional rebates, core return deposits and other discounts in the period the related product revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales, and reserves for Customer Credits are shown as an increase of accrued customer rebates and returns. Customer Credits are estimated based on contractual provisions, historical experience, and our assessment of current market conditions. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. We have concluded that our estimates of variable consideration are not constrained. All our revenue was recognized under the point of time approach during the six months ended June 26, 2021 and June 27, 2020. We do not have significant financing arrangements with our customers, as our credit terms are all 365 days or less. Also, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts. Disaggregated Revenue The following tables present our disaggregated net sales by type of major good / product line, and geography. Three Months Ended Six Months Ended (in thousands) June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Powertrain $ 128,811 $ 94,598 $ 249,933 $ 202,740 Chassis 98,551 66,025 184,038 139,400 Automotive body 66,970 58,825 135,632 123,457 Hardware 16,303 13,734 29,044 25,315 Net sales $ 310,635 $ 233,182 $ 598,647 $ 490,912 Three Months Ended Six Months Ended (in thousands) June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Net sales to U.S. customers $ 295,081 $ 222,563 $ 568,231 $ 463,955 Net sales to non-U.S. customers 15,554 10,619 30,416 26,957 Net sales $ 310,635 $ 233,182 $ 598,647 $ 490,912 8 7 . Stock-Based Compensation Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) Vesting of RSA and RSU grants is conditional based on continued employment or service for a specified period and, in certain circumstances, the attainment of performance goals. We retain the shares underlying the grant, and any dividends paid thereon, until the vesting conditions have been met. For time-based RSA and RSU grants, compensation cost related to the stock 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. For performance-based RSA grants tied to growth in adjusted pre-tax income, compensation cost related to the award 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 at each reporting date. Since March 2020, we have granted performance-based RSU grants that vest based on our total shareholder return ranking relative to the total shareholder return of the companies comprising the S&P Mid-Cap 400 Growth Index over a three-year performance period. For performance-based RSU grants tied to total shareholder return, compensation cost related to the award 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. For the six months ended June 26, 2021, we granted 17,714 performance-based RSUs with a grant date fair value of $ 131.02 per share. Compensation cost related to RSA and RSU grants was $ 1.3 million and $ 1.1 million for the three months ended June 26, 2021 and June 27, 2020, respectively, and $ 3.1 million and $ 2.0 million for the six months ended June 26, 2021 and June 27, 2020, respectively, and were included in selling, general and administrative expense in the Condensed Consolidated Statements of Operations. The following table summarizes our RSA and RSU activity for the six months ended June 26, 2021: Shares Weighted Average Fair Value Balance at December 26, 2020 217,735 $ 72.77 Granted 52,001 $ 111.78 Vested ( 33,676 ) $ 66.38 Canceled ( 42,227 ) $ 74.56 Balance at June 26, 2021 193,833 $ 83.95 As of June 26, 2021, there was $ 9.5 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.4 years. Stock Options We expense the grant-date fair value of stock options as compensation cost on a straight-line basis over the vesting period for which related services are performed. The compensation cost charged against income was $ 0.3 million for each of the three months ended June 26, 2021 and June 27, 2020, and $ 0.6 million and $ 0.5 million for the six months ended June 26, 2021 and June 27, 2020, respectively. These costs are included as selling, general and administrative expense in the Condensed Consolidated Statements of Operations. We use 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 that options granted are expected to be outstanding and was calculated using historical option exercise data. The risk-free rate was based on a U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. The following table summarizes our stock option activity for the six months ended June 26, 2021: Shares Weighted Average Exercise Price Weighted Average Remaining Term (In years) Aggregate Intrinsic Value Balance at December 26, 2020 250,779 $ 70.21 Granted 57,056 $ 101.50 Forfeited ( 5,540 ) $ 81.71 Exercised ( 37,534 ) $ 65.48 Balance at June 26, 2021 264,761 $ 77.38 5.5 $ 6,101,198 Options exercisable at June 26, 2021 94,722 $ 73.70 3.7 $ 2,506,557 As of June 26, 2021, there was $ 3.4 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 Under the Company’s employee stock purchase program, employees purchased 31,462 shares of the Company’s common stock during the three and six months ended June 26, 2021, and 10,735 shares during the three and six months ended June 27, 2020. The Company recognized compensation cost of $ 0.7 million for the three and six months ended June 26, 2021, and $ 0.1 million and $ 0.2 million for the three and six months ended June 27, 2020, respectively. 9 8 . Earnings Per Share Basic earnings per share is calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding unvested RSAs and RSUs that are considered to be contingently issuable. To calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding. Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards. Stock-based awards that were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive were 19,000 shares and 123,000 shares for the three months ended June 26, 2021 and June 27, 2020, respectively, and 14,000 shares and 107,000 shares for the six months ended June 26, 2021 and June 27, 2020, respectively. The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Six Months Ended (in thousands, except per share data) June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Numerator Net income $ 31,618 $ 13,885 $ 64,348 $ 36,660 Denominator: Weighted average basic shares outstanding 31,942 32,269 31,995 32,312 Effect of stock-based compensation awards 147 69 141 76 Weighted average diluted shares outstanding 32,089 32,338 32,136 32,388 Earnings Per Share: Basic $ 0.99 $ 0.43 $ 2.01 $ 1.13 Diluted $ 0.99 $ 0.43 $ 2.00 $ 1.13 9 . Common Stock Repurchases We periodically repurchase, at the then-current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “401(k) Plan”). Under the 401(k) Plan, participants can no longer purchase shares of Dorman common stock as an investment option. 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 in the 401(k) Plan: For the Three Months Ended For the Six Months Ended June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Shares repurchased and canceled 982 1,620 3,142 6,350 Total cost of shares repurchased and canceled (in thousands) $ 106 $ 85 $ 316 $ 400 Average price per share $ 107.63 $ 52.33 $ 100.49 $ 63.00 Our Board of Directors has authorized the repurchase of up to $ 500 million through December 31, 2022 under a previously announced share repurchase program. 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 June 26, 2021, $ 176.2 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: For the Three Months Ended For the Six Months Ended June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Shares repurchased and canceled 265,889 — 301,889 91,979 Total cost of shares repurchased and canceled (in thousands) $ 27,171 $ — $ 30,934 $ 5,465 Average price per share $ 102.19 $ — $ 102.47 $ 59.41 1 0 . Income Taxes At June 26, 2021, we had $ 1.2 million of net unrecognized tax benefits, all 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 June 26, 2021, 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. All years before 2017 are closed for U.S. federal tax purposes. Tax years before 2016 are closed for the states in which we file. Tax years before 2018 are closed for tax purposes in Canada. Tax years before 2017 are closed for tax purposes in China. Tax years before 2015 are closed for tax purposes in Mexico. All tax years remain open for India. 10 11 . 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 will be $ 2.3 million in fiscal 2021 and were $ 1.8 million in fiscal 2020. The lease for our corporate headquarters in Colmar, PA was renewed during November 2016, effective as of January 1, 2018 , and will expire on December 31, 2022 . The lease for our Lewisberry, PA operating facility was signed in September 2020 and will expire on December 31, 2027 . In the opinion of our Audit Committee, the terms and rates of these leases were no less favorable than those which could have been obtained from an unaffiliated party when the lease for our corporate headquarters in Colmar, PA was renewed during November 2016 and when the lease for our Lewisberry, PA operating facility was signed in September 2020. We are a partner in a joint venture with one of our suppliers and own minority interests in two other suppliers. Each of these investments is accounted for under the equity method. 1 2 . Fair Value Disclosures The carrying value of financial instruments such as cash, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. 11