NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2019 AND MARCH 31, 2018
(UNAUDITED)
As used herein, unless the context otherwise requires, “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 consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles 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 thirteen weeks ended March 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2019. 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 29, 2018.
2.
|
Business Acquisitions and Investments
|
On August 31, 2018, we acquired 100% of the outstanding stock of Flight Systems Automotive Group LLC (“Flight Systems” or “Flight”), a privately-held manufacturer and remanufacturer of complex automotive electronics and diesel fuel system components, based in Lewisberry, Pennsylvania. The purchase price was $27.5 million. We believe complex electronics and diesel fuel system components represent important growth opportunities for us and Flight’s product portfolio delivers valuable alternatives to aftermarket professionals.
The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill.
In connection with this acquisition, we preliminary recorded $5.5 million in goodwill, $5.3 million of identified intangibles, and $16.7 million of other net assets, primarily $2.0 million of accounts receivable, $9.1 million of inventory, $4.4 million of fixed assets, and $1.2 million of net other assets and liabilities. The estimated fair value of the Flight assets acquired and liabilities assumed are provisional as of March 30, 2019 and are based on information that is currently available to the Company. Additional information about conditions that existed as of the date of acquisition are being gathered to finalize these provisional measurements, particularly with respect to net working capital, intangible assets, deferred income taxes and tax liabilities. Accordingly, the measurement of Flight’s assets acquired and liabilities assumed may change significantly upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date.
The valuation of the intangible assets acquired and related amortization periods are as follows:
(in thousands)
|
|
Valuation
|
|
|
Amortization Period (in years)
|
|
Customer relationships
|
|
$
|
3,080
|
|
|
|
8
|
|
Tradenames
|
|
|
1,990
|
|
|
15
|
|
Other
|
|
|
240
|
|
|
|
5
|
|
Total
|
|
$
|
5,310
|
|
|
|
|
|
The preliminary fair values of the Customer relationships and Tradenames were estimated using a discounted present value income approach.
The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing automotive aftermarket businesses, the assembled workforce of Flight and other factors. The goodwill is expected to be deductible for tax purposes.
The financial results of the acquisition have been included in the Consolidated Financial Statements since the date of acquisition.
On October 26, 2017, we acquired 100% of the outstanding stock of MAS Automotive Distribution Inc. (“MAS”), a privately-held manufacturer of premium chassis and control arms based in Montreal, Canada. The purchase price was $67.2 million net of $3.3 million of cash acquired and including contingent consideration and other purchase price adjustment. The fair value of the contingent cash consideration was estimated by using an option pricing model framework, which represents our own assumptions and data, and is based on our best available information. As of March 30, 2019, we had $8.1 million recorded which represent the fair value of the estimated payment which will become due if certain sales thresholds are achieved through December 2020. Accretion expense was $0.1 million in each of the thirteen weeks ended March 30, 2019 and March 31, 2018, which was included in selling, general and administrative expenses in the Consolidated Statements of Income.
7
3.
|
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 agreements were accounted for as sales of accounts receivable and were removed from our Consolidated Balance Sheet at the time of the sales transactions. Pursuant to these agreements, we sold $172.8
million and $151.0 million of accounts receivable during the thirteen weeks ended March 30, 2019 and March 31, 2018, respectively. If receivables had not been sold over the last twelve months, $418.1 million and $378.5 million of additional accounts receivable would have been outstanding at March 30, 2019 and December 29, 2018, respectively, based on standard payment terms. Selling, general and administrative expenses for the thirteen weeks ended March 30, 2019 and March 31, 2018 included $4.6 million and $3.5 million, respectively, in financing costs associated with these accounts receivable sales programs.
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)
|
|
March 30,
2019
|
|
|
December 29,
2018
|
|
Bulk product
|
|
$
|
113,876
|
|
|
$
|
122,111
|
|
Finished product
|
|
|
170,610
|
|
|
|
144,897
|
|
Packaging materials
|
|
|
4,376
|
|
|
|
3,496
|
|
Total
|
|
$
|
288,862
|
|
|
$
|
270,504
|
|
As discussed in Note 15, we adopted ASU No. 2016-02,
Leases
, using the modified retrospective approach. We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and to obtain substantially all of the economic benefit from the use of the underlying asset. Some of our leases included both lease and non-lease components which are accounted for as a single lease component as we have elected the practical expedient. Some of our operating lease agreements include variable lease costs, primarily taxes, insurance, common area maintenance or increases in rental costs related to inflation. Substantially all of our equipment leases and some of our real estate leases have terms of less than one year and as such are accounted for as short-term leases as we have elected the practical expedient.
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 preset 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. Operating lease payments are recognized on a straight-line basis over the lease term. We had no financing leases as of March 30, 2019.
We have operating leases for distribution centers, sales offices and certain warehouse and office equipment. Our leases have remaining lease terms of 1 to 12 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.
As of March 30, 2019, there was no material variable lease costs or sublease income. Cash paid for operating leases was $1.2 million in the thirteen weeks ended March 30, 2019. The following table summarizes the lease expense for the thirteen weeks ended March 30, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Thirteen Weeks Ended March 30, 2019
|
|
|
|
|
|
Operating lease expense
|
|
$
|
1,928
|
|
|
|
|
|
Short-term lease expense
|
|
|
1,070
|
|
|
|
|
|
Total lease expense
|
|
$
|
2,998
|
|
|
|
|
|
8
Supplemental balance sheet information related to our operating leases is as follows:
(in thousands)
|
|
March 30, 2019
|
|
Operating lease right-of-use assets
|
|
$
|
34,819
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
4,261
|
|
Long-term operating lease liabilities
|
|
|
32,856
|
|
Total operating lease liabilities
|
|
$
|
37,117
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
9.91
|
|
Weighted average discount rate
|
|
|
5.18
|
%
|
The following table summarizes the maturities of our lease liabilities for all operating leases as of March 30, 2019:
(in thousands)
|
|
March 30, 2019
|
|
2019
(Remainder of 2019)
|
|
$
|
4,423
|
|
2020
|
|
|
5,700
|
|
2021
|
|
|
5,290
|
|
2022
|
|
|
4,915
|
|
2023
|
|
|
3,401
|
|
2024 and thereafter
|
|
|
24,980
|
|
Total lease payments
|
|
|
48,709
|
|
Less: Imputed interest
|
|
|
(11,592
|
)
|
Present value of lease liabilities
|
|
$
|
37,117
|
|
For the year ended December 29, 2018, minimum rental payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense for operating leases, including payments for short-term equipment and storage rentals, was $6.9 million in fiscal 2018. Minimum future rental payments required under operating leases in effect as of December 29, 2018 were as follows:
(in thousands)
|
|
December 29, 2018
|
|
2019
|
|
$
|
5,489
|
|
2020
|
|
|
5,416
|
|
2021
|
|
|
4,972
|
|
2022
|
|
|
4,599
|
|
2023
|
|
|
3,013
|
|
2024 and thereafter
|
|
|
24,297
|
|
Total rental payments
|
|
$
|
47,786
|
|
6
.
|
Goodwill
and
Intangible Assets
|
Goodwill
Goodwill included the following:
(in thousands)
|
|
March 30,
2019
|
|
|
December 29,
2018
|
|
Balance at beginning of period
|
|
$
|
72,606
|
|
|
$
|
65,999
|
|
Goodwill acquired
|
|
|
-
|
|
|
|
6,800
|
|
Measurement period adjustments
|
|
|
(5
|
)
|
|
|
(193
|
)
|
Balance at end of period
|
|
$
|
72,601
|
|
|
$
|
72,606
|
|
9
Intangible Assets
Intangible assets included the following:
|
|
|
|
|
|
March 30, 2019
|
|
|
December 29, 2018
|
|
(in thousands)
|
|
Weighted Average Amortization Period
|
|
|
Gross Carrying Value
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
|
Gross Carrying Value
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Intangible assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
13.8
|
|
|
$
|
7,590
|
|
|
$
|
531
|
|
|
$
|
7,059
|
|
|
$
|
7,590
|
|
|
$
|
516
|
|
|
$
|
7,074
|
|
Customer relationships
|
|
|
8.7
|
|
|
|
20,130
|
|
|
|
3,050
|
|
|
|
17,080
|
|
|
|
20,130
|
|
|
|
2,582
|
|
|
|
17,548
|
|
Technology
|
|
|
12.8
|
|
|
|
367
|
|
|
|
55
|
|
|
|
312
|
|
|
|
367
|
|
|
|
49
|
|
|
|
318
|
|
Other
|
|
|
4.4
|
|
|
|
240
|
|
|
|
28
|
|
|
|
212
|
|
|
|
240
|
|
|
|
16
|
|
|
|
224
|
|
Total
|
|
|
|
|
|
$
|
28,327
|
|
|
$
|
3,664
|
|
|
$
|
24,663
|
|
|
$
|
28,327
|
|
|
$
|
3,163
|
|
|
$
|
25,164
|
|
Amortization expense was $0.7 million and $0.5 million for the thirteen weeks ended March 30, 2019 and March 31, 2018, respectively
.
7.
|
Commitments and 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, 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.
The Financial Accounting Standards Board (“FASB”) issued an accounting standard update in May 2014 regarding the accounting for and disclosure of revenue. Specifically, the update outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which is common to both U.S. GAAP and International Financial Reporting Standards.
Our primary source of revenue is from contracts with and purchase orders from customers. 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 utilize the most likely amount method consistently to estimate the effect of uncertainty on the amount of variable consideration to which we would be entitled. The most likely amount method considers the single most likely amount from a range of possible consideration amounts. This method is utilized for all of our variable consideration.
We record estimates for cash discounts, 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 a reduction of accounts receivable. Accrued customer rebates which we expect to settle in cash are classified as other accrued liabilities. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. We have concluded that our estimates of variable consideration are not constrained according to the definition of the new standard.
All of our revenue was recognized under the point of time approach in accordance with the revenue standard during the thirteen weeks ended March 30, 2019 and March 31, 2018, respectively. Also, we do not have significant financing arrangements with our customers, as our credit terms are all less than one year. Lastly, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts.
Five-step model
We apply the FASB’s guidance on revenue recognition, which requires us to recognize the amount of revenue and consideration which we expect to receive in exchange for goods or services transferred to our customers. To do this, we apply the five-step model prescribed by the FASB, which requires us to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy a performance obligation.
Contract Assets and Liabilities
We recognize a receivable or contract asset when we perform a service or transfer a good in advance of receiving consideration.
10
- A receivable is recorded when our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due.
- A contract asset is recorded when our right to consideration in exchange for goods or services that we have transferred to a customer is conditional on something other than the passage of time. We did not have any contract assets recorded as of March 30, 2019 or December 29, 2018.
We recognize a contract liability when we receive consideration, or if we have the unconditional right to receive consideration, in advance of satisfying the performance obligation. A contract liability is our obligation to transfer goods or services to a customer for which we have received consideration, or an amount of consideration is due from the customer. We did not have any contract liabilities recorded as of March 30, 2019 or December 29, 2018.
Disaggregated Revenue
The following tables present our disaggregated net sales by Type of Major Good / Product Line, and Geography.
|
|
Thirteen Weeks Ended
|
|
(in thousands)
|
|
March 30, 2019
|
|
|
March 31, 2018
|
|
Powertrain
|
|
$
|
95,163
|
|
|
$
|
95,152
|
|
Chassis
|
|
|
77,406
|
|
|
|
66,999
|
|
Automotive Body
|
|
|
60,746
|
|
|
|
55,244
|
|
Hardware
|
|
|
10,476
|
|
|
|
9,867
|
|
Net Sales
|
|
$
|
243,791
|
|
|
$
|
227,262
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
(in thousands)
|
|
March 30, 2019
|
|
|
March 31, 2018
|
|
Net Sales to U.S. Customers
|
|
$
|
227,151
|
|
|
$
|
210,426
|
|
Net Sales to Non-U.S. Customers
|
|
$
|
16,640
|
|
|
|
16,836
|
|
Net Sales
|
|
$
|
243,791
|
|
|
$
|
227,262
|
|
9
.
|
Stock-Based Compensation
|
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, important 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 March 30, 2019, 1,085,954 shares were available for grant under the 2018 Plan.
Restricted Stock
We grant restricted stock to certain employees and members of our Board of Directors. Vesting of restricted stock is conditional based on continued employment or service for a specified period and, in certain circumstances, the attainment of performance goals. We retain the restricted stock, and any dividends paid thereon, until the vesting conditions have been met. For time-based restricted stock awards, 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 restricted stock awards tied to growth in pre-tax income, compensation cost 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. In 2019, we introduced performance shares that vest based on our total shareholder return ranking relative to the S&P Midcap 400 Growth Index over a three-year performance period. For performance-based restricted stock awards tied to total shareholder return, compensation cost related to the stock 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. Compensation cost related to restricted stock was $0.7 million for the thirteen weeks ended March 30, 2019 and March 31, 2018 and is classified as selling, general and administrative expense in the Consolidated Statements of Income.
11
The following table
summarizes our restricted stock
activity for the
thirteen weeks ended March 30, 2019
:
|
|
Shares
|
|
|
Weighted
Average
Price
|
|
Balance at December 29, 2018
|
|
|
170,737
|
|
|
$
|
63.94
|
|
Granted
|
|
|
74,879
|
|
|
$
|
82.11
|
|
Vested
|
|
|
(24,849
|
)
|
|
$
|
50.81
|
|
Cancelled
|
|
|
(26,972
|
)
|
|
$
|
48.23
|
|
Balance at March 30, 2019
|
|
|
193,795
|
|
|
$
|
74.83
|
|
As of March 30, 2019, there was $7.9 million of unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of approximately 2.9 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 restricted stock which vested was $0.2 million and $0.1 million in the thirteen weeks ended March 30, 2019 and March 31, 2018, respectively, and was credited to income tax expense.
Stock Options
We grant stock options to certain employees. We expense the grant-date fair value of stock options. Compensation cost is recognized on a straight-line basis over the vesting period for which related services are performed. The compensation cost charged against income was $0.2 million and $0.1 million for the thirteen weeks ended March 30, 2019 and March 31, 2018, respectively. The compensation costs were classified as selling, general and administrative expense in the Consolidated Statements of Income. No cost was capitalized during the thirteen weeks ended March 30, 2019.
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 of time 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. During the thirteen weeks ended March 30, 2019 and March 31, 2018 we granted 28,538 and 61,514 stock options, respectively.
The following table summarizes our stock option activity for the thirteen weeks ended March 30, 2019:
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Term
(In years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at December 29, 2018
|
|
188,469
|
|
|
$
|
66.14
|
|
|
|
|
|
|
|
|
|
Granted
|
|
28,538
|
|
|
$
|
82.56
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(33,228
|
)
|
|
$
|
58.81
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2019
|
|
183,779
|
|
|
$
|
70.01
|
|
|
|
4.1
|
|
|
$
|
3,321,984
|
|
Options exercisable at March 30, 2019
|
|
61,415
|
|
|
$
|
62.01
|
|
|
|
2.7
|
|
|
$
|
1,601,664
|
|
There were 33,228 options exercised during the thirteen weeks ended March 30, 2019. There were no options exercised in the thirteen weeks ended March 31, 2018. As of March 30, 2019, there was $1.9 million of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.0 years.
C
ash generated from stock option exercises was less than $0.1 million in the thirteen weeks ended March 30, 2019. There was no cash received from stock option exercises in the thirteen weeks ended March 31, 2018.
T
here was no excess tax benefit generated from stock options exercised in the thirteen weeks ended March 30, 2019 or March 31, 2018.
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. There were no shares purchased under this plan in the thirteen weeks ended March 30, 2019 and March 31, 2018. During both the thirteen weeks ended March 30, 2019 and March 31, 2018, compensation cost under the Plan was less than $0.1 million.
Basic earnings per share is calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding nonvested restricted stock which is considered to be contingently issuable. To calculate diluted earnings per share, common
12
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 aw
ards of
114,000
shares and
197,000
shares were excluded from the calculation of diluted earnings per share as of
March 30, 2019
and
March 31, 2018
, respectively, as their effect would have been anti-dilutive.
The following table sets forth the computation of basic earnings per share and diluted earnings per share:
|
|
Thirteen Weeks Ended
|
|
(in thousands, except per share data)
|
|
March 30, 2019
|
|
|
March 31, 2018
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
23,407
|
|
|
$
|
30,647
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
32,801
|
|
|
|
32,917
|
|
Effect of stock-based compensation awards
|
|
|
88
|
|
|
|
86
|
|
Weighted average diluted shares outstanding
|
|
|
32,889
|
|
|
|
33,003
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.71
|
|
|
$
|
0.93
|
|
Diluted
|
|
$
|
0.71
|
|
|
$
|
0.93
|
|
11
.
|
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”). 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. For the thirteen weeks ended March 30, 2019, we repurchased and cancelled 14,090 shares of common stock for $1.3 million at an average price of $89.64 per share. During the fifty-two weeks ended December 29, 2018, we repurchased and cancelled 26,280 shares of common stock for $2.0 million at an average price of $74.79 per share.
Our Board of Directors authorized a share repurchase program of up to $400 million through December 31, 2020. 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. For the thirteen weeks ended March 30, 2019, we repurchased and cancelled 101,000 shares of common stock for $8.4 million at an average price of $82.89 per share under this program. For the fifty-two weeks ended December 29, 2018, we repurchased and cancelled 622,223 shares of common stock for $43.4 million at an average price of $69.73 per share under this program.
1
2
.
|
Related-Party Transactions
|
We have a non-cancelable operating lease for our primary operating facility with a partnership in which Steven L. Berman, our Executive Chairman, and his family members, are partners. Based upon the terms of the lease, payments will be $1.6 million in fiscal 2019 and were $1.6 million in fiscal 2018. This lease will expire on December 31, 2022. The right-of-use asset and total lease liabilities related to this lease were both $5.6 million as of March 30, 2019. In the opinion of our Audit Committee, the terms and rates of this lease are no less favorable than those which could have been obtained from an unaffiliated party when the lease was renewed during November 2016.
Additionally, we have a non-cancelable operating lease for our Canadian operating facility from a corporation of which an employee, who is also the former owner of an acquired entity, and his family members are owners. Based upon the terms of the lease, payments will be $0.2 million in fiscal 2019 and were $0.5 million in fiscal 2018. This lease expired on April 30, 2019.
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 according to the equity method.
At March 30, 2019, we had $2.4 million of net unrecognized tax benefits, $2.1 million of which would affect our effective tax rate if recognized. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of March 30, 2019 we had approximately $0.6 million of accrued interest and penalties related to uncertain tax positions.
We file income tax returns in the United States, Canada, China, India, and Mexico. All years before 2015 are closed for United States federal tax purposes. Tax years before 2014 are closed for the states in which we file. Tax years before 2015 are closed for tax purposes in China and Canada. All tax years remain open for Mexico.
14.
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.
13
1
5
.
|
New and Recently Adopted Accounting Pronouncements
|
On December 30, 2018, the beginning of our 2019 fiscal year, we adopted ASU No. 2016-02,
Leases
, which replaces existing lease guidance. The ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. Additionally,
in August 2018, the FASB issued ASU 2018-11,
Targeted Improvements to ASC 842
, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition.
We adopted the standard using the modified retrospective approach and adoption resulted in right-of-use assets of $36.3 million and lease liabilities of $37.9 million as of December 30, 2018. Deferred rent and lease incentive liabilities associated with historical operating leases totaling $1.6 million were reclassified to the operating lease right-of-use assets as required by ASC 842. The transition did not have a material impact on our results of operations or Statement of Cash Flows. See Note 5 for additional information on leases.
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment
, which eliminates the need to perform a hypothetical purchase price allocation to measure goodwill impairment. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are evaluating the new guidance, however, we do not believe the new guidance will have a material impact on our consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting
, which expands the scope of the current employee share-based payment guidance to include share-based payments issued to nonemployees to substantially align the accounting for share-based payments for nonemployees with those made to employees including, the fair value measurement, measurement date and classification of certain awards. The new guidance is effective for fiscal years beginning after December 15, 2018, with early application permitted. We adopted this ASU effective December 30, 2018, the beginning of our fiscal 2019. Adoption of this ASU did not have a material impact on our consolidated financial statements.
14