What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-10-24 · 128 added, 211 removed, 194 unchanged (64% of the section changed)

1 unchanged sentence

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

1 unchanged sentence

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September 24, 2022

September 25, 2021

September 24, 2022

September 25, 2021

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

Net sales $ 466,738 $ 401,579

Cost of goods sold 322,261 268,339

Gross profit 144,477 133,240

Selling, general and administrative expenses 126,363 86,528

1 unchanged sentence

Interest expense, net 11,953 1,231

Other expense (income), net

Other income, net ( 357 ) ( 84 )

Income before income taxes 6,518 45,565

Provision for income taxes 835 10,358

Net income $ 5,683 $ 35,207

Other comprehensive income:

2 unchanged sentences

Earnings per share:

Basic $ 0.18 $ 1.12

Diluted $ 0.18 $ 1.11

Weighted average shares outstanding:

Basic 31,436 31,499

Diluted 31,537 31,601

See accompanying Notes to Condensed Consolidated Financial Statements

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data)

September 24, 2022

December 25, 2021

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

Current assets:

1 unchanged sentence

Accounts receivable, less allowance for doubtful accounts of $ 1,398 and $ 1,363

429,308 427,385

Inventories 686,949 755,901

Prepaids and other current assets 40,173 39,800

2 unchanged sentences

Operating lease right-of-use assets 108,549 109,977

Goodwill 443,336 443,035

Intangible assets, net 316,999 322,409

Other assets 50,497 48,768

Total assets $ 2,260,659 $ 2,341,786

Liabilities and shareholders’ equity

4 unchanged sentences

Revolving credit facility 215,460 239,363

Current portion of long-term debt 12,500 12,500

Other accrued liabilities 48,239 35,007

Total current liabilities 606,923 678,295

Long-term debt 479,439 482,464

Long-term operating lease liabilities 96,571 98,221

5 unchanged sentences

50,000,000 shares authorized;

31,419,392 and

31,607,509 shares issued and outstanding in 2022 and 2021, respectively

31,469,310 and 31,430,632 shares issued and outstanding in 2023 and 2022, respectively

Additional paid-in capital 90,416 88,750

5 unchanged sentences

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended September 24, 2022

(in thousands, except share data)

Additional Paid-In

Accumulated Other Comprehensive Income (Loss)

Balance at June 25, 2022

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 income

Balance at September 24, 2022

Three Months Ended September 25, 2021

(in thousands, except share data)

Additional Paid-In

Accumulated Other Comprehensive Income (Loss)

Balance at June 26, 2021

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

Balance at September 25, 2021

Nine Months Ended September 24, 2022

(in thousands, except share data)

Additional Paid-In

Accumulated Other Comprehensive Income (Loss)

Three Months Ended April 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

5 unchanged sentences

Other comprehensive income — — — — 119 119

Balance at September 24, 2022

Nine Months Ended September 25, 2021

(in thousands, except share data)

Additional Paid-In

Accumulated Other Comprehensive Income (Loss)

Net income — — — 5,683 — 5,683

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

Three Months Ended March 26, 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

2 unchanged sentences

Purchase and cancellation of common stock ( 111,114 ) ( 1 ) ( 200 ) ( 10,716 ) — ( 10,917 )

Issuance of non-vested stock, net of cancellations

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

Other stock-related activity, net of tax ( 16,446 ) — ( 874 ) ( 977 ) — ( 1,851 )

Balance at September 25, 2021

Other comprehensive income — — — — 1,696 1,696

Net income — — — 35,207 — 35,207

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

See accompanying Notes to Condensed Consolidated Financial Statements

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(in thousands)

September 24, 2022

September 25, 2021

Three Months Ended

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

Cash Flows from Operating Activities:

Net income $ 5,683 $ 35,207

Adjustments to reconcile net income to cash provided by operating activities:

1 unchanged sentence

Provision for doubtful accounts 2,744 29

Benefit for deferred income taxes

Provision for stock-based compensation 2,334 2,152

Payment of contingent consideration

Changes in assets and liabilities:

Accounts receivable ( 4,673 ) 16,727

Inventories 68,935 ( 33,034 )

Prepaids and other current assets ( 591 ) ( 853 )

Other assets ( 2,130 ) ( 1,976 )

Accounts payable ( 34,258 ) ( 12,392 )

7 unchanged sentences

Cash Flows from Financing Activities:

Proceeds of revolving credit line

Payments of revolving credit line ( 23,900 ) ( 10,000 )

Payment of contingent consideration

Payment of debt issuance costs

Payments of long-term debt ( 3,125 ) —

Proceeds from exercise of stock options 1,049 —

1 unchanged sentence

Other stock-related activity ( 2,254 ) ( 1,211 )

Cash (used in) provided by financing activities

Cash used in financing activities ( 28,663 ) ( 21,963 )

Effect of exchange rate changes on Cash and Cash Equivalents ( 4 ) 46

7 unchanged sentences

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2022 AND SEPTEMBER 25, 2021

FOR THE THREE MONTHS ENDED APRIL 1, 2023 AND MARCH 26, 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 and nine months ended September 24, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 or any future period.

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.

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.

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 31, 2022.

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.

In the nine months ended September 24, 2022, we received $ 0.6 million in cash as proceeds from the closing net working capital adjustments.

The acquisition was funded by cash on hand and borrowings under our revolving credit facility.

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.

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.

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 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.

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

Any material adjustments to the estimates based upon new information identified during the measurement period will be reflected as of the date of the acquisition.

The table below details the fair values of the assets acquired and the liabilities assumed at the acquisition date, including applicable measurement period adjustments:

1 unchanged sentence

Accounts receivable $ 3,317

Inventories 90,428

Prepaids and other current assets 5,293

Property, plant and equipment 23,776

Goodwill 247,474

Identifiable intangible assets 157,500

Operating lease right-of-use assets 11,661

Other Assets 3,001

Accounts payable ( 7,436 )

Accrued compensation ( 2,086 )

Accrued customer rebates and returns ( 1,609 )

Other current liabilities ( 8,726 )

Long-term operating lease liabilities ( 9,508 )

Deferred tax liabilities

Other long-term liabilities ( 3,307 )

Net cash consideration $ 509,778

The estimated valuation of the intangible assets acquired, and related amortization periods are as follows:

(in thousands)

Amortization Period (in years)

Customer relationships

Product portfolio

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 aftermarket businesses, the assembled workforce of Dayton Parts and other factors.

The goodwill is not expected to be deductible for tax purposes.

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 29, 2019.

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.

Three Months Ended

Nine Months Ended

(in thousands)

September 25, 2021

Diluted earnings per share

The financial results of the acquisition have been included in the unaudited condensed consolidated financial statements since the date of acquisition.

Super ATV, LLC (“SuperATV”)

On October 4, 2022 (the “Closing Date”), Dorman acquired 100 % of the issued and outstanding equity interests of SuperATV (the “Transaction”), for aggregate consideration of $ 490 million, subject to certain customary adjustments based on, among other things, the amount of cash, debt and working capital in the business of SuperATV as of the closing of the Transaction, 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 fiscal years 2023 and 2024.

We have not completed the detailed valuation work necessary to determine the estimates of the fair value of the acquired assets and assumed liabilities.

As a result, we have not determined the preliminary allocation of the purchase price.

We also have not completed the detailed analysis to present the pro forma financial information for the combined businesses.

As such, both the preliminary allocation of the purchase price as well as the pro forma financial information will be included in our future filings.

In connection with the closing of the Transaction, Dorman entered into Amendment No.

1 to Credit Agreement (the “Amendment”) which amended Dorman’s Credit Agreement, dated as of August 10, 2021 (as amended by the Amendment, the “Amended Credit Agreement”) by and among Dorman, the lenders from time to time party thereto, and an administrative agent.

The Amendment provides for a $ 500.0 million term loan facility, which matures on October 4, 2027 and is guaranteed by Dorman’s material domestic subsidiaries (together with Dorman, 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.

Proceeds of the loans borrowed under the Amended Credit Agreement on the Closing Date were used to fund the transactions contemplated by the Purchase Agreement.

The Amendment also extended the maturity date of the revolving credit facility to October 4, 2027.

Borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to, at Dorman’s option, either a term Secured Overnight Financing Rate (“Term SOFR”) (subject to a 0.00 % floor) or a base rate (as defined in the Amended Credit Agreement), in each case plus an applicable margin of, initially (i) in the case of Term SOFR loans, 1.50 % or (ii) in the case of base rate loans, 0.50 %.

The applicable margin for (i) base rate loans ranges from 0.000 % to 1.000 % per annum and (ii) for Term SOFR loans ranges from 1.000 % to 2.000 % per annum, in each case, based on the Total Net Leverage Ratio (as defined in the Amended Credit Agreement).

The commitment fee under the Amended Credit Agreement is initially equal to 0.20 % and thereafter ranges from 0.125 % to 0.250 % based on the Total Net Leverage Ratio (as defined in the Amended Credit Agreement).

The financial results of the Transaction have been included in the consolidated financial statements since the date of acquisition.

Sales of Accounts Receivable

1 unchanged sentence

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 $ 240.0 million and $ 256.3 million of accounts receivable during the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 778.1 million and $ 690.0 million of accounts receivable during the nine months ended September 24, 2022 and September 25, 2021 respectively.

Selling, general and administrative expenses include factoring costs associated with these accounts receivable sales programs of $ 9.8 million and $ 3.1 million during the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 23.0 million and $ 8.6 million during the nine months ended September 24, 2022 and September 25, 2021, respectively.

The increase in factoring costs for the three and nine months ended September 24, 2022 compared to the prior year periods was primarily driven by higher LIBOR and other reference rates, and higher accounts receivable sold under these programs during the nine months ended September 24, 2022.

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.

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)

September 24, 2022

December 25, 2021

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

Raw materials $ 30,839 $ 34,267

Bulk product 200,491 234,871

Finished product 446,544 478,032

Packaging materials 9,075 8,731

During the nine months ended September 24, 2022, we entered into a warehouse and distribution services agreement with a third-party that requires us to reimburse the service provider for substantially all of its facility costs applicable to the warehouse where services are provided.

This agreement resulted in a deemed new lease for the company for accounting purposes.

The lease commenced on March 1, 2022 and runs through February 28, 2034 .

The lease includes fixed rental payments as well as variable payments for operating expenses that will be billed based on actual costs.

Upon the lease commencement date, we recorded an operating lease right of use asset of $ 35.1 million, a short-term operating lease liability (included in other accrued liabilities in the consolidated balance sheet) of $ 2.0 million, and a long-term operating lease liability of $ 33.1 million.

The following table summarizes the maturities of the lease liability for our new deemed lease as of September 24, 2022:

(in thousands)

September 24, 2022

Remainder of 2022

2027 and thereafter

Total remaining fixed lease payments

Total $ 686,949 $ 755,901

Goodwill and Intangible Assets

2 unchanged sentences

Balance at December 31, 2022 $ 443,035

Measurement period adjustments for SuperATV acquisition 233

Foreign currency translation 68

Balance at September 24, 2022

Balance at April 1, 2023 $ 443,336

Intangible Assets

Intangible assets included the following:

September 24, 2022

December 25, 2021

Intangible assets subject to amortization

Gross Carrying Value

Accumulated Amortization

Net Carrying Value

Gross Carrying Value

Accumulated Amortization

Net Carrying Value

April 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

(in thousands)

Customer relationships $ 175,430 $ 24,156 $ 151,274 $ 175,430 $ 21,643 $ 153,787

Trade names 67,690 7,469 60,221 67,690 6,370 61,320

Product Portfolio 107,800 4,644 103,156 107,800 2,953 104,847

Amortization expense was $ 3.0 million and $ 1.2 million during the three months ended September 24, 2022 and September 25, 2021, respectively and $ 9.1 million and $ 2.9 million during the nine months ended September 24, 2022 and September 25, 2021, respectively.

Revolving Credit Facility

As of September 24, 2022 and December 25, 2021, the interest rate on the outstanding borrowings under our revolving credit facility was 4.73 % and 1.35 %, respectively.

Technology 2,167 882 1,285 2,167 820 1,347

Patents and Other 1,430 367 1,063 1,430 322 1,108

Total $ 354,517 $ 37,518 $ 316,999 $ 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.

Commitments and Contingencies

We have contingent consideration related to a prior 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 prior acquisition are fully achieved, the maximum additional contingent payments to be made under the related acquisition agreement would be $ 3.6 million in the aggregate.

As of September 24, 2022, we accrued $ 1.6 million, representing the fair value of the estimated payments that we expect could become due in connection with the prior acquisition based on discussions with the applicable counterparty.

For the three and nine months ended September 24, 2022, we increased this accrual by $ 1.6 million, with the charge included in Selling, General and Administration expenses.

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.

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.

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.

Revenue Recognition

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.

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 nine months ended September 24, 2022 and September 25, 2021.

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.

Disaggregated Revenue

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

Three Months Ended

Nine Months Ended

(in thousands)

September 24, 2022

September 25, 2021

September 24, 2022

September 25, 2021

Automotive body

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

Powertrain $ 171,035 $ 152,228

Chassis 188,864 160,862

Motor Vehicle body 91,159 73,280

Hardware 15,680 15,209

Total $ 466,738 $ 401,579

Three Months Ended

Nine Months Ended

(in thousands)

September 24, 2022

September 25, 2021

September 24, 2022

September 25, 2021

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

Net sales to U.S.

customers $ 430,693 $ 373,618

Net sales to non-U.S.

customers 36,045 27,961

Total $ 466,738 $ 401,579

Stock-Based Compensation

Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”)

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

Compensation cost related to RSA and RSU grants was $ 1.8 million and $ 1.4 million for the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 5.1 million and $ 4.5 million for the nine months ended September 24, 2022 and September 25, 2021, respectively, and was 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 nine months ended September 24, 2022:

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:

Shares Weighted

Balance at December 31, 2022 238,922 $ 92.07

Balance at September 24, 2022

For the nine months ended September 24, 2022, we granted 23,995 performance-based RSUs with a grant date fair value of $ 111.31 per share.

For the nine months ended September 25, 2021, we granted 17,714 performance-based RSUs with a grant date fair value of $ 131.02 per share.

As of September 24, 2022, there was $ 13.2 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.2 years.

Granted 93,944 $ 98.02

Vested ( 59,382 ) $ 77.02

Canceled ( 8,392 ) $ 81.56

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.

Stock Options

We grant stock options to participants in our equity plans.

T he compensation cost charged against income was $ 0.5 million and $ 0.3 million for the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 1.3 million and $ 0.9 million for the nine months ended September 24, 2022 and September 25, 2021, respectively, and was included as selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

The following table summarizes our stock option activity for the nine months ended September 24, 2022 :

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 :

Shares Weighted

Price Weighted

(years) Aggregate

(in thousands)

Balance at December 31, 2022 268,119 $ 84.03

Balance at September 24, 2022

Exercisable at September 24, 2022

As of September 24, 2022, 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 2.9 years.

Employee Stock Purchase Plan (“ESPP”)

During the nine months ended September 24, 2022 and September 25, 2021, we purchased 13,327 shares and 31,462 shares, respectively, under the ESPP.

Compensation cost related to the ESPP was $ 0.2 million and $ 0.0 million for the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 0.3 million and $ 0.7 million for the nine months ended September 24, 2022 and September 25, 2021, respectively.

Granted 76,784 $ 91.28

Canceled ( 1,113 ) $ 96.36

Exercised ( 21,702 ) $ 72.85

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.

Earnings Per Share

2 unchanged sentences

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 because their effect would have been anti-dilutive totaled approximately 31,000 shares and 19,000 shares for the three months ended September 24, 2022 and September 25, 2021, respectively, and 32,000 shares and 16,000 shares for the nine months ended September 24, 2022 and September 25, 2021, respectively.

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.

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

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September 24, 2022

September 25, 2021

September 24, 2022

September 25, 2021

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

Net income $ 5,683 $ 35,207

Weighted average basic shares outstanding 31,436 31,499

2 unchanged sentences

Earnings Per Share:

Basic $ 0.18 $ 1.12

Diluted $ 0.18 $ 1.11

Common Stock Repurchases

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 24, 2022

September 25, 2021

September 24, 2022

September 25, 2021

April 1, 2023 March 26, 2022

Shares repurchased and canceled 5,125 12,764

1 unchanged sentence

Average price per share $ 84.62 $ 108.74

Separately, our Board of Directors has authorized the repurchase of up to $ 600 million of our common stock through December 31, 2024 under a previously announced share repurchase program and subsequent authorizations, including a $ 100 million increase and two-year extension in July 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 September 24, 2022, $ 228.0 million was available for repurchase under this share repurchase program.

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

Nine Months Ended

September 24, 2022

September 25, 2021

September 24, 2022

September 25, 2021

April 1, 2023 March 26, 2022

Shares repurchased and canceled — 98,350

1 unchanged sentence

Average price per share $ — $ 96.89

At September 24, 2022, we had $ 1.4 million of net unrecognized tax benefits, all of which would lower our effective tax rate if recognized.

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.

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

As of September 24, 2022, accrued interest and penalties related to uncertain tax positions were not material.

As of April 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.

6 unchanged sentences

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.

Berman, our Non-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 $ 2.9 million in fiscal 2023 and were $ 2.5 million in fiscal 2022.

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 Company is currently in discussions with the landlord of the Colmar facility for an extension of the lease term.

The lease for our corporate headquarters in Colmar, PA was renewed in December 2022, effective as of January 1, 2023, and will expire on December 31, 2027.

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 minority interest investments in two other suppliers.

One of these investments is accounted for under the equity method and one is accounted for under the cost method.

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

Two of these investments are accounted for under the equity method and one is accounted for under the cost method.

Fair Value Disclosures

The carrying value of financial instruments such as cash, accounts receivable, accounts payable, debt under our revolving credit facility, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments.

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).

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