What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-29 compared with 2020-07-30 · 94 added, 112 removed, 194 unchanged (52% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

“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.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the condensed 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 requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc.

and its subsidiaries.

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(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;

(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.

(xxv) the effects of widespread public health epidemics, including COVID-19;

and (xxvi) the failure to maintain sufficient inventory to meet customer demand or failure to anticipate future changes in customer demands.

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.

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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.

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.

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 condensed consolidated financial statements and footnotes thereto of Dorman Products, Inc.

and its subsidiaries included in “Item 1.

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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.

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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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 expect our distribution costs to continue to moderate back to more typical levels as we move through the remainder 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.

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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.

The COVID-19 pandemic has resulted and is expected to continue to result in significant economic disruption.

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.

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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.

While customer orders dropped significantly in April due to government-imposed restrictions, we saw a rapid recovery as the second quarter progressed with May orders flat to prior year and June orders up significantly above prior year.

We continued to see an increase in orders in the third quarter, where sales performance reached a record high for the Company.

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.

Dorman’s balance sheet remains healthy and strong, enabling us to take the following actions in the third quarter:

We decreased the levels of receivables collected under our factoring program by $104 million, returning to historical levels, with total factoring costs down $3 million from the same quarter last year.

In June 2020 we repaid the $99.0 million drawdown that we made under our revolving credit facility at the end of March 2020 to enhance our liquidity.

During the first quarter of fiscal 2020, we suspended share repurchases under our share repurchase program in light of COVID-19;

however, we resumed such repurchases in August 2020.

As a result of these actions, as of September 26, 2020, we had no amounts drawn under our revolving credit facility (excluding $0.8 million of issued but undrawn letters of credit) and approximately $170.5 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.

During the third quarter, we estimate a negative impact of $0.03 to diluted EPS for out-of-pocket costs related to the COVID-19 pandemic.

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.

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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.

As a result of these

investments, we introduced 2,310 new distinct SKU’s t o our customers and end users during the nine months ended September 26, 2020 , including 1,000 n ew-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.

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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.

During the nine months ended September 26, 2020, we introduced 367 SKU’s in this product line.

We expect to continue to invest in the medium and heavy-duty product category.

Our growth is also impacted by acquisitions.

For example, on January 2, 2020, we acquired Power Train Industries, Inc.

For example, on January 2, 2020, we acquired the remaining 60% of the outstanding stock of Power Train Industries, Inc.

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.

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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

other pricing discounts related to programs in accordance with a customer’s agreement.

In addition, we may offer pricing discounts based on volume purchased from us or other pricing discounts related to programs under 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.

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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.

New customer acquisition costs refer to arrangements under 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.

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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.

In addition to warranty returns, we also may permit our customers to return new, undamaged products to us within customer-specific limits if 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.

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Foreign Currency

In fiscal 2019, approximately 79% of our products were purchased from suppliers in a variety of non-U.S.

Our products are purchased from suppliers in the U.S.

and a variety of non-U.S.

The products generally are purchased through purchase orders with the purchase price specified in U.S.

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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.

To the extent 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.

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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.

In addition, effective September 1, 2019, the USTR imposed the 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.

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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*

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

Three Months Ended*

Nine Months Ended*

(in millions)

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Cost of goods sold

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* 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.

Three Months Ended September 26, 2020 Compared to Three Months Ended September 28, 2019

Net sales increased 18.4% to $300.6 million for the three months ended September 26, 2020 from $253.8 million for the three months ended September 28, 2019.

The increase in net sales was primarily organic and driven by increased volumes during the quarter.

Gross profit margin was 35.9% of net sales for the three months ended September 26, 2020 compared to 34.2% of net sales for the three months ended September 28, 2019.

The gross profit margin was higher primarily due to improved productivity at our Portland, TN distribution facility as well as lower provisions for excess and obsolete inventory as our efforts to improve our end-to-end supply chain began to show results.

Selling, general and administrative expenses were $63.0 million, or 21.0% of net sales, for the three months ended September 26, 2020 compared to $60.0 million, or 23.6% of net sales, for the three months ended September 28, 2019.

Approximately 270 basis points of the decrease in selling, general and administrative expense as a percentage of net sales was due to improved leverage from the $47 million increase in net sales as compared to the third quarter of 2019.

Additionally, the Company drove operating cost savings from productivity improvements in our Portland, TN distribution facility, as well as reduced travel expenses stemming from COVID-19 restrictions.

Our effective tax rate was 23.5% for the three months ended September 26, 2020 compared to 21.1% for the three months ended September 28, 2019.

The increase in effective tax rate in the third quarter of 2020 is primarily due to the impact of foreign operations.

Nine Months Ended September 26, 2020 Compared to Nine Months Ended September 28, 2019

Net sales increased 5.3% to $791.5 million for the nine months ended September 26, 2020 from $751.8 million for the nine months ended September 28, 2019.

The increase in net sales was primarily organic and driven by increased volumes specifically within the third quarter.

Gross profit margin was 34.3% of net sales for the nine months ended September 26, 2020 compared to 34.8% of net sales for the nine months ended September 28, 2019.

Selling, general and administrative expenses were $184.3 million, or 23.3% of net sales, for the nine months ended September 26, 2020 compared to $177.6 million, or 23.6% of net sales, for the nine months ended September 28, 2019.

The decrease in selling, general and administrative expense as a percentage of net sales during the period was primarily due to productivity improvements in our Portland distribution facility, as well as reduced travel expenses stemming from COVID-19 restrictions.

Other Income, net was $2.3 million for the nine months ended September 26, 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 PTI fully in January 2020.

Our effective tax rate was 21.0% for the nine months ended September 26, 2020 compared to 21.2% for the nine months ended September 28, 2019.

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.

Cash and cash equivalents at September 26, 2020 increased to $170.5 million from $68.4 million at December 28, 2019.

The increase primarily related to cash provided from operating activities.

Working capital was $591.5 million at September 26, 2020 compared to $534.1 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.

See Note 7, “Commitments and Contingencies”, in the accompanying condensed consolidated financial statements for additional information regarding commitments and contingencies that may affect our liquidity.

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.

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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.

Moreover, to the extent that any of these accounts receivable sales programs bear interest rates tied to the London Inter-Bank Offered Rate (“LIBOR”), as LIBOR rates increase our cost to sell our receivables also increases.

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.

During the nine months ended September 26, 2020 and September 28, 2019, we sold approximately $568.3 million and $530.7 million of accounts receivable, respectively, under these programs.

The increase in sales of accounts receivable reflects our efforts to enhance our liquidity in the second quarter of 2020 in light of COVID-19.

In the third quarter of 2020, we decreased the levels of receivables sold under these programs by $104 million, returning to more historical levels.

We have capacity to sell increased levels of accounts receivable under our available programs if liquidity needs arise, whether due to continued impacts of COVID-19 or other factors.

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.

We have a credit agreement, expiring in December 2022, that provides for a revolving credit facility of $100.0 million and, subject to certain requirements, gives us the ability to request increases in revolving credit commitments of up to an additional $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%).

At the Company’s election, the interest rate applicable to borrowings 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 September 26, 2020 was LIBOR plus 65 basis points (0.80%).

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.

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

Twenty-Six Weeks Ended

The credit agreement also requires us to pay a fee of 0.10% on the average daily unused portion of the facility, provided the fee will not be charged on the first $30 million of the revolving credit facility.

In March 2020, we took proactive steps to increase our cash position and preserve financial flexibility in light of uncertainties from the COVID-19 pandemic by drawing down $99.0 million from the revolving credit facility.

Early in the third quarter of 2020, we repaid the $99.0 million of outstanding borrowings under this revolving credit facility.

As of September 26, 2020, there were no borrowings under the credit agreement and we had two outstanding letters of credit for approximately $0.8 million in the aggregate which were issued to secure ordinary course of business transactions.

Net of these letters of credit, there was approximately $99.2 million available under the credit agreement at September 26, 2020.

As of September 26, 2020, we were not in default with respect to the credit agreement.

We paid $0.2 million and $0.4 million in interest during the three and nine months ended September 26, 2020, respectively.

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

Nine Months Ended

(in thousands)

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

Cash provided by operating activities

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Net increase (decrease) in cash and cash equivalents

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.

During the nine months ended September 26, 2020, cash provided by operating activities was $145.7 million compared to cash provided by operating activities of $59.7 million during the nine months ended September 26, 2019.

The $86 million increase was driven by the favorable effects of higher accounts payable and accrued liabilities, due to the timing of payments, partially offset by the negative effects of higher accounts receivable during the nine months ended September 26, 2020.

Investing activities used cash of $ 26.4 million and $24.7 million during the nine months ended September 26, 2020 and September 28, 2019, respectively.

Cash usage for investing activities was $1.7 million higher during the nine months ended September 26, 2020, as lower cash used for capital expenditures was more than offset by cash used for the acquisition of PTI.

Financing activities used $17.2 million of cash during the nine months ended September 26, 2020 compared to $24.3 million of cash used during the nine months ended September 28, 2019.

During the nine months ended September 26, 2020, we paid $16.2 million to repurchase 218,836 common shares under our share repurchase plan.

During the nine months ended September 28, 2019, we paid $22.8 million to repurchase 272,564 common shares under the share repurchase plan.

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

We resumed our repurchase program in August 2020.

During the nine months ended September 26, 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.

Please refer to Note 15, New and Recently Adopted Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements.

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 2. Management’s Discussion and Analysis