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Item 1A. Risk Factors

2021-02-22 compared with 2020-02-26 · 190 added, 105 removed, 136 unchanged (68% of the section changed)

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The risks are listed below in no particular order.

Risks Related to Our Business

Our Industry, Operations and Competition

Our business is impacted by the age, condition and number of vehicles that need servicing and by improvements in the quality of new vehicle parts.

The size of the automobile aftermarket industry depends, in part, upon the growth in number of vehicles on the road, increase in average vehicle age, change in total miles driven per year, new or modified environmental and vehicle safety regulations, including fuel-efficiency and emissions reduction standards, increase in pricing of new cars and new car quality and related warranties.

We believe the automobile aftermarket industry has been negatively impacted by the fact that the quality of more recent automotive vehicles and their component parts (and related warranties) has improved, thereby lengthening the repair cycle.

Generally, if parts last longer, there will be less demand for our products, and the average useful life of automobile parts has been steadily increasing in recent years due to innovations in products and technology.

In addition, the introduction by original equipment manufacturers of increased warranty and maintenance initiatives has the potential to decrease the demand for our products.

These factors could have a material adverse effect upon our business, financial condition and results of operations.

Our industry is highly competitive, and our success depends on our ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do.

The automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products.

Due to the diversity of our product offering, we compete against a large cross section of aftermarket companies and brands, including, but not limited to, Cardone Industries, Inc., Standard Motor Products, Inc., Tenneco, Inc., Bosch Auto Parts, Gates Corporation, Continental Automotive Systems, Inc.

Due to the diversity of our product offering, we compete against a large cross section of aftermarket companies and brands, including, but not limited to, Cardone Industries, Inc., Standard Motor Products, Inc., Tenneco, Inc., Bosch Auto Parts, First Brands Group, LLC, Gates Corporation, Continental Automotive Systems, Inc.

(VDO), MevoTech LP, ACDelco (owned by General Motors Company), Motorcraft (owned by Ford Motor Company) and numerous category specific competitors.

In addition, we face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell.

Some of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do.

These factors may allow our competitors to:

Further, some of our private label customers also compete with us.

Some of our competitors may have larger customer bases and significantly greater financial, technical and m arketing resources than we do.

These factor s may allow our competitors to:

respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products;

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Any such competitive pressures could cause us to lose market share or could result in significant price decreases and could have a material adverse effect upon our business, financial condition and results of operations.

Unfavorable economic conditions may adversely affect our business.

Adverse changes in economic conditions, including inflation, recession, increases in fuel prices, tariffs, unemployment levels, availability of consumer credit, taxation or instability in the financial markets or credit markets may either lower demand for our products or increase our operational costs, or both.

Such conditions may also materially impact our customers, suppliers and other parties with whom we do business.

Our revenue will be adversely affected if demand for our products declines.

The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased.

As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase and failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon our business, financial condition and results of operations.

The loss or decrease in sales among one of our top customers, or a material change in the terms on which they are willing to buy from us, could have a substantial negative impact on our sales and operating results.

A significant percentage of our sales has been, and is expected to be, concentrated among a relatively small number of customers.

During fiscal 2019, fiscal 2018 and fiscal 2017, four customers (Advance, AutoZone, NAPA and O'Reilly) each accounted for more than 10% of net sales and in the aggregate accounted for approximately 66% of net sales in fiscal 2019, 63% in fiscal 2018, and 61% in fiscal 2017.

During fiscal 2020, three customers (Advance, AutoZone and O’Reilly) each accounted for more than 10% of net sales and in the aggregate accounted for approximately 56% of net sales.

We anticipate that this concentration of sales among these customers will continue in the future.

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We have in the past, and may in the future, lose customers or lose a particular product line of a customer due to the highly competitive conditions in the automotive aftermarket industry, consolidation of customers and customer initiatives to buy direct from foreign suppliers or other business considerations.

A decision by any significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to materially decrease the amount of products purchased from us, to change their manner of doing business with us, or to stop doing business with us, could have a material adverse effect on our business, financial condition and results of operations.

Because our sales are concentrated, and the market in which we operate is very competitive, we are under ongoing pressure from our customers to offer lower prices, extend payment terms, increase marketing allowances, provide enhanced rebates, rights of return and credits and offer other terms more favorable to these customers.

A decision by any significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to materially decrease the amount of products purchased from us or the number of our product lines they choose to carry, to change their manner of doing business with us, or to stop doing business with us, could have a material adverse effect on our business, financial condition and results of operations.

Because our sales are concentrated, and the market in which we operate is very competitive, we are under ongoing pressure from our customers to offer lower prices, extend payment terms, increase marketing and transportation allowances, provide enhanced rebates, discounts, rights of return and credits and offer other terms more favorable to these customers.

These customer demands have put continued pressure on our operating margins and profitability and in the future could have a material adverse effect upon our business, financial condition and results of operations.

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There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure.

This is the result of a number of industry trends, including the consolidated purchasing power of large customers and actions taken by some of our competitors in an effort to attract new business, such as enhancing their online presence.

This is the result of a number of industry trends, including the consolidated purchasing power of large customers, the growth of e-commerce and actions taken by some of our competitors in an effort to attract new business, including efforts to enhance their online presence.

Price reductions may be required to remain competitive in light of such industry trends, and such reductions may impact our sales and profit margins.

Our future profitability will depend in part upon our ability to respond to changes in product and distribution channel mix, to continue to improve our manufacturing efficiencies, to generate cost reductions, including reductions in the cost of components purchased from outside suppliers, and to maintain a cost structure that will enable us to offer competitive prices.

Our future profitability will depend in part upon our ability to respond to changes in product and distribution channel mix, to continue to improve our manufacturing and distribution efficiencies, to generate cost reductions, including reductions in the cost of components purchased from outside suppliers, and to maintain a cost

structure that will enable us to offer competitive prices.

Our inability to maintain a competitive cost structure could have a material adverse effect upon our business, financial condition and results of operations.

Limited shelf space and the inability of our customers to expand into new locations may adversely affect our ability to grow.

Since the amount of space available to a retailer and other purchasers of our products is limited, our products compete with other automotive aftermarket products, some of which are entirely dissimilar and otherwise non-competitive (such as car waxes and engine oil), for shelf and floor space.

Moreover, our growth depends, in part, on the ability of our customers to open and operate new locations in which our products may be sold.

No assurance can be given that additional space will be available in our customers' existing locations or that our customers will be able to expand into new locations that would support growth in the number of products and product lines that we offer.

Any failure to maintain and/or grow our shelf or floor space, and any failure of our customers to maintain and/or grow their number of locations, could have a material adverse effect upon our business, financial condition and results of operations.

Customer consolidation in the automotive aftermarket industry may lead to customer contract terms less favorable to us which may negatively impact our financial results.

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While we attempt to avoid or minimize such concessions, in some cases payment terms to customers have been extended, enhanced customer credits have been issued and returns of product have exceeded historical levels.

The product returns and customer credits primarily affect our net sales and profit levels while payment terms extensions generally reduce operating cash flow and require additional capital to finance our business.

The product returns and customer credits primarily affect our net sales and profit levels while payment term extensions and additional factoring costs generally reduce operating cash flow and require additional capital to finance our business.

We expect these trends to continue for the foreseeable future.

Our b usiness m ay be n egatively i mpacted b y f oreign c urrency fl uctuations and o ur d ependence on f oreign s uppliers .

In fiscal 2019, approximately 79% of our products were purchased from suppliers in a variety of foreign countries, with the largest portion of our overseas purchases being made in China.

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

Accordingly, we generally do not have direct 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.

The Chinese Yuan to U.S.

Dollar exchange rate has fluctuated over the past several years, and, to the extent that the U.S.

Dollar decreases in value relative to the Chinese Yuan or any other foreign currencies in the future, the prices of products in U.S.

Dollars for new purchase orders may increase.

As a result of the magnitude of our foreign sourcing, our business may be subject to various risks, including the following:

uncertainty caused by the elimination of import quotas and the possible imposition of additional quotas or antidumping or countervailing duties, tariffs, or other retaliatory or punitive trade measures;

imposition of duties, tariffs, taxes and other charges on imports;

significant devaluation of the U.S.

Dollar against foreign currencies;

restrictions on the transfer of funds to or from foreign countries;

political instability, military conflict or terrorism involving the United States or any of the countries where our products are manufactured or sold, which could cause a delay in transportation or an increase in costs of transportation, raw materials or finished product or otherwise disrupt our business operations;

disease, epidemics and health-related concerns could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny and embargoing of goods produced in infected areas.

If these risks limit or prevent us from acquiring products from foreign suppliers or significantly increase the cost of our products, our operations could be seriously disrupted until alternative suppliers are found, which could have a material adverse effect upon our business, financial condition and results of operations.

We extend credit to our customers, some of whom may be unable to pay in the future.

We regularly extend credit to our customers.

A significant percentage of our accounts receivable have been, and are expected to continue to be concentrated among a relatively small number of automotive retailers and automotive parts distributors in the United States.

Our four largest customers accounted for 80% of total accounts receivable as of December 28, 2019 and 76% of total accounts receivable as of December 29, 2018.

Management continually monitors credit terms, credit limits, and the availability of credit insurance for these and other customers.

If any of these customers were unable to pay, it could have a material adverse effect upon our business, financial condition and results of operations.

Our business, results of operations and financial condition could be materially adversely affected by the effects of widespread public health epidemics, including COVID-19, that are beyond our control.

Any outbreaks of contagious diseases, public health epidemics and other adverse public health developments in countries where we, our customers and suppliers, operate could have a material and adverse effect on our business, results of operations and financial condition.

The COVID-19 pandemic has adversely impacted, and is expected to continue to adversely impact, our business, and the nature and extent of the impact may be highly uncertain and beyond our control.

Uncertain factors relating to COVID-19 include the duration, spread and severity of the virus, the impact of potential mutations to the virus, the efficacy and distribution of vaccines designed to combat COVID-19, the effects of the COVID-19 pandemic on our customers, vendors, suppliers and employees, and the actions, or perception of actions that may be taken, to contain or treat its impact, including declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.

COVID-19 and the measures designed to contain its spread may negatively impact demand for our products, which could have a material and adverse effect on our business, results of operations and financial condition.

Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to our schedule and specifications.

If our suppliers’ operations are impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our results of operations.

Further, in the event any members of our workforce, or those of our suppliers, contract COVID-19 or are otherwise compelled to quarantine, we may experience shortages in labor and services that we require for our operations.

Our increased use of remote work environments and virtual platforms in response to the COVID-19 pandemic may also increase our risk of cyber-attacks and data security breaches.

The duration of the disruption to our customers, our supply chain and our employees, and the related financial and operational impacts to us, cannot be estimated at this time.

Should any such disruption continue for an extended period of time, the impact could have a material adverse effect on our business, results of operations and financial condition.

If we fail to maintain sufficient inventory to meet current customer demands, or if we fail to anticipate future changes in customer demands, our financial results could be adversely affected.

We must maintain sufficient in-stock inventory and anticipate future changes in customer demands in order to be successful.

If we fail to do so, our financial results could be adversely affected.

Fluctuations in demand may result from a number of factors, including, but not limited to, global economic conditions, COVID-19, the age, condition and number of vehicles that need servicing, automotive parts failure rates, loss of market share and improvements in product designs that result in enhanced quality and reliability of new vehicle parts .

As a result of these and other factors, we have experienced and expect to continue to experience fluctuating levels of demand that require us to monitor, and, where appropriate, adjust our operations, including our inventory levels and staffing at our facilities.

If we are unable to forecast accurately future reductions in demand, we may accumulate excess or obsolete inventory and be forced to reduce hours or layoff or furlough employees.

Conversely, if we are unable to forecast accurately future increases in demand, we may have inventory shortfalls or inadequate staffing levels to meet demand, which may result in our inability to fill orders on timely basis or at all and could result in penalties owed to our customers and the loss of net sales.

Our profitability may be materially adversely affected as a result of overstock inventory-related returns by our customers in excess of anticipated amounts .

In certain instances, we permit overstock returns of inventory that may be either new or non-defective or non-obsolete.

To the extent our customer agreements permit overstock returns, those customers are generally limited to returning overstocked inventory according to a specified percentage of their annual purchases from us.

We accrue for overstock returns as a percentage of sales, after giving consideration to recent historical returns.

While we believe that we make reasonable estimates for overstock returns in accordance with our revenue recognition policies, actual returns may differ from our estimates.

To the extent that overstocked returns are materially in excess of our projections, our business, results of operations and financial condition may be materially adversely affected.

Our operations would be materially and adversely affected if we are unable to purchase raw materials, finished goods, equipment, manufactured components, or “core” products from our suppliers.

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The risk of non-performance may also result from the insolvency or bankruptcy of one or more of our suppliers.

Our suppliers’ ability to supply products to us is also subject to a number of risks, including availability and cost of raw materials, destruction of their facilities, work stoppages or health crises.

For example, the recent coronavirus outbreak in China may have a lasting impact on global production and industrial supply chains.

Our suppliers’ ability to supply products to us is also subject to a number of risks, including availability and cost of raw materials, destruction of their facilities, natural disasters, work stoppages or health crises.

For example, the automotive industry is currently experiencing a shortage in the supply of semi-conductors.

We utilize semi-conductors in our products and, to date, have not encountered a shortage in semi-conductors.

However, if we are unable to source semi-conductors on a timely basis or at all, we may be unable to produce some of our products, which could adversely affect our ability to develop new products and fill orders on existing products.

The COVID-19 pandemic may have a lasting impact on global production and industrial supply chains.

In addition, our failure to promptly pay, or order sufficient quantities of inventory from our suppliers may increase the cost of products we purchase or may lead to suppliers refusing to sell products to us at all.

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Furthermore, replacement of a key supplier is often at higher prices, which could result in lower profit margins and could have a material adverse effect upon our business, financial condition and results of operations.

Limited shelf space may adversely affect our ability to expand our product offerings.

No assurance can be given that additional space will be available in our customers' stores to support any expansion of the number of products that we offer.

Any failure to maintain and/or grow our shelf or floor space could have a material adverse effect upon our business, financial condition and results of operations.

Our operating results are sensitive to the availability and cost of third-party transportation providers, which are important in the manufacture and transport of our products.

We depend upon third-party transportation providers for shipments to and from our suppliers and for delivery of our products to us and to our customers.

Our access to third-party transportation providers is not guaranteed, and,

even if we have access to transportation providers, we may be unable to transport our products at economically attractive rates in certain circumstances, particularly in cases of adverse market conditions or disruptions to transportation infrastructure.

Fluctuations in demand for third-party transportation providers and other events, such as strikes, political events, international trade disputes, war, terrorism, natural disasters, adverse weather conditions, increases in fuel prices, public health issues, including the COVID-19 pandemic, and other events, may impact the availability of third-party transportation providers to ship our products or the cost to ship our products.

O ur business, financial position, results of operations or cash flows could be materially and adversely affected if we are unable to pass along increased transportation costs to our customers, or if third-party transportation capacity were to decline significantly or otherwise become unavailable.

Product Development, Acceptance and Quality

If we do not continue to develop new products and bring them to market, our business, financial condition and results of operations could be materially impacted.

Our historical growth and profitability has depended, in part, on the introduction of new parts to the automotive aftermarket industry.

We continually invest in research and development to sustain or enhance our existing product portfolio.

We invest in research and development to sustain or enhance our existing product portfolio.

In certain circumstances, there may be a lengthy period between commencing these development initiatives and bringing new or improved products to market.

During this time, technology advancements, customer demand and the markets for our products may move in directions that we had not anticipated.

In other instances, factors beyond our control may impact our ability to further our research and development activities.

For example, new product activity was adversely impacted in the first half of 2020 due to COVID-19.

Although new product development and commercialization rebounded towards the end of 2020, we ended the year with lower new product introductions than the prior year.

During any period of delay in research and development activities, technology advancements, customer demand and the markets for our products may move in directions that we had not anticipated.

There is no guarantee that our new products, or enhancements to existing products, will achieve market acceptance or that the timing of market adoption will be as predicted.

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There is a risk that we may not be able to introduce or bring to full-scale production new products as quickly as we expected in our product introduction plans, which could have a material adverse effect upon our business, financial condition, and results of operations.

Our business is impacted by the age, condition and number of vehicles that need servicing and by improvements in the quality of new vehicle parts.

The automobile aftermarket industry has been negatively impacted by the fact that the quality of more recent automotive vehicles and their component parts (and related warranties) has improved, thereby lengthening the repair cycle.

Generally, if parts last longer, there will be less demand for our

products , and the average useful life of automobile parts has been steadily increasing in recent years due to innovations in products and technology.

In addition, the introduction by original equipment manufacturers of increased warranty and maintenance initiatives has the potential to decrease the demand for our products.

These factors could have a material adverse effect up on our business, financial condition and results of operations.

We may be adversely impacted by changes in, or restrictions on access to, automotive technology.

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This in turn could limit our ability to design, manufacture and sell new products and could have a material adverse effect upon our business, financial condition and results of operations.

These trends have led to an increase in the significance of technology to our current and future products and the amount of capital we need to invest to develop these new technologies, as well as an increase in the amount of competition we face from technology focused new market entrants.

competition we face from technology focused new market entrants.

If we misjudge the amount of capital to invest or are otherwise unable to continue providing products that meet our customers’ needs in this environment of rapid technological change, our market competitiveness could be adversely affected, which could have a material adverse effect upon our business, financial condition and results of operations.

Quality problems with our products could damage our reputation and adversely affect our business.

We have experienced, and in the future may experience, reliability, quality, or compatibility problems in products after their production and sale to customers.

Product quality problems and any associated product recalls could result in damage to our reputation, loss of customers, a decrease in revenue, litigation, unexpected expenses, and a loss of market share.

We have invested and will continue to invest in our engineering, design, and quality infrastructure to help reduce these problems;

however, there can be no assurance that we can successfully remedy these issues.

To the extent we experience significant quality problems in the future, it could have a material adverse effect upon our business, financial condition and results of operations.

Our Intellectual Property and Information Security

We are dependent, in part, on our intellectual property.

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An adverse finding against us in these or similar intellectual property disputes may have a material adverse effect on our business, financial condition and results of operations if we are not able to successfully develop or license non-infringing alternatives.

In addition, an unfavorable ruling in intellectual property litigation could subject us to significant liability, increased legal expense,

and require us to cease developing or selling the affected products or using the affected works of authorship or trademarks.

Any significant restriction that impedes our ability to develop and commercialize our products could have a material adverse effect up on our business, financial condition and results of operations.

Quality problems with our products could damage our reputation and adversely affect our business.

We have experienced, and in the future may experience, reliability, quality, or compatibility problems in products after their production and sale to customers.

We have invested and will continue to invest in our engineering, design, and quality infrastructure to help reduce these problems;

however, there can be no assurance that we can successfully remedy these issues.

To the extent we experience significant quality problems in the future, it could have a material adverse effect upon our business, financial condition and results of operations.

Loss of third-party transportation providers upon whom we depend or increases in fuel prices could increase our costs or cause a disruption in our operations.

We depend upon third-party transportation providers for delivery of our products to us and to our customers.

Strikes, slowdowns, transportation disruptions or other conditions in the transportation industry, including, but not limited to, shortages of vehicles or drivers, disruptions in rail service, port congestion, or increases in fuel prices, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis, which in turn could have a material adverse effect upon our business, financial condition and results of operations.

Unfavorable results of legal proceedings could materially adversely affect us.

We are subject to various legal proceedings and claims that arise out of the ordinary course of our business, such as those involving contracts, competitive practices, intellectual property infringement and product liability claims.

Legal proceedings and claims and associated internal investigations may be time-consuming and expensive to prosecute, defend or conduct.

This may be true whether they are with or without merit and whether they are covered by insurance or not.

They also may divert management's attention and other resources;

inhibit our ability to sell our products;

result in adverse judgments for damages, injunctive relief, penalties and fines;

and negatively affect our reputation, business, financial condition and results of operations.

There can be no assurance regarding the outcome of current or future legal proceedings, claims or investigations.

Dorman’s Executive Chairman and his family members own a significant portion of the Company.

As of February 21, 2020, Steven L.

Berman, our Executive Chairman, and his family members beneficially own approximately 18% of the Company’s outstanding common stock.

Berman and his family members can influence matters requiring approval of shareholders, including the election of the Board of Directors and the approval of significant transactions.

Such concentration of ownership may have the effect of delaying, preventing or deterring a change in control of the Company, could deprive shareholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.

Our operations, revenues and operating results, and the operations of our third-party manufacturers, suppliers and customers, may be subject to quarter over quarter fluctuations and disruptions from events beyond our or their control.

Our operations, revenues and operating results, as well as the operations of our third-party manufacturers, suppliers and customers, may be subject to quarter over quarter fluctuations and disruptions from a variety of causes outside of our or their control, including work stoppages, market volatility, fuel prices, acts of war, terrorism, cyber incidents, pandemics, fire, earthquake, flooding, changes in weather patterns, weather or seasonal fluctuations or other climate-based changes, including hurricanes or tornadoes, or other natural disasters.

operations, any of which could have a material adverse effect upon our business, financial condition and results of operations.

We rely extensively on our computer systems to manage inventory, process transactions and timely provide products to our customers.

Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches, cyber-attacks or other catastrophic events.

If our systems are damaged or fail to function properly, we may experience loss of critical data and interruptions or delays in our ability to manage inventories or process customer transactions.

Such a disruption of our systems could negatively impact revenue and could have a material adverse effect upon our business, financial condition and results of operations.

In addition, an unfavorable ruling in intellectual property litigation could subject us to significant liability, increased legal expense, and require us to cease developing or selling the affected products or using the affected works of authorship or trademarks.

Any significant restriction that impedes our ability to develop and commercialize our products could have a material adverse effect upon our business, financial condition and results of operations.

Failure to maintain the value of our brands could have an adverse effect on our reputation, cause us to incur significant costs and negatively impact our business.

Our brands are an important component of our value proposition and serve to distinguish our products from those of our competitors.

We believe that our success depends, in part, on maintaining and enhancing the value of our brands and executing our brand strategies, which are designed to drive end-user demand for our products and make us a valued business partner to our customers through the support of their marketing initiatives.

A decline in the reputation of our brands as a result of events, such as deficiencies or defects in the design or manufacture of our

products, or from legal proceedings, product recalls or warranty claims resulting from such deficiencies or defects, may harm our reputation, reduce demand for our products and adversely affect our business.

In addition to the foregoing, certain of our customer agreements require us to supply them with private-label branded products.

To the extent we use our own products to promote the brands of our customers over our own brands, our business may be adversely affected.

Cyber-attacks or other breaches of information technology security could adversely impact our business and operations.

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Any such cyber-attacks and loss or theft of our intellectual property or unauthorized disclosure of confidential information could have a material adverse effect upon our business, financial condition and results of operations.

Risks Related to Our Capital Structure and Finances

Our business may be negatively impacted by foreign currency fluctuations and our dependence on foreign suppliers .

In fiscal 2020, approximately 77% of our products were purchased from suppliers in a variety of foreign countries, with the largest portion of our overseas purchases being made in China.

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

Accordingly, we generally do not have direct 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.

The Chinese yuan to U.S.

dollar exchange rate has fluctuated over the past several years, and, to the extent that the U.S.

dollar decreases in value relative to the Chinese yuan or any other foreign currencies in the future, the prices of products in U.S.

dollars for new purchase orders may increase.

As a result of the magnitude of our foreign sourcing, our business may be subject to various risks, including the following:

imposition of duties, tariffs, taxes and other charges on imports;

significant devaluation of the U.S.

dollar against foreign currencies;

restrictions on the transfer of funds to or from foreign countries;

disease, epidemics and health-related concerns could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny and embargoing of goods produced in infected areas.

We extend credit to our customers, some of whom may be unable to pay in the future.

We regularly extend credit to our customers.

A significant percentage of our accounts receivable have been, and are expected to continue to be, concentrated among a relatively small number of automotive retailers and automotive parts distributors in the United States.

Our four largest customers accounted for 82% of total accounts receivable as of December 26, 2020 and 80% of total accounts receivable as of December 28, 2019.

In the ordinary course of business, management monitors credit terms, credit limits, and the availability of credit insurance for these and other customers.

In addition, from time to time, some of the Company’s customers request increases in their credit limits.

Such requests may pose incremental risks to the Company, either by increasing the credit limit for a customer and accepting additional financial risk of non-payment, or maintaining the credit limit and risking the customer redirecting business to another supplier offering better credit terms.

If any of the Company’s customers were unable to pay, or if any of those customers redirect their business to other suppliers offering better credit terms, it could have a material adverse effect upon our business, financial condition and results of operations.

Changes in U.S.

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government has adopted a new approach to trade policy and in some cases has attempted to renegotiate or terminate certain existing bilateral or multi-lateral trade agreements.

It has also imposed tariffs on certain foreign goods, including steel and certain commercial vehicle parts, which have resulted in increased costs for goods imported into the U.S.

It has also imposed tariffs on certain foreign goods, including steel and certain commercial vehicle parts, which have resulted in increased costs for goods imported into the United States.

In response to these tariffs, a number of U.S.

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If we are unable to pass price increases on to our customer base or otherwise mitigate the costs, or if demand for our products decreases due to the higher cost, our results of operations could be materially adversely affected.

In addition, further tariffs have been proposed by the U.S.

and its trading partners and additional trade restrictions could be implemented on a broader range of products or raw materials.

In addition, further tariffs have been proposed by the United States and its trading partners and additional trade restrictions could be implemented on a broader range of products or raw materials.

The resulting environment of retaliatory trade or other practices could have a material adverse effect upon our business, financial condition, results of operations, customers, suppliers and the global economy.

Changes in tax laws or exposure to additional income tax liabilities could have a material adverse effect upon our business, financial condition and results of operations.

We are subject to income taxes, as well as non-income-based taxes, at the federal, state and local levels.

We are subject to tax audits in various jurisdictions.

Tax authorities may disagree with certain positions we have taken and assess additional taxes.

We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision.

However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could have a material adverse effect upon our business, financial condition and results of operations.

Additionally, changes in tax laws or tax rulings could materially impact our effective tax rate.

Increasing our indebtedness could negatively affect our financial health.

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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 without recourse.

These agreements permit us to recover on our accounts receivable sooner than if they were not in place and help reduce the risk of non-payment by customers.

Certain of our customers, however, do not offer the ability to participate in such sponsored programs.

If we do not enter into these agreements, our financial condition, results of operations and cash flows could be materially and adversely affected by delays or failures in collecting trade accounts receivables.

In addition, if any of the financial institutions with which we have these agreements experience financial difficulties or otherwise terminate these agreements, we may experience material and adverse economic losses due to the loss of such arrangements and the impact of such loss on our liquidity, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

In addition, if any of the financial institutions with which we have these agreements experience financial difficulties or otherwise modify or terminate these agreements, we may experience material

and adverse economic losses due to the loss of such arrangements and the impact of such loss on our liquidity .

The modification, termination or other loss of these arrangements could have a material and adverse effect upon our financial condition, results of operations and cash flows.

The utility of these arrangements also depends upon LIBOR, as it is a component of the discount rate applicable to each arrangement.

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We cannot predict the effect of the potential changes to or elimination of LIBOR or the establishment and use of alternative rates or benchmarks and the corresponding effects upon our cost of capital.

Dorman’s Executive Chairman and his family members own a significant portion of the Company.

As of February 18, 2021, Steven L.

Berman, our Executive Chairman, and his family members beneficially own approximately 18% of the Company’s outstanding common stock.

Berman and his family members can influence matters requiring approval of shareholders, including the election of the Board of Directors and the approval of significant transactions.

General Risk Factors

Unfavorable economic conditions may adversely affect our business.

Such conditions may also materially impact our customers, suppliers and other parties with whom we do business.

Our revenue will be adversely affected if demand for our products declines.

The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased.

If a major disruption were to occur at our operations or the operations of our third-party manufacturers, suppliers or customers, it could result in harm to people or the natural environment, delays in shipments of products to customers or suspension of operations, any of which could have a material adverse effect upon our business, financial condition and results of operations.

We rely extensively on our computer systems to manage inventory, process transactions and timely provide products to our customers.

Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches, cyber-attacks or other catastrophic events.

If our systems are damaged or fail to function properly, we may experience loss of critical data and interruptions or delays in our ability to manage inventories or process customer transactions.

Such a disruption of our systems could negatively impact revenue and could have a material adverse effect upon our business, financial condition and results of operations.

Unfavorable results of legal proceedings could materially adversely affect us.

We are subject to various legal proceedings and claims that arise out of the ordinary course of our business, such as those involving contracts, employment matters, competitive practices, intellectual property infringement and product liability claims.

Legal proceedings and claims and associated internal investigations may be time-consuming and expensive to prosecute, defend or conduct.

This may be true whether they are with or without merit and whether they are covered by insurance or not.

They also may divert management’s attention and other resources;

inhibit our ability to sell our products;

result in adverse judgments for damages, injunctive relief, penalties and fines;

and negatively affect our reputation, business, financial condition and results of operations.

There can be no assurance regarding the outcome of current or future legal proceedings, claims or investigations.

The market price of our common stock may be volatile and could expose us to securities class action litigation.

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If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could have a material adverse effect upon our business, financial condition and results of operations.

Losing the services of our executive officers or other highly qualified and experienced employees could adversely affect our business.

Losing the services of our executive officers or other highly qualified and experienced employees or failing to attract and retain any of such officers or employees could adversely affect our business.

Our future success depends upon the continued contributions of our executive officers and senior management, many of whom have numerous years of experience and would be extremely difficult to replace.

We must also attract and maintain experienced and highly skilled engineering, sales and marketing, finance, logistics, and operations personnel.

We must also attract and retain experienced and highly skilled engineering, sales and marketing, finance, logistics, and operations personnel.

Competition for qualified personnel is often intense, and we may not be successful in hiring and retaining these people.

If we lose the services of these key employees or cannot attract and retain other qualified personnel, it could have a material adverse effect upon our business, financial condition and results of operations.

In addition, we have seen an increase in demand for qualified workers in distribution centers, and, to the extent that drives higher wages for those roles versus other roles, our ability to attract talent and maintain a competitive cost structure may be challenged.

If we lose the services of our key employees, cannot attract and retain other qualified personnel or cannot maintain a competitive cost structure as a result of any of the foregoing, it could have a material adverse effect upon our business, financial condition and results of operations.

Our growth may be impacted by acquisitions.

We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.

We may not be able to identify suitable acquisition candidates, complete acquisitions, or integrate acquisitions successfully.

Our future growth is likely to depend to some degree on our ability to acquire and successfully integrate new businesses.

We may not be able to identify suitable acquisition candidates, complete acquisitions, or integrate acquisitions successfully.

We may seek additional acquisition opportunities, both to further diversify our businesses and to penetrate or expand important product offerings, geographies or markets.

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Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management's attention from other business concerns.

Although our management will endeavor to evaluate the risks inherent in any particular transaction, there are no assurances that we will properly ascertain all such risks.

Although our management will endeavor to evaluate the risks inherent in any particular transaction, there are no

assurances that we will properly ascertain all such risks.

Difficulties encountered with acquisitions could have a material adverse effect upon our business, financial condition and results of operations.

Changes in tax laws or exposure to additional income tax liabilities could have a material adverse effect upon our business, financial condition and results of operations.

We are subject to income taxes, as well as non-income-based taxes, at the federal, state and local levels.

We are subject to tax audits in various jurisdictions.

Tax authorities may disagree with certain positions we have taken and assess additional taxes.

We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision.

Additionally, changes in tax laws or tax rulings could materially impact our effective tax rate.

Global climate change and related regulations could negatively affect our business.

The effects of climate change, such as extreme weather conditions, create financial risks to our business.

For example, the demand for our products may be affected by unseasonable weather conditions.

The effects of climate change could also disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs.

We could also face indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them.

Climate change is continuing to receive ever increasing attention worldwide.

Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which could lead to additional legislative and regulatory efforts to limit greenhouse gas emissions.

For example, new federal or state restrictions on emissions of carbon dioxide that may be imposed on vehicles and automobile fuels could adversely affect demand for vehicles, annual miles driven or the products we sell or lead to changes in automotive technology.

Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require increased capital expenditures to improve our product portfolio to meet such new laws, regulations and standards.

While we have been committed to continuous improvements to our product portfolio to meet and exceed anticipated regulatory standard levels, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact or that economic returns will reflect our investments in new product development.

We could be adversely affected by violations of the U.S.

Foreign Corrupt Practices Act and similar anti-bribery laws around the world.

Foreign Corrupt Practices Act (the "FCPA") and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business.

Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both U.S.

regulators, and increases in criminal and civil proceedings brought against companies and individuals.

Our policies mandate compliance with these anti-bribery laws.

We operate in parts of the world that are recognized as having governmental and commercial corruption and local customs and practices that can be inconsistent with anti-bribery laws.

We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries.

In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, or if we are subject to allegations of any such violations, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.

Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition and results of operations.

In addition, we could be subject to commercial impacts such as lost revenue from customers who decline to do business with us as a result of such compliance matters, or we could be subject to lawsuits brought by private litigants, each of which could have a material adverse effect on our reputation, business, financial condition, and results of operations.

Our products are subject to import and export controls in jurisdictions in which we distribute or sell our products.

Import and exports control and economic sanctions laws and regulations include restrictions and

prohibitions on the sale or supply of certain products and on our transfer of parts, components, and related technical information and know-how to certain countries, regions, governments, persons and entities.

Various countries regulate the importation of certain products through import permitting and licensing requirements and have enacted laws that could limit our ability to distribute our products.

The exportation, re-exportation, transfers within foreign countries and importation of our products, including by our suppliers and vendors, must comply with these laws and regulations, and any violations may result in reputational harm, government investigations and penalties, and a denial or curtailment of importing or exporting activities.

Complying with export control and sanctions laws for a particular sale may be time consuming, may increase our costs, and may result in the delay or loss of sales opportunities.

If we are found to be in violation of U.S.

sanctions or export control laws, or similar laws in other jurisdictions, we and the individuals working for us could incur substantial fines and penalties.

Changes in export, sanctions or import laws or regulations may delay the introduction and sale of our products in the U.S.

and international markets, require us to spend resources to seek necessary government authorizations or to develop different versions of our products, or, in some cases, prevent the export or import of our products to certain countries, regions, governments, persons or entities, which could adversely affect our business, financial condition and operating results.

Unresolved Staff Comments .

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-K

Item 1A. Risk Factors