Dorman Products, Inc. 10-Q

ITEM 2. 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 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. Cautionary Statement Regarding Forward-Looking Statements This document contains certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to the acquisition of DPL Holding Corporation (“Dayton Parts”), the COVID-19 pandemic, net sales, diluted earnings per share, gross profit, gross margin, selling, general and administrative expenses, income tax expense, income before income taxes, net income, cash and cash equivalents, indebtedness, liquidity, the Company’s share repurchase program, the Company’s outlook and distribution facility costs and productivity initiatives. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “should,” “will” and “likely” and similar expressions identify forward-looking statements. However, the absence of these words does not mean the statements are not forward-looking. In addition, statements that are not historical should also be considered forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors (many of which are outside of our control) which may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to (i) the age, condition and number of vehicles that need servicing; (ii) competition in the automotive aftermarket industry; (iii) the loss or decrease in sales among one of our top customers; (iv) price competition; (v) limited customer shelf space; (vi) customer consolidation; (vii) widespread public health epidemics, including COVID-19; (viii) failure to maintain sufficient inventory or anticipate changes in customer demand; (ix) excess overstock inventory-related returns; (x) the inability to purchase raw materials, components and other items from our suppliers; (xi) the availability and cost of third-party transportation providers; (xii) reliance on new product development; (xiii) changes in, or restrictions on access to, automotive technology; (xiv) quality problems with our products; (xv) inability to protect our intellectual property; (xvi) claims of intellectual property infringement; (xvii) failure to maintain the value of our brands; (xviii) cyber-attacks; (xix) foreign currency fluctuations and dependence on foreign suppliers; (xx) exposure to risks related to accounts receivable; (xxi) changes in U.S. trade policy, including the imposition of tariffs; (xxii) the level of our indebtedness; (xxiii) risks related to accounts receivable sales agreements; (xxiv) the phaseout of LIBOR or the impact of the imposition of a new reference rate; (xxv) our executive chairman and his family owning a significant portion of the Company; (xxvi) unfavorable economic conditions; (xxvii) quarterly fluctuations and disruptions from events beyond our control; (xxviii) unfavorable results of legal proceedings; (xxix) volatility in the market price of our common stock and potential securities class action litigation; (xxx) losing the services of our executive officers or other highly qualified and experienced Contributors; (xxxi) the inability to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully; (xxxii) changes in tax laws; (xxxiii) global climate change and related regulations; (xxxiv) violations of anti-bribery laws; and (xxxv) import and export control and economic sanctions laws and regulations. In addition, there are a number of risks, uncertainties and other factors relating to the proposed acquisition of Dayton Parts that could affect our actual results, including, but not limited to: (i) the proposed transaction may not be completed, or completed within the expected timeframe; (ii) costs relating to the proposed transaction may be greater than expected; (iii) the possibility that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval in connection with the proposed transaction; (iv) problems may arise in integrating the businesses of the two companies and the integration may not be successful; (v) the combined companies may be unable to achieve any anticipated synergies or any benefits of the transaction may take longer to realize than expected; (vi) the businesses of one or both companies may suffer as a result of uncertainties surrounding the proposed transaction, including disruption of relationships with customers, employees, suppliers or dealers; (vii) the combined companies may not perform as expected following the closing; (viii) the failure to enter into a new $600 million revolving credit facility or to repay any borrowings thereunder; and (ix) other risks beyond the control of either party. Should one or more of any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. See the “Statement Regarding Forward Looking Statements,” PART I, ITEM 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020, the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 2021 and the Company’s other filings with the U.S. Securities and Exchange Commission for additional information regarding forward-looking statements and the factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. The Company is under no obligation to, and expressly disclaims any such obligation to, update any of the information in this document, including but not limited to any situation where any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise. Introduction The following discussion and analysis, as well as other sections in this Quarterly Report on Form 10-Q, should be read in conjunction with the unaudited condensed consolidated financial statements and footnotes thereto of Dorman Products, Inc. and its subsidiaries included in “ITEM 1. Financial Statements” of this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020. This Quarterly Report on Form 10-Q contains the registered and unregistered trademarks or service marks of Dorman and are the property of Dorman Products, Inc. and/or its affiliates. This Quarterly Report on Form 10-Q also may contain additional trade names, trademarks or service marks belonging to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with or endorsement or sponsorship of us by these parties. 12 Overview We are one of the leading suppliers of replacement parts and fasteners for passenger cars, light trucks, and heavy-duty trucks in the automotive aftermarket industry. As of December 26, 2020, we marketed approximately 81,000 distinct parts, many of which we designed and engineered. This number excludes private label stock keeping units and other variations in how we market, package and distribute our products, includes distinct parts of acquired companies and reflects distinct parts that have been discontinued at the end of their lifecycle. We are one of the leading aftermarket suppliers of original equipment (“OE”) “dealer exclusive” parts. Original equipment “dealer exclusive” parts are those which were traditionally available to consumers only from original equipment manufacturers or used parts from salvage yards and include, among other parts, intake manifolds, exhaust manifolds, window regulators, radiator fan assemblies, tire pressure monitor sensors, exhaust gas recirculation (EGR) coolers and complex electronics modules. Fasteners include such items as oil drain plugs, wheel bolts, and wheel lug nuts. For the year ended December 26, 2020, approximately 75% of our products were sold under brands that we own, and the remainder of our products were sold for resale under customers' private labels, other brands or in bulk. Our products are sold primarily in the United States through automotive aftermarket retailers (such as Advance Auto Parts, Inc., AutoZone, Inc., and O'Reilly Automotive, Inc.), including through their online platforms; national, regional and local warehouse distributors (such as Genuine Parts Co. – NAPA); and specialty markets, and salvage yards. We also distribute automotive aftermarket parts internationally, with sales primarily into Canada and Mexico, and to a lesser extent, Europe, the Middle East, and Australia. We operate on a fifty-two or fifty-three-week period ending on the last Saturday of the calendar year. Our 2021 fiscal year will be a fifty-two-week period that will end on December 25, 2021 (“fiscal 2021”). Our fiscal 2020 was a fifty-two-week period that ended on December 26, 2020 (“fiscal 2020”). COVID-19 While COVID-19 did not have a material adverse effect on our business operations for the six months ended June 26, 2021, during the period we did observe pandemic-related pressures on the global supply network that caused logistical issues, including higher freight costs and inflation with respect to materials costs, which impacted our results. We currently expect those pressures to continue to exist for the remainder of the fiscal year. As countries continue to combat COVID-19 and government-imposed restrictions change around the world, there is still a risk that the pandemic may impact the overall demand environment as well as our ability to maintain staffing at our facilities, to source parts and other materials to meet demand levels, to maintain inventory levels and to fulfill contractual requirements. We will continue to closely monitor updates regarding the spread of COVID-19 and its variants and the distribution of vaccines developed to combat COVID-19, and we will adjust our operations according to guidelines from local, state and federal officials. In light of the foregoing, we may take actions that alter our business operations or that we determine are in the best interests of our employees, customers, suppliers and shareholders. New Product Development New product development is an important success factor for us and traditionally has been our primary vehicle for growth. We have made incremental investments to increase our new product development efforts to grow our business and strengthen our relationships with our customers. The investments primarily have been in the form of increased product development resources, increased customer and end-user awareness programs, and customer service improvements. These investments historically have enabled us to provide an expanding array of new product offerings and grow revenues at levels that generally have exceeded market growth rates. In the six months ended June 26, 2021, we introduced 2,274 new distinct parts to our customers and end-users, including 449 “New-to-the-Aftermarket” parts. We introduced 3,479 distinct parts to our customers and end-users in the fiscal year ended December 26, 2020, including 1,433 “New-to-the-Aftermarket” parts. One area of focus has been our complex electronics program, which capitalizes on the growing number of electronic components being utilized on today’s OE platforms. New vehicles contain an average of approximately thirty-five electronic modules, with some high-end luxury vehicles containing over one hundred modules. Our complex electronics products are designed and developed in-house and tested to help ensure consistent performance, and our product portfolio is focused on further developing our leadership position in the category. Another area of focus has been on Dorman® HD Solutions™, a line of products we market for the medium- and heavy-duty truck sector of the automotive aftermarket industry. We believe that this sector provides many of the same opportunities for growth that the passenger car and light truck sector of the automotive aftermarket industry has provided us. Through Dorman® HD Solutions™, we specialize in what formerly were “dealer exclusive” parts similar to how we have approached the passenger car and light-duty truck sector. During the six months ended June 26, 2021, we introduced 60 distinct parts in this product line. We expect to continue to invest in the medium- and heavy-duty product category and recently announced an agreement to acquire Dayton Parts, a manufacturer of undercarriage and other parts designed to serve the heavy-duty vehicle sector of the aftermarket. Acquisitions Our growth is also impacted by acquisitions. 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. 13 On June 25, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 100% of the equity interests of Dayton Parts for aggregate consideration of $338 million, subject to certain customary adjustments based on, among other things, the amount of cash, indebtedness and working capital in the business of Dayton Parts as of the closing date. This transaction aligns with the Company’s previously stated strategy to diversify its customer base and product offering by further penetrating the heavy-duty sector. The transaction is subject to customary closing conditions, including the expiration or earlier termination of any applicable waiting period under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended. We expect the transaction to close in the second half of 2021. Economic Factors The Company’s financial results are also impacted by various economic and industry factors, including, but not limited to the number, age and condition of vehicles in operation at any one time, and miles driven by those vehicles. Vehicles in Operation The Company’s products are primarily purchased and installed on a subsegment of the passenger and light-duty vehicles in operation in the United States (“VIO”), specifically weighted towards vehicles aged 8 to 13 years old. Each year, the United States seasonally adjusted annual rate (“US SAAR”) of new vehicles purchased adds a new year to the VIO. According to data from the Auto Care Association (“Auto Care”), the US SAAR experienced a decline from 2008 to 2011 as consumers purchased fewer new vehicles as a result of the Great Recession of 2008. We believe that the declining US SAAR during that period resulted in a follow-on decline in our primary VIO subsegment (8 to 13-year-old vehicles) commencing in 2016. However, following 2011 and the impact of the Great Recession of 2008, U.S. consumers began to increase their purchases of new vehicles which over time caused the US SAAR to recover and return to more historical levels. Consequently, subject to any potential impacts from COVID-19, we expect the VIO for vehicles aged 8 to 13 years old to continue to recover over the next several years. 14 In addition, we believe that vehicle owners generally are operating their current vehicles longer than they did several years ago, performing necessary repairs and maintenance to keep those vehicles well maintained. We believe this trend has resulted in an increase in VIO. According to data published by Polk, a division of IHS Automotive, the average age of VIO increased to 12.0 years as of October 2020 from 11.9 years as of October 2019 despite increasing new car sales. Additionally, while the number of VIO in the United States decreased 4% in 2020 to 279.8 million from 290.0 million in 2019, the number of VIO that are 11 years old or older increased from 57% in 2019 to 60% in 2020. Vehicle scrappage rates have also decreased over the last several years. Miles Driven The COVID-19 pandemic in general, as well as restrictions imposed by certain states in response to the COVID-19 pandemic, adversely impacted work-related and personal travel throughout 2020 and into early 2021. However, as a result of easing restrictions, the number of miles driven has shown a recent increase compared to prior year levels. In fact, according the U.S. Department of Transportation, the number of miles driven through May 2021 has increased 12.6% year over year. We believe that demand for our products generally correlates to miles driven, as the more miles a vehicle is driven, the more likely it is that parts will fail. The combination of the factors above has accounted for a portion of our sales growth and is expected to impact our future results. Discounts, Allowances and Incentives We offer a variety of customer discounts, rebates, defective and slowing moving product returns and other incentives. We may offer cash discounts for paying invoices in accordance with the specified discount terms of the invoice. In addition, we may offer pricing discounts based on volume purchased from us or 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. For those customers that choose to receive a payment on a quarterly or annual basis instead of “off-invoice,” we accrue for such payments as the related sales are made and reduce sales accordingly. Finally, rebates and discounts are provided to customers to support promotional activities such as advertising and sales force allowances. Our customers, particularly our larger retail customers, regularly seek more favorable pricing and product return provisions and extended payment terms when negotiating with us. We attempt to avoid or minimize these concessions as much as possible, but we have granted pricing concessions, indemnification rights, extended customer payment terms, and allowed a higher level of product returns in certain cases. These concessions impact net sales as well as our profit levels and may require additional capital to finance the business. We expect our customers to continue to exert pressure on our margins. New Customer Acquisition Costs New customer acquisition costs refer to arrangements under which we incur change-over costs to induce a customer to switch from a competitor’s brand. Change-over costs include the costs related to removing the new customer’s existing inventory (purchased from their previous supplier) and replacing it with Dorman inventory, which is commonly referred to as a stock-lift. New customer acquisition costs are recorded as a reduction to revenue when incurred. Product Warranty and Overstock Returns Many of our products carry a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet specifications. In addition to warranty returns, we also may permit our customers to return new, undamaged products to us within customer-specific limits 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. Significant judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims. Foreign Currency Our products are purchased from suppliers in the United States and a variety of non-U.S. countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, we generally do not have exposure to fluctuations in the relationship between the U.S. dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. To the extent that the U.S. dollar changes in value relative to foreign currencies in the future, the price of the product for new purchase orders may change in equivalent U.S. dollars. The largest portion of our overseas purchases comes from China. The Chinese yuan to U.S. dollar exchange rate has fluctuated over the past several years. Any future changes in the value of the Chinese yuan relative to the U.S. dollar may result in a change in the cost of products that we purchase from China. However, the cost of the products we procure is also affected by other factors including raw material availability, labor cost, and transportation costs. 15 Impact of Inflation While we experienced wage and benefits inflation during the three months ended June 26, 2021, the overall impact of inflation has not historically resulted in a significant change in labor costs or the cost of general services utilized. The cost of many commodities that are used in our products has fluctuated over time resulting in increases and decreases in the cost of our products. In addition, we have periodically experienced increased transportation costs as a result of higher fuel prices, capacity constraints and other factors, including as a result of COVID-19. We attempt to offset cost increases by passing along selling price increases to customers and using alternative suppliers. However, there can be no assurance that we will be successful in these efforts. Impact of Tariffs In the third quarter of 2018, the Office of the United States Trade Representative (USTR) began imposing additional tariffs on products imported from China, including many of our products, ranging from 7.5% to 25%. The tariffs enacted to date increase the cost of many of the products that are manufactured for us in China. We have taken several actions to mitigate the impact of the tariffs including, but not limited to, price increases to our customers and cost concessions from our suppliers. We expect to continue mitigating the impact of tariffs in fiscal 2021 primarily through selling price increases to offset the higher tariffs incurred. Tariffs are not expected to have a material impact on our net income but are expected to increase net sales and lower our gross and operating profit margins to the extent that these additional costs are passed through to customers. In January 2020, the USTR granted temporary tariff relief for certain categories of products being imported from China. However, the tariff relief granted by the USTR expired on most categories of products being imported from China at the end of 2020 and has generally not been extended. We expect that we will reverse tariff-related price increases previously passed along to our customers and cost concessions previously received from our suppliers as such tariffs are reduced or such other relief is granted. Results of Operations 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* Six Months Ended* (in millions) June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Net sales $ 310,635 100.0 % $ 233,182 100.0 % $ 598,647 100.0 % $ 490,912 100.0 % Cost of goods sold 200,510 64.5 % 154,034 66.1 % 384,002 64.1 % 326,967 66.6 % Gross profit 110,125 35.5 % 79,148 33.9 % 214,645 35.9 % 163,945 33.4 % Selling, general and administrative expenses 69,517 22.4 % 61,525 26.4 % 132,386 22.1 % 121,260 24.7 % Income from operations 40,608 13.1 % 17,623 7.6 % 82,259 13.7 % 42,685 8.7 % Other income (expense), net 90 0.0 % (297 ) -0.1 % 54 0.0 % 2,334 0.5 % Income before income taxes 40,698 13.1 % 17,326 7.4 % 82,313 13.7 % 45,019 9.2 % Provision for income taxes 9,080 2.9 % 3,441 1.5 % 17,965 3.0 % 8,359 1.7 % Net income $ 31,618 10.2 % $ 13,885 6.0 % $ 64,348 10.7 % $ 36,660 7.5 % * Percentage of sales information may not add due to rounding Three Months Ended June 26, 2021 Compared to Three Months Ended June 27, 2020 Net sales increased 33% to $310.6 million for the three months ended June 26, 2021 from $233.2 million for the three months ended June 27, 2020. The increase in net sales was all organic with growth across all of our channels. The absence of the government imposed shut-downs that negatively impacted the three months ended June 27, 2020 was also a significant contributor to the year-over-year growth. Gross profit margin was 35.5% of net sales for the three months ended June 26, 2021 compared to 33.9% of net sales for the three months ended June 27, 2020. Gross margin expansion was driven by fixed cost leverage from higher sales volume and improved efficiencies as the Company continued to drive productivity savings in its end-to-end supply chain processes. Additionally, the Company benefitted from the absence of out-of-pocket costs incurred in the three months ended June 27, 2020 due to the COVID-19 pandemic, including costs related to safety measures implemented at its sites and its COVID-19 sick leave policy. These benefits were partially offset by significantly higher freight costs due to global transportation and logistics constraints in the three months ended June 26, 2021. Selling, general and administrative expenses (“SG&A”) were $69.5 million, or 22.4% of net sales, for the three months ended June 26, 2021 compared to $61.5 million, or 26.4% of net sales, for the three months ended June 27, 2020. Approximately 430 basis points of the decrease in SG&A as a percentage of net sales was due to the operating leverage from the $77 million increase in net sales for the three months ended June 26, 2021 as compared to the three months ended June 27, 2020. Additionally, SG&A as a percentage of net sales was positively impacted by the absence of $4.2 million of out-of-pocket costs incurred in the three months ended June 27, 2020 related to the COVID-19 pandemic, primarily from factoring costs, costs related to safety measures at the Company’s sites, and the Company’s COVID-19 sick leave policy. These benefits were partially offset by wage and benefits inflation and costs related to the pending Dayton Parts transaction in the three months ended June 26, 2021. Our effective tax rate was 22.3% for the three months ended June 26, 2021 compared to 19.9% for the three months ended June 27, 2020. The lower effective tax rate for the three months ended June 27, 2020 was the result of lower state tax expense and a nontaxable book gain associated with the PTI acquisition. 16 Six Months Ended June 26, 2021 Compared to Six Months Ended June 27, 2020 Net sales increased 22% to $598.6 million for the six months ended June 26, 2021 from $490.9 million for the six months ended June 27, 2020. The increase in net sales was all organic and driven by robust customer demand. The absence of the government imposed shut-downs that negatively impacted the six months ended June 27, 2020 was also a significant contributor to the year-over-year growth. Gross profit margin was 35.9% of net sales for the six months ended June 26, 2021 compared to 33.4% of net sales for the six months ended June 27, 2020. Gross margin expansion was driven by fixed cost leverage from higher sales volume and improved efficiencies as the Company continued to drive productivity savings in its end-to-end supply chain processes. Additionally, the Company benefitted from the absence of out-of-pocket costs incurred due to the COVID-19 pandemic in the six months ended June 27, 2020. These benefits were partially offset by increased freight costs due to global transportation and logistics constraints in the six months ended June 26, 2021. Selling, general and administrative expenses were $132.4 million, or 22.1% of net sales, for the six months ended June 26, 2021 compared to $121.3 million, or 24.7% of net sales, for the six months ended June 27, 2020. The decrease in SG&A as a percentage of net sales was due to the operating leverage from the $108 million increase in net sales for the six months ended June 26, 2021 as compared to the six months ended June 27, 2020. Additionally, the Company saw benefits in SG&A as a percentage of net sales from the absence of out-of-pocket costs related to the COVID-19 pandemic incurred in the six months ended June 27, 2020. These benefits were partially offset by wage and benefits inflation and costs related to the pending Dayton Parts transaction in the six months ended June 26, 2021. Our effective tax rate was 21.8% for the six months ended June 26, 2021 compared to 18.6% for the six months ended June 27, 2020. The lower effective tax rate for the six months ended June 27, 2020 was the result of a tax benefit related to a nontaxable book gain and the write-off of a deferred tax liability associated with PTI upon our acquisition of the controlling interest in January 2020, and a foreign tax credit carry-back claim. 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 sponsored by our customers. Cash and cash equivalents were $155.5 million at June 26, 2021 compared to $155.6 million at December 26, 2020. During the six months ended June 26, 2021, strong cash provided from operating activities was offset by share repurchases under our publicly announced repurchase program and capital expenditures. Working capital was $642.1 million at June 26, 2021 compared to $600.3 million at December 26, 2020. 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. Tariffs Tariffs increase our uses of cash since we pay for the tariffs upon the arrival of our goods in the United States but collect the cash on any passthrough price increases from our customers on a delayed basis according to the payment terms negotiated with our customers. Payment Terms and Accounts Receivable Sales Programs Over the past several years we have continued to extend payment terms to certain customers as a result of customer requests and market demands. These extended terms have resulted in increased accounts receivable levels and significant uses of cash flows. We participate in accounts receivable sales programs with several customers that allow us to sell our accounts receivable to financial institutions to offset the negative cash flow impact of these payment terms extensions. However, any sales of accounts receivable through these programs ultimately result in us receiving a lesser amount of cash upfront than if we collected those accounts receivable ourselves in due course. Moreover, 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. See ITEM 3. Quantitative and Qualitative Disclosures about Market Risk for more information. Further extensions of customer payment terms would result in additional uses of cash flow or increased costs associated with the sales of accounts receivable. During the six months ended June 26, 2021 and June 27, 2020, we sold $433.7 million and $496.4 million of accounts receivable, respectively, under these programs. If receivables had not been sold over the previous twelve months, approximately $593 million and $505 million of additional accounts receivable would have been outstanding at June 26, 2021 and December 26, 2020, respectively, based on our standard payment terms. We can sell increased levels of accounts receivable under our available programs if liquidity needs arise, whether due to the continued impacts of COVID-19 or other factors. Credit Agreement 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 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 June 26, 2021 was LIBOR plus 65 basis points (0.75%). 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. 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. As of June 26, 2021, we were not in default in respect to the credit agreement. The credit 17 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. As of June 26, 2021 , there were no borrowings under the credit agreement and two outstanding let ters of credit for $0.8 million in the aggregate which were issued to secure ordinary course of business transactions. Net of these le tters of credit, we had $99.2 million available under the credit agreement at June 26, 2021 . In connection with entering into the Merger Agreement, we have entered into a commitment letter, dated as of June 25, 2021, with certain lenders as counterparties, whereby the lenders have committed to provide us with a new $600 million revolving credit facility (the “New Facility”) contingent on the satisfaction of customary conditions. The New Facility would replace our existing $100 million revolving credit facility. We may finance all or a portion of the merger transaction and related fees and expenses with borrowings under the New Facility. Cash Flows The following summarizes the activities included in the Condensed Consolidated Statements of Cash Flows: Six Months Ended (in thousands) June 26, 2021 June 27, 2020 Cash provided by operating activities $ 39,087 $ 219,401 Cash used in investing activities (10,153 ) (21,451 ) Cash (used in) provided by financing activities (28,971 ) 93,255 Net (decrease) increase in cash and cash equivalents $ (37 ) $ 291,205 During the six months ended June 26, 2021, cash provided by operating activities was $39.1 million compared to $219.4 million during the six months ended June 27, 2020. The $180.3 million decrease was driven by lower proceeds from accounts receivable in the current year as compared to the prior year, mostly attributable to higher factoring during the six months ended June 27, 2020 due to COVID-19 uncertainty. Cash from operating activities in the current year also was negatively impacted by higher inventory to maintain customer fill rates, as compared to the prior year. Investing activities used cash of $10.2 million and $21.5 million during the six months ended June 26, 2021 and June 27, 2020, respectively. During the six months ended June 27, 2020 we used $14.3 million to acquire the remaining 60% of the outstanding equity of PTI, net of cash acquired. Financing activities used $29.0 million of cash during the six months ended June 26, 2021, compared to $93.3 million of cash provided during the six months ended June 27, 2020. During the six months ended June 27, 2020, cash provided by financing activities reflects a draw down by the Company of $99.0 million on its revolving credit facility due to uncertainty associated with COVID-19. During the six months ended June 26, 2021, we paid $30.9 million to repurchase 301,889 common shares under our share repurchase plan. During the six months ended June 27, 2020, we paid $5.5 million to repurchase 91,979 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. During the six months ended June 26, 2021, we experienced no material changes to our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.