"Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q. As used herein, unless the context otherwise requires, "Dorman," the "Company," "we," "us," or "our" refers to Dorman Products, Inc. and its subsidiaries.

Cautionary Statement Regarding Forward Looking Statements



This document contains certain statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements related to the COVID-19 pandemic, net sales,
diluted earnings per share, gross profit, gross margin, selling, general and
administrative expenses, income tax expense, income before income taxes, net
income, cash and cash equivalents, indebtedness, liquidity, the Company's share
repurchase program, the Company's outlook and distribution facility costs and
productivity initiatives. Words such as "believe," "demonstrate," "expect,"
"estimate," "forecast," "anticipate," "should," "will" and "likely" and similar
expressions identify forward-looking statements. However, the absence of these
words does not mean the statements are not forward-looking. In addition,
statements that are not historical should also be considered forward-looking
statements.

Readers are cautioned not to place undue reliance on those forward-looking
statements, which speak only as of the date the statement was made. Such
forward-looking statements are based on current expectations that involve a
number of known and unknown risks, uncertainties and other factors (many of
which are outside of our control) which may cause actual events to be materially
different from those expressed or implied by such forward-looking statements.
These risks, uncertainties and other factors include, but are not limited to:
(i) competition in the automotive aftermarket industry; (ii) unfavorable
economic conditions; (iii) the loss or decrease in sales among one of our top
customers; (iv) customer consolidation in the automotive aftermarket industry;
(v) foreign currency fluctuations and our dependence on foreign suppliers; (vi)
extending credit to customers; (vii) the loss of a key supplier; (viii) limited
customer shelf space; (ix) reliance on new product development; (x) changes in
automotive technology and improvements in the quality of new vehicle parts; (xi)
inability to protect our intellectual property and claims of intellectual
property infringement; (xii) quality problems with products after their
production and sale to customers; (xiii) loss of third party transportation
providers on whom we depend; (xiv) unfavorable results of legal proceedings;
(xv) our executive chairman and his family owning a significant portion of the
Company; (xvi) operations may be subject to quarterly fluctuations and
disruptions from events beyond our control; (xvii) cyber-attacks; (xviii)
imposition of taxes, duties or tariffs; (xix) the level of our indebtedness,
(xx) exposure to risks related to accounts receivable; (xxi) the phaseout of
LIBOR or the impact of the imposition of a new reference rate, (xxii) volatility
in the market price of our common stock and potential securities class action
litigation; (xxiii) losing the services of our executive officers or other
highly qualified and experienced contributors; (xxiv) the inability to identify
suitable acquisition candidates, complete acquisitions or integrate acquisitions
successfully; and (xxv) the effects of widespread public health epidemics,
including COVID-19. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected.

See the "Statement Regarding Forward Looking Statements," Part I, Item 1A, "Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 2019 and Part II, Item 1A, "Risk Factors" in this Quarterly Report
on Form 10-Q for additional information regarding forward-looking statements and
the factors that could cause actual results to differ materially from those
anticipated in the forward-looking statements. The Company is under no
obligation to (and expressly disclaims any such obligation to) update any of the
information in this document, including but not limited to any situation where
any forward-looking statement later turns out to be inaccurate whether as a
result of new information, future events or otherwise.

Introduction



The following discussion and analysis, as well as other sections in this
Quarterly Report on Form 10-Q, should be read in conjunction with the unaudited
consolidated financial statements and footnotes thereto of Dorman Products, Inc.
and its subsidiaries included in "Item 1. Financial Statements" of this
Quarterly Report on Form 10-Q and with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the audited consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 2019.

This Quarterly Report on Form 10-Q contains the registered and unregistered
trademarks or service marks of Dorman and are the property of Dorman Products,
Inc. and/or its affiliates. This Quarterly Report on Form 10-Q also may contain
additional trade names, trademarks or service marks belonging to other
companies. We do not intend our use or display of other parties' trademarks,
trade names or service marks to imply, and such use or display should not be
construed to imply, a relationship with, or endorsement or sponsorship of us by
these parties.

Overview

We are one of the leading suppliers of replacement parts and fasteners for
passenger cars, light trucks, and heavy duty trucks in the automotive
aftermarket industry. As of December 28, 2019, we marketed approximately 78,000
distinct stock keeping units ("SKU's") as compared to approximately 77,000 as of
December 29, 2018, many of which we designed and engineered. This number
excludes private label SKU's and other variations in how we market, package and
distribute our products, includes distinct SKU's of acquired companies, and
reflects distinct SKU's that have been discontinued at the end of their
lifecycle. Our products are sold under our various brand names, under our
customers' private label brands or in bulk. We are one of the leading
aftermarket suppliers of original equipment ("OE") "dealer exclusive" parts. OE
"dealer exclusive" parts are those parts which were traditionally available to
consumers only from OE manufacturers or salvage yards. These parts include,
among other parts: intake manifolds, exhaust manifolds, window regulators,
radiator fan assemblies, tire pressure monitor sensors, complex electronics
modules and exhaust gas recirculation (EGR) coolers.

We generate virtually all our net sales from customers in the North American
automotive aftermarket industry, primarily in the United States. Our products
are sold primarily through automotive aftermarket retailers, including through
their online platforms, national, regional and local warehouse distributors and
specialty markets, and salvage yards. We also distribute automotive aftermarket
parts outside the United States, with sales primarily into Canada and Mexico,
and to a lesser extent, Europe, the Middle East and Australia.

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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, as well as business
acquisitions, also may cause significant fluctuations from quarter to quarter.

Early in 2019, we began the process of transferring operations of our existing
distribution facility in Portland, Tennessee to a new, larger facility nearby.
The new 800,000 square foot facility became fully operational in October 2019.
In the second quarter of 2019, we began incurring additional costs related to
start up inefficiencies and duplication of facility overhead and operating costs
primarily related to those facility consolidation activities. We began
implementing productivity initiatives in the fourth quarter of 2019 to address
those inefficiencies and costs while at the same time expanding the facility to
cover an aggregate of approximately 1 million square feet, which expansion was
completed in June 2020. In the second quarter of 2020, the productivity levels
at the new facility improved and costs began returning to typical levels,
in-line with our expectations. We expect our distribution costs to continue to
moderate back to more typical levels as we move through the second half of 2020,
subject to the impact of COVID-19.

We operate on a fifty-two or fifty-three week period ending on the last Saturday
of the calendar year. Our 2020 fiscal year will be a fifty-two week period that
will end on December 26, 2020. Our fiscal 2019 was a fifty-two week period that
ended on December 28, 2019.

Impacts of COVID-19

The COVID-19 pandemic has resulted and is expected to continue to result in
significant economic disruption, and it has and is expected to continue to
adversely affect our business. Since COVID-19 was declared a pandemic, state
orders shutting down or restricting business operations to contain the spread of
COVID-19 have generally exempted automotive repair and the related supply and
distribution of parts as those businesses have generally been classified as
critical, essential or life-sustaining. Therefore, the vast majority of our
retail and wholesale customers have been and currently remain open for business.
In turn, all of our U.S. facilities have also remained, and currently remain,
open and operating, with modified staffing in certain locations where
appropriate. We have taken actions to promote the welfare of our employees by
enhancing safety protocols, including requiring administrative employees to work
from home where applicable and implementing social distancing and robust
sanitization practices at our facilities. We also have adopted a COVID-19 sick
leave policy providing continued salary and benefits to eligible employees. We
have had to adjust our operations and inventory levels as demand has fluctuated
due to government-imposed restrictions being imposed and then subsequently
lifted or modified across the United States.

As previously disclosed, in late March, we began experiencing softening customer
demand as a result of government-imposed restrictions designed to slow the
spread of COVID-19. While customer orders dropped significantly in April due to
government-imposed restrictions, we saw a rapid recovery as the quarter
progressed with May orders flat to prior year and June orders up significantly
above prior year. However, as government-imposed restrictions vary across the
United States and continue to change, it remains difficult to determine the full
impact that the pandemic will have on the overall demand environment.
Correspondingly, to the extent there may be fluctuations in demand as a result
of the pandemic, it remains difficult to determine the full impact that the
pandemic will have on various aspects of our operations, including, but not
limited to, inventory levels, our ability to fulfill contractual requirements
and staffing at our facilities.

We have taken and expect to continue to take proactive steps to manage our business in light of the pandemic, including but not limited to, the following:

• We continued to adjust operating costs by limiting non-essential operating

expenses, adjusting labor hours to align with demand levels where possible,


       and deferring capital expenditures where we have deemed appropriate to do
       so.

• During the second quarter, we increased the typical level of receivables

collected under our various accounts receivable purchase agreements by $163


       million, incurring an additional $3.3 million in factoring costs above
       typical levels, to help bolster our liquidity.

• In light of our enhanced liquidity position, in June 2020 we repaid the

$99.0 million drawdown that we had made under our revolving credit facility

at the end of March 2020.

• We continued to suspend share repurchases under our share repurchase

program; however, we may resume such repurchases at any time when we

believe it is prudent to do so and without further notice.




As a result of these actions, as of July 28, 2020, we had no amounts drawn under
our revolving credit facility (excluding $0.8 million of issued but undrawn
letters of credit) and approximately $230 million in cash and cash equivalents.
We believe that our asset-light model and level of liquidity position us well to
navigate the current economic disruption associated with the ongoing COVID-19
pandemic.

During the second quarter, we estimate that we incurred $4.9 million of
incremental out-of-pocket costs related to COVID-19, primarily from factoring,
costs related to safety measures implemented at our sites, our COVID-19 sick
leave policy, and interest on our revolving line of credit, with $0.5 million
impacting gross profit, $4.2 million impacting selling, general and
administrative expenses, and $0.2 million impacting interest expense.

At the time of this filing and as we look ahead, we are unable to determine or
predict the overall impact the COVID-19 pandemic will have on our customers,
vendors and suppliers or our business, results of operations, liquidity or
capital resources. Significant uncertainty still exists concerning the overall
magnitude of the impact and the duration of the COVID-19 pandemic. As a result,
we will continue to closely monitor updates regarding the spread of COVID-19 and
adjust our operations according to guidelines from local, state and federal
officials. In light of the foregoing, we may take further actions that alter our
business operations or that we determine are in the best interests of our
employees, customers, suppliers and shareholders.

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New Product Development



New product development is an important success factor for us and traditionally
has been our primary vehicle for growth. We have made incremental investments to
increase our new product development efforts each year since 2003 to grow our
business and strengthen our relationships with our customers. The investments
primarily have been in the form of increased product development resources,
increased customer and end-user awareness programs, and customer service
improvements. These investments historically have enabled us to provide an
expanding array of new product offerings and grow revenues at levels that
generally have exceeded market growth rates. As a result of these investments,
we introduced 1,291 new distinct SKU's to our customers and end users in the
twenty-six weeks ended June 27, 2020, including 494 new-to-the-aftermarket
SKU's. We introduced 5,239 distinct SKU's to our customers and end users in the
fiscal year ended December 28, 2019, including 1,625 new-to-the-aftermarket
SKU's.

One area of focus has been our complex electronics program, which capitalizes on
the growing number of electronic components being utilized on today's OE
platforms. New vehicles contain an average of approximately thirty-five
electronic modules, with some high-end luxury vehicles containing over one
hundred modules. Our complex electronics products are designed and developed
in-house and tested to help ensure consistent performance, and our product
portfolio is focused on further developing our leadership position in the
category.

Another area of focus has been on Dorman HD Solutions™, a line of products we
market for the medium and heavy duty truck sector of the automotive aftermarket
industry. We believe that this sector provides many of the same opportunities
for growth that the passenger car and light truck sector of the automotive
aftermarket industry has provided us. Through Dorman HD Solutions™, we
specialize in what formerly were "dealer exclusive" parts similar to how we have
approached the passenger car and light duty truck sector. During the twenty-six
weeks ended June 27, 2020, we introduced 161 SKU's in this product line. We
expect to continue to invest aggressively in the medium and heavy duty product
category.

Acquisitions

Our growth is also impacted by acquisitions. For example, on January 2, 2020, we
acquired Power Train Industries, Inc. ("PTI"). We may acquire businesses in the
future to supplement our financial growth, increase our customer base, add to
our distribution capabilities or enhance our product development resources,
among other reasons.

Economic Factors

The Company's financial results are also impacted by various economic and industry factors, including, but not limited to the number, age and condition of vehicles in operation ("VIO") at any one time, and miles driven by those VIO.



To begin, the Company's products are primarily purchased and installed on a
subsegment of the VIO, specifically weighted towards vehicles aged eight to
thirteen years old. Each year, the United States seasonally adjusted annual rate
("US SAAR") of new vehicles purchased adds a new year to the US VIO. According
to data from the Auto Care Association ("Auto Care"), the US SAAR experienced a
decline from 2008 to 2011 as consumers purchased fewer new vehicles as a result
of the Great Recession of 2008. We believe that the declining US SAAR during
that period resulted in a follow-on decline in our primary US VIO subsegment
(eight to thirteen-year-old vehicles) commencing in 2016. However, following
2011 and the impact the Great Recession of 2008, US consumers began to increase
their purchases of new vehicles which over time caused the US SAAR to recover
and return to more historical levels. Consequently, we expect the US VIO for
vehicles aged eight to thirteen years old to recover over the next several
years.

In addition, we believe that vehicle owners generally are operating their
current vehicles longer than they did several years ago, performing necessary
repairs and maintenance in order to keep those vehicles well maintained.
According to data published by Polk, a division of IHS Automotive, the average
age of VIO increased to 11.9 years as of October 2019 from 11.8 years as of
October 2018 despite increasing new car sales. Additionally, the number of VIO
in the United States continues to increase, growing 2% in 2019 to 290.0 million
from 285.7 million in 2018. Approximately 57% of vehicles in operation are 11
years old or older. Vehicle scrappage rates have also decreased over the last
several years.

The number of miles driven is another important statistic that impacts our business. According to the United States Department of Transportation, the number of miles driven has increased each year since 2011 with miles driven having increased 0.9% as of November 2019 as compared to November 2018. Generally, as vehicles are driven more miles, the more likely it is that parts will fail.



The COVID-19 pandemic in general, as well as executive orders issued by certain
states in response to the COVID-19 pandemic are having an adverse impact on
work-related and personal travel. In fact, according to a report cited by the
Auto Care Association, data indicates that the number of miles driven daily was
down 44% as of May 1, 2020 when compared to February 2, 2020. However, the low
point in the number of miles driven daily was down 57% as of mid-April when
compared to February 2, 2020, and the number of miles driven daily has slowly
increased since that low point.

As a result, while, prior to COVID-19, we might have expected to see additional
sales growth due to the VIO and mileage trends referenced above, the impact of
COVID-19 may adversely affect our sales growth potential and our future results.

Brand Protection



We operate in a highly competitive market. As a result, we are continuously
evaluating our approach to brand protection. For example, in the third quarter
of 2019, we modified our brand protection policy, which is designed to ensure
that certain products bearing the Dorman name are not advertised below certain
approved pricing levels.

Discounts, Allowances and Incentives



We offer a variety of customer discounts, rebates, return allowances and other
incentives. We may offer cash discounts for paying invoices in accordance with
the specified discount terms of the invoice. In addition, we may offer pricing
discounts based on volume purchased from us or

                                       19

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other pricing discounts related to programs in accordance with a customer's
agreement. These discounts can be in the form of "off-invoice" discounts and are
immediately deducted from sales at the time of sale. For those customers that
choose to receive a payment on a quarterly or annual basis instead of
"off-invoice," we accrue for such payments as the related sales are made and
reduce sales accordingly. Finally, rebates and discounts are provided to
customers to support promotional activities such as advertising and sales force
allowances, and allowances for warranty and overstock returns may also be
provided.

Our customers, particularly our larger retail customers, regularly seek more
favorable pricing and product return provisions, and extended payment terms when
negotiating with us. We attempt to avoid or minimize these concessions as much
as possible, but we have granted pricing concessions, indemnification rights,
extended customer payment terms and allowed a higher level of product returns in
certain cases. These concessions impact net sales as well as our profit levels
and may require additional capital to finance the business. We expect our
customers to continue to exert pressure on our margins.

New Customer Acquisition Costs



New customer acquisition costs refer to arrangements pursuant to which we incur
change-over costs to induce a customer to switch from a competitor's brand. In
addition, change-over costs include the costs related to removing the new
customer's inventory and replacing it with our inventory, which is commonly
referred to as a stock-lift. New customer acquisition costs are recorded as a
reduction to revenue when incurred.

Product Warranty and Overstock Returns



Many of our products carry a lifetime limited warranty, which generally covers
defects in materials or workmanship and failure to meet specifications. In
addition to warranty returns, we also may permit our customers to return new,
undamaged products to us within customer-specific limits in the event that they
have overstocked their inventories. At the time products are sold, we accrue a
liability for product warranties and overstock returns as a percentage of sales
based upon estimates established using historical information on the nature,
frequency and average cost of the claim and the probability of the customer
return. Significant judgments and estimates must be made and used in connection
with establishing the sales returns and other allowances in any accounting
period. Revision to these estimates is made when necessary, based upon changes
in these factors. We regularly study trends of such claims.

Foreign Currency



In fiscal 2019, approximately 79% of our products were purchased from suppliers
in a variety of non-U.S. countries. The products generally are purchased through
purchase orders with the purchase price specified in U.S. dollars. Accordingly,
we generally do not have exposure to fluctuations in the relationship between
the U.S. dollar and various foreign currencies between the time of execution of
the purchase order and payment for the product. To the extent that the U.S.
dollar changes in value relative to foreign currencies in the future, the price
of the product for new purchase orders may change in equivalent U.S. dollars.

The largest portion of our overseas purchases comes from China. The Chinese Yuan
to U.S. Dollar exchange rate has fluctuated over the past several years. Any
future changes in the value of the Chinese Yuan relative to the U.S. Dollar may
result in a change in the cost of products that we purchase from China. However,
the cost of the products we procure is also affected by other factors including
raw material availability, labor cost, and transportation costs.

Impact of Inflation

The overall impact of inflation has not resulted in a significant change in labor costs or the cost of general services utilized.



The cost of many commodities that are used in our products has fluctuated over
time resulting in increases and decreases in the cost of our products. In
addition, we have periodically experienced increased transportation costs as a
result of higher fuel prices, capacity constraints and other factors. We will
attempt to offset cost increases by passing along selling price increases to
customers, using alternative suppliers and sourcing purchases from other
suppliers. However, there can be no assurance that we will be successful in
these efforts.

Impact of Tariffs



Effective the third quarter of 2018, the Office of the United States Trade
Representative (USTR) imposed three additional tranches of tariffs on
approximately $250 billion worth of Chinese imports. Tariffs ranged from 10% to
25% depending on the commodity. Effective for shipments departing China on or
after May 10, 2019, the USTR modified the tranches to impose tariffs of 25% for
all commodities. In addition, effective September 1, 2019, the USTR imposed a
fourth tranche of tariffs on approximately $300 billion worth of Chinese imports
with a tariff rate of 15%, which was reduced to 7.5% in February 2020. The
tariffs enacted to date will increase the cost of many products that are
manufactured for us in China. We are taking several actions to mitigate the
impact of the tariffs including, but not limited to, price increases to our
customers and cost concessions from our suppliers. We expect to continue
mitigating the impact of tariffs in fiscal 2020 primarily through selling price
increases to offset the higher tariffs incurred. Tariffs are not expected to
have a material impact on our net income but are expected to increase net sales
and lower our gross and operating profit margins to the extent that these
additional costs are passed through to customers.

In January 2020, the U.S. and Chinese governments signed a trade deal that
reduced some U.S. tariffs on Chinese goods in exchange for Chinese pledges to,
among other things, purchase more of American farm, energy and manufactured
goods. In addition, the USTR has granted tariff relief for certain categories of
products being imported from China. We expect that we will reverse
tariff-related price increases previously passed along to our customers and lose
cost concessions previously received from our suppliers on future purchases as
such tariffs are reduced or such other relief is granted.

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Results of Operations

The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in our Consolidated Statements of Operations:



                                      Thirteen Weeks Ended*                          Twenty-Six Weeks Ended*
(in millions)                 June 27, 2020           June 29, 2019           June 27, 2020           June 29, 2019
Net sales                  $ 233.2       100.0 %   $ 254.2       100.0 %   $ 490.9       100.0 %   $ 498.0       100.0 %
Cost of goods sold         $ 154.0        66.1 %   $ 167.0        65.7 %   $ 327.0        66.6 %   $ 323.3        64.9 %
Gross profit               $  79.1        33.9 %   $  87.1        34.3 %   $ 163.9        33.4 %   $ 174.6        35.1 %
Selling, general and
administrative
  expenses                 $  61.5        26.4 %   $  59.9        23.6 %   $ 121.3        24.7 %   $ 117.7        23.6 %
Income from operations     $  17.6         7.6 %   $  27.2        10.7 %   $  42.7         8.7 %   $  57.0        11.4 %
Other (expense) income,
net                        $  (0.3 )      -0.1 %   $   0.0         0.0 %   $   2.3         0.5 %   $   0.1         0.0 %
Income before income
taxes                      $  17.3         7.4 %   $  27.3        10.7 %   $  45.0         9.2 %   $  57.0        11.5 %
Provision for income
taxes                      $   3.4         1.5 %   $   5.8         2.3 %   $   8.4         1.7 %   $  12.1         2.4 %
Net income                 $  13.9         6.0 %   $  21.5         8.5 %   $  36.7         7.5 %   $  44.9         9.0 %

* Amounts and percentage of sales information does not add due to rounding

Thirteen Weeks Ended June 27, 2020 Compared to Thirteen Weeks Ended June 29, 2019



Net sales decreased 8.3% to $233.2 million for the thirteen weeks ended June 27,
2020 from $254.2 million for the thirteen weeks ended June 29, 2019. The
decrease in net sales was primarily driven by decreased volumes. While customer
orders dropped significantly in April 2020 due to government-imposed
restrictions designed to slow the spread of COVID-19, the Company saw a rapid
recovery as the quarter progressed with May orders flat to prior year and June
orders up significantly above prior year. The total estimated negative impact of
COVID-19 on net sales was approximately 14% to 16% for the thirteen weeks ended
June 27, 2020.

Gross profit margin was 33.9% of net sales for the thirteen weeks ended June 27,
2020 compared to 34.3% of net sales for the thirteen weeks ended June 29, 2019.
The gross profit margin was lower primarily due to $0.5 million of incremental
costs associated with COVID-19, including costs related to safety measures
implemented at our sites and our COVID-19 sick leave policy.

Selling, general and administrative expenses were $61.5 million, or 26.4% of net
sales, for the thirteen weeks ended June 27, 2020 compared to $59.9 million, or
23.6% of net sales, for the thirteen weeks ended June 29, 2019. Approximately
220 bps of the increase in selling, general and administrative expenses as a
percentage of net sales was due to decreased leverage resulting from the $20.9
million decline in net sales compared to the second quarter of 2019. Selling,
general and administrative expenses as a percentage of net sales for the
thirteen weeks ended March 27, 2020 also increased 180 bps due to $4.2 million
of incremental out-of-pocket costs directly related to COVID-19, primarily from
factoring costs, costs related to safety measures at our sites, and our COVID-19
sick leave policy. These increases in selling, general and administrative
expenses as a percentage of net sales were offset by cost savings primarily from
productivity improvements in our Portland, TN distribution facility, as well as
reduced travel expenses.

Our effective tax rate was 19.9% for the thirteen weeks ended June 27, 2020
compared to 21.1% for the thirteen weeks ended June 29, 2019. The decrease in
the effective tax rate is primarily related to an equity method investment
converted to a consolidated subsidiary, which occurred during the thirteen weeks
ended March 28, 2020.

Twenty-Six Weeks Ended June 27, 2020 Compared to Twenty-Six Weeks Ended June 29, 2019



Net sales decreased 1.4% to $490.9 million for the twenty-six weeks ended June
27, 2020 from $498.0 million for the twenty-six weeks ended June 29, 2019. The
decrease in net sales was primarily driven by decreased volumes due to the
impacts of government-imposed restrictions designed to slow the spread of
COVID-19.

Gross profit margin was 33.4% of net sales for the twenty-six weeks ended June
27, 2020 compared to 35.1% of net sales for the twenty-six weeks ended June 29,
2019. The gross profit margin was lower primarily due to incremental costs
associated with COVID-19, including costs related to safety measures implemented
at our sites and our COVID-19 sick leave policy, and higher customer provisions
in the first quarter of 2020 compared to 2019.

Selling, general and administrative expenses were $121.3 million, or 24.7% of
net sales, for the twenty-six weeks ended June 27, 2020 compared to
$117.7 million, or 23.6% of net sales, for the twenty-six weeks ended June 29,
2019. The increase in selling, general and administrative expense as a
percentage of net sales during the period was primarily due to the impact of
COVID-19, including incremental out-of-pocket costs directly related to
COVID-19, primarily factoring costs, costs related to safety measures at our
sites, and our COVID-19 sick leave policy (90 bps). Partially offsetting these
costs were cost savings primarily from productivity improvements in our Portland
distribution facility, as well as reduced travel expenses.

Other Income, net was $2.3 million for the twenty-six weeks ended June 27, 2020
which includes a gain of $2.5 million recognized as the difference between the
carrying value of our previously held equity method investment in PTI and the
implied fair value when we acquired the remaining equity interest in PTI in
January 2020 that we did not already own.

Our effective tax rate was 18.6% for the twenty-six weeks ended June 27, 2020
compared to 21.2% for the twenty-six weeks ended June 29, 2019. The decrease in
the effective tax rate is primarily a result of a non-taxable gain and discrete
items related to the write-off of a deferred tax liability, both of which were
associated with an equity method investment converted to a consolidated
subsidiary upon acquisition of the controlling interest, and a foreign tax
credit carry back claim from a prior period.

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Liquidity and Capital Resources



Historically, our primary sources of liquidity have been our invested cash and
the cash flow we generate from our operations, including accounts receivable
sales programs provided by our customers. Cash and cash equivalents at June 27,
2020 increased to $359.6 million from $68.4 million at December 28, 2019. The
increase primarily related to our efforts to enhance our liquidity in light of
COVID-19, which efforts included our March 2020 drawdown on our revolving credit
facility and additional sales of accounts receivable. Working capital was
$561.1 million at June 27, 2020 compared to $534.1 million at December 28, 2019.
Shareholders' equity was $807.1 million at June 27, 2020 compared to
$773.6 million at December 28, 2019. Based on our current operating plan, we
believe that our sources of available capital are adequate to meet our ongoing
cash needs for at least the next twelve months. However, our liquidity could be
negatively affected by extending payment terms to customers, a decrease in
demand for our products, the outcome of contingencies or other factors,
including the impact of the COVID-19 pandemic. See Note 8, "Commitments and
Contingencies", in the accompanying consolidated financial statements for
additional information regarding commitments and contingencies that may affect
our liquidity.

Tariffs

Tariffs also increase our uses of cash since we pay for the tariffs upon the
arrival of our goods in the United States but collect the cash on any
passthrough price increases from our customers on a delayed basis according to
the payment terms negotiated with our customers.

Payment Terms and Accounts Receivable Sales Programs



Over the past several years we have continued to extend payment terms to certain
customers as a result of customer requests and market demands. These extended
terms have resulted in increased accounts receivable levels and significant uses
of cash flows. We participate in accounts receivable sales programs with several
customers that allow us to sell our accounts receivable to financial
institutions to offset the negative cash flow impact of these payment terms
extensions. However, any sales of accounts receivable through these programs
ultimately result in us receiving a lesser amount of cash upfront than if we
collected those accounts receivable ourselves in due course. Moreover, prior to
the London Inter-Bank Offered Rate ("LIBOR") being phased out in 2021, to the
extent that any of these accounts receivable sales programs bear interest rates
tied to LIBOR, as LIBOR rates increase our cost to sell our receivables also
increases. See Item 3. Quantitative and Qualitative Disclosures about Market
Risk for more information. Further extensions of customer payment terms will
result in additional uses of cash flow or increased costs associated with the
sales of accounts receivable.

During the twenty-six weeks ended June 27, 2020 and June 29, 2019, we sold
approximately $496.4 million and $355.1 million of accounts receivable,
respectively, under these programs. The increase in sales of accounts receivable
was primarily in connection with our efforts to enhance our liquidity in light
of COVID-19. We have the ability to sell significantly more accounts receivable
under these programs if the needs of the business warrant, although, as we
continue to monitor the impacts of COVID-19 on our business, we may choose to
return to more historical levels of factoring if we believe we have sufficient
liquidity to do so.

Credit Agreement

In December 2017, we entered into a credit agreement that will expire in
December 2022. The credit agreement provides for an initial revolving credit
facility of $100.0 million. Borrowings under the credit agreement are on an
unsecured basis. At the Company's election, the interest rate applicable to
revolving credit loans under the credit agreement will be either (1) the Prime
Rate as announced by Wells Fargo from time to time, (2) an Adjusted LIBOR Market
Index Rate as measured by the LIBOR Market Index Rate plus the Applicable Margin
which fluctuates between 65 basis points and 125 basis points based on the ratio
of the Company's Consolidated Funded Debt to Consolidated EBITDA, or (3) an
Adjusted LIBOR Rate as measured by the LIBOR Rate plus the Applicable Margin
which fluctuates between 65 basis points and 125 basis points based on the ratio
of the Company's Consolidated Funded Debt to Consolidated EBITDA. The interest
rate at June 27, 2020 was LIBOR plus 65 basis points (0.83%). During the
occurrence and continuance of an event of default, all outstanding revolving
credit loans will bear interest at a rate per annum equal to 2.00% in excess of
the greater of (1) the Prime Rate or (2) the Adjusted LIBOR Market Index Rate
then applicable. As of June 27, 2020, we were not in default in respect to the
credit agreement. The credit agreement also contains covenants, including those
related to the ratio of certain consolidated fixed charges to consolidated
EBITDA, capital expenditures, and share repurchases, each as defined by the
credit agreement. The credit agreement also requires us to pay an unused fee of
0.10% on the average daily unused portion of the facility, provided the unused
fee will not be charged on the first $30 million of the revolving credit
facility. In March 2020, in an effort to enhance our liquidity in light of
COVID-19, we drew down on the revolving credit facility in the amount of $99.0
million. As of June 27, 2020, approximately $99.8 million was outstanding under
that facility, inclusive of issued but undrawn letters of credit in the amount
of $0.8 million that were issued to secure ordinary course of business
transactions. Net of these letters of credit and our borrowings, we had
approximately $0.2 million available under the facility at June 27, 2020.

On June 29, 2020, we repaid $99.0 million of outstanding borrowings under the
revolving credit facility. Following such repayment, as of June 29, 2020, we had
$99.2 million of availability under our revolving credit facility, after taking
into account issued but undrawn letters of credit in the amount of $0.8 million.

In addition to the foregoing, and, subject to certain requirements, the credit
agreement gives us the ability to request increases in revolving credit
commitments of up to an incremental $100.0 million. In light of COVID-19, we
may, if market factors permit and business needs dictate, decide to request such
an increase in commitments.

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Cash Flows



The following summarizes the activities included in the Consolidated Statements
of Cash Flows:

                                                               Twenty-Six Weeks Ended
(in thousands)                                           June 27, 2020        June 29, 2019
Cash provided by operating activities                   $       219,401      $        36,548
Cash used in investing activities                               (21,451 )            (17,335 )
Cash provided by (used in) financing activities                  93,255              (24,247 )
Net increase (decrease) in cash and cash equivalents    $       291,205      $        (5,034 )




During the twenty-six weeks ended June 27, 2020, cash provided by operating
activities was $219.4 million primarily as a result of $36.7 million in net
income, non-cash adjustments to net income of $14.3 million and a net decrease
in operating assets and liabilities of $168.5 million. Compared to the
Consolidated Balance Sheet at December 28, 2019, accounts receivable decreased
$151.8 million mostly attributable to higher factoring, which provided $486.8
million in cash, net of factoring costs of $9.6 million. Inventory decreased
$11.6 million due to the timing of inventory orders and receipts, and increased
sales late in the second quarter. Prepaids and other current assets decreased
$2.5 million primarily due to the timing of payments. Other assets increased
$4.8 million primarily due to an increase in our long-term core inventory.
Accounts payable decreased $8.7 million primarily due to the timing of vendor
payments. Accrued customer rebates and returns increased $7.6 million due to the
timing of rebate payments. Accrued compensation and other liabilities increased
$8.5 million primarily due to the timing of payments associated with income
taxes and employee compensation programs.

During the twenty-six weeks ended June 29, 2019, cash provided by operating
activities was $36.5 million primarily as a result of $44.9 million in net
income, non-cash adjustments to net income of $16.1 million and a net increase
in operating assets and liabilities of $24.5 million. Compared to the
Consolidated Balance Sheet at December 29, 2018, accounts receivable decreased
$21.5 million due to higher sales of accounts receivable. Inventory increased
$21.2 million due to inventory purchases to support new product launches, the
maintenance of customer fill rates as we consolidated facilities, and due to
increased costs from higher tariffs. Accounts payable decreased $6.9 million due
to the timing of payments to our vendors. The change in prepaids, other assets,
accrued customer rebates and returns, accrued compensation and other liabilities
was not material.

Investing activities used $21.5 million of cash in the twenty-six weeks ended
June 27, 2020 and $17.3 million in the twenty-six weeks ended June 29, 2019, as
summarized below:

• Capital spending in the twenty-six weeks ended June 27, 2020 was primarily

related to $1.1 million in tooling associated with new products, and

$1.3 million in enhancements and upgrades to our information systems.

• Capital spending in the twenty-six weeks ended June 29, 2019 was primarily


        related to $3.9 million in tooling associated with new products and $7.5
        million in enhancements and upgrades to our information systems.

• Additionally, during the twenty-six weeks ended June 27, 2020 we used

$18.4 million to acquire the remaining 60% of the outstanding equity of

Power Train Industries, Inc., net of $3.5 million of cash acquired.

• The remaining capital spending in both periods resulted from scheduled

equipment replacements, certain facility improvements and other capital

projects.

Financing activities provided $93.3 million of cash in the twenty-six weeks ended June 27, 2020 and used $24.2 million in the twenty-six weeks ended June 29, 2019 as summarized below:

• In the twenty-six weeks ended June 27, 2020, we drew down on the revolving

credit facility in the amount of $99.0 million.




    •   In the twenty-six weeks ended June 27, 2020, we paid $5.5 million to
        repurchase 91,979 common shares. In the twenty-six weeks ended June 29,
        2019, we paid $22.8 million to repurchase 272,564 common shares.

• The remaining uses of cash from financing activities in each period result

from stock compensation plan activity and the repurchase of our common

stock from our 401(k) Plan.




In light of COVID-19, during the first quarter of fiscal 2020, we temporarily
suspended repurchases under the previously disclosed share repurchase program
approved by our board of directors. The Company may resume its repurchase
program at any time when we believe it is prudent to do so and without further
notice.

During the twenty-six weeks ended June 27, 2020, we experienced no material changes to our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

New and Recently Adopted Accounting Pronouncements

Please refer to Note 16, New and Recently Adopted Accounting Pronouncements, in the Notes to Consolidated Financial Statements.


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