What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-25 compared with 2021-07-26 · 112 added, 112 removed, 164 unchanged (58% of the section changed)

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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.

This document contains certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to the COVID-19 pandemic, net sales, diluted earnings per share, gross profit, gross margin, selling, general and administrative expenses, income tax expense, income before income taxes, net income, cash and cash equivalents, indebtedness, liquidity, the Company’s share repurchase program, the Company’s outlook and distribution facility costs and productivity initiatives.

Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “should,” “will” and “likely” and similar expressions identify forward-looking statements.

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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.

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 and the Company’s other filings with the U.S.

Securities and Exchange Commission (“SEC”) 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.

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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.

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.

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Our fiscal 2020 was a fifty-two-week period that ended on December 26, 2020 (“fiscal 2020”).

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.

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies as described in the Annual Report on Form 10-K for the year ended December 26, 2020.

While COVID-19 did not have a material adverse effect on our business operations for the nine months ended September 25, 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.

As countries continue to combat COVID-19, and as government-imposed regulations regarding, among other things, COVID-19 testing, vaccine mandates and related workplace 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, the distribution of vaccines developed to combat COVID-19, and applicable vaccine mandates, 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.

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These investments historically have enabled us to provide an expanding array of new product offerings and grow revenues at levels that generally have exceeded market growth rates.

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.

In the nine months ended September 25, 2021 , excluding Dayton Parts, we introd uced 3,345 new distinct parts t o our customers and end- users , including 649 “New-to-the-A ftermarket ” parts .

We introduced 3,479 distinct part s to our customers and end- users in the fiscal year ended December 26, 2020 , including 1,433 “N ew-to-th e- A ftermarket ” parts .

One area of expanded development focus has been our complex electronics program, which we believe will help us capitalize on the increase of advanced computing and sensing components being utilized on today’s OE platforms.

Current generation vehicles now contain an average of approximately 100 electronic modules, with some high-end luxury vehicles containing over 200 modules.

Our complex electronics products are designed and developed in-house and tested using proprietary equipment that simulates the on-vehicle operating environment to verify performance.

We continue to make investments in technology and people to enhance our electronics design capabilities, expand our complex electronics product portfolio and further develop our leadership position in the category.

Another area of focus has been on products we market for the medium- and heavy-duty truck sector of the automotive aftermarket industry.

Our recent acquisition of Dayton Parts, a manufacturer of chassis and other parts for medium- and heavy-duty vehicles, is one of the ways in which we have sought to further our strategy of expansion in this sector.

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.

For example, 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 nine months ended September 25, 2021, excluding Dayton Parts, we introduced 74 distinct parts in this product line.

Our growth is also impacted by acquisitions.

For example, on August 10, 2021, we acquired Dayton Parts.

See Note 2, Business Acquisitions and Investments under Notes to Condensed Consolidated Financial Statements for additional information.

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.

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.

The Company’s financial results are also impacted by various economic and industry factors, including, but not limited to the labor market and inflationary costs, the number, age and condition of vehicles in operation at any one time, and miles driven by those vehicles.

Impact of Labor Market and Inflationary Costs

We have experienced broad-based inflationary impacts during the nine months ended September 25, 2021, due primarily to:

global transportation and logistics constraints, which have resulted in significantly higher transportation costs;

and wage inflation from an increasingly competitive labor market.

We expect increased freight, higher labor costs and material inflation costs to continue to negatively impact our results for the remainder of the fiscal year.

We attempt to offset inflationary pressures with price increases to customers and the use of alternative suppliers.

However, there can be no assurance that we will be successful in these efforts.

Vehicles in Operation

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In fact, according the U.S.

Department of Transportation, the number of miles driven through May 2021 has increased 12.6% year over year.

Department of Transportation, the number of miles driven through July 2021 has increased 12.8% 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.

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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.

dollar changes in value relative to those foreign currencies in the future, the prices charged by our suppliers for products under new purchase orders may change in equivalent U.S.

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.

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.

dollar may result in a change in the cost of products that we purchase from China in the future.

However, the cost of the products we procure is also affected by other factors including raw material availability, labor cost, and transportation costs.

Impact of Inflation

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.

Since our consolidated financial statements are denominated in U.S.

dollars, the assets, liabilities, net sales, and expenses which are denominated in currencies other than the U.S.

dollar must be converted into U.S.

dollars using exchange rates for the current period.

As a result, fluctuations in foreign currency exchange rates may impact our financial results.

Impact of Tariffs

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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.

The tariff relief granted by the USTR expired on most categories of products being imported from China at the end of 2020.

However, the USTR has stated it is considering reinstating temporary tariff relief on certain categories of products imported after October 12, 2021 following its review of comments submitted to the USTR prior to December 1, 2021.

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 tariffs are reduced or tariff relief is granted.

Results of Operations

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Three Months Ended*

Six Months Ended*

Nine Months Ended*

(in millions)

June 26, 2021

June 27, 2020

June 26, 2021

June 27, 2020

September 25, 2021

September 26, 2020

September 25, 2021

September 26, 2020

Cost of goods sold

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Income from operations

Other income (expense), net

Interest expense, net

Other income, net

Income before income taxes

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* 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.

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.

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.

Three Months Ended September 25, 2021 Compared to Three Months Ended September 26, 2020

Net sales increased 16% to $348.4 million for the three months ended September 25, 2021 from $300.6 million for the three months ended September 26, 2020.

The increase in net sales reflected the addition of Dayton Parts as well as robust customer demand across all our product channels.

Year-over-year net sales growth for the three months ended September 25, 2021 excluding Dayton Parts was 7%.

Gross profit margin was 33.5% of net sales for the three months ended September 25, 2021 compared to 35.9% of net sales for the three months ended September 26, 2020.

Dayton Parts had a 150 basis points dilutive impact on gross margin in the three months ended September 25, 2021, primarily due to higher costs in the three months ended September 25, 2021 from fair value adjustments to inventory recorded in connection with the Dayton Parts acquisition.

We also experienced broad-based inflationary impacts due to global transportation and logistics constraints.

Although pass-through price increases we have implemented are expected to largely offset these inflationary impacts on a go-forward basis, we did not experience a full quarter of these price increases for the three months ended September 25, 2021.

increases implemented to pass through the increased costs had no added profit and consequently resulted in a lower gross margin.

Selling, general and administrative expenses (“SG&A”) were $72.7 million, or 20.9% of net sales, for the three months ended September 25, 2021 compared to $63.0 million, or 21.0% of net sales, for the three months ended September 26, 2020.

The decrease in SG&A expenses as a percentage of net sales was primarily due to leverage from the increase in net sales, partially offset by wage and benefits inflation and costs related to the completion of the Dayton Parts acquisition and subsequent integration activities in the three months ended September 25, 2021.

Our effective tax rate was 24.0% for the three months ended September 25, 2021 compared to 23.5% for the three months ended September 26, 2020.

The lower effective tax rate for the three months ended September 26, 2020 was the result of lower state tax expense and a nontaxable book gain associated with the PTI acquisition.

Nondeductible transaction costs related to the Dayton Parts acquisition also contributed to the higher effective tax rate for the three months ended September 25, 2021.

Nine Months Ended September 25, 2021 Compared to Nine Months Ended September 26, 2020

Net sales increased 20% to $947.1 million for the nine months ended September 25, 2021 from $791.5 million for the nine months ended September 26, 2020.

The increase in net sales reflected the addition of Dayton Parts as well as robust customer demand across all our product channels.

Year-over-year net sales growth excluding Dayton Parts for the nine months ended September 25, 2021 was 16%.

The absence of the government imposed shut-downs that negatively impacted the nine months ended September 26, 2020 was also a significant contributor to the year-over-year growth.

Gross profit margin was 35.0% of net sales for the nine months ended September 25, 2021 compared to 34.3% of net sales for the nine months ended September 26, 2020.

Gross margin expansion was driven by fixed cost leverage from higher sales volume and improved efficiencies as we continued to drive productivity savings in our end-to-end supply chain processes.

Additionally, we benefitted from the absence of out-of-pocket costs incurred due to the COVID-19 pandemic in the nine months ended September 26, 2020.

These benefits were partially offset by broad-based inflationary impacts due to global transportation and logistics constraints and higher costs from fair value adjustments to inventory recorded in connection with the Dayton Parts acquisition in the nine months ended September 25, 2021.

Selling, general and administrative expenses were $205.0 million, or 21.7% of net sales, for the nine months ended September 25, 2021 compared to $184.3 million, or 23.3% of net sales, for the nine months ended September 26, 2020.

The decrease in SG&A as a percentage of net sales was due to the operating leverage from the $155.6 million increase in net sales for the nine months ended September 25, 2021 as compared to the nine months ended September 26, 2020.

Additionally, we 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 nine months ended September 26, 2020.

These benefits were partially offset by wage and benefits inflation and costs related to the completion of the Dayton Parts acquisition and subsequent integration activities in the nine months ended September 25, 2021.

Our effective tax rate was 22.6% for the nine months ended September 25, 2021 compared to 21.0% for the nine months ended September 26, 2020.

The lower effective tax rate for the nine months ended September 26, 2020 was the result of lower state tax expense, 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.

Nondeductible transaction costs related to the Dayton Parts acquisition also contributed to the higher effective tax rate for the nine months ended September 25, 2021.

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.

Additionally, we have utilized borrowings under revolving lines of credit, as needed, to fund Company objectives.

Cash and cash equivalents were $57.3 million at September 25, 2021 compared to $155.6 million at December 26, 2020.

During the nine months ended September 25, 2021, strong cash provided from operating activities was more than offset by cash used to fund the Dayton Parts acquisition, share repurchases under our publicly announced repurchase program and capital expenditures.

Working capital was $390.4 million at September 25, 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 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.

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.

Payment Terms and Accounts Receivable Sales Programs

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However, any sales of accounts receivable through these programs ultimately result in us receiving a lesser amount of cash upfront than if we collected those accounts receivable ourselves in due course.

Moreover, 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.

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

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.

During the nine months ended September 25, 2021 and September 26, 2020, we sold $690.0 million and $568.3 million of accounts receivable, respectively, under these programs.

If receivables had not been sold over the previous twelve months, approximately $381 million and $505 million of additional accounts receivable would have been outstanding at September 25, 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.

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.

On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a new credit agreement that provides for a $600 million revolving credit facility, including a letter of credit sub-facility of up to $60 million (the “New Facility”).

The New Facility replaced our previous $100 million revolving credit facility.

The New Facility matures on August 10, 2026 and is guaranteed by the Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and is supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

Borrowings under the New Facility bear interest at a rate per annum equal to, at the Company’s option, either a LIBOR rate (subject to a 0.00% floor) or a base rate, in each case plus an applicable margin of, initially (i) in the case of LIBOR rate, 1.250% or (ii) in the case of base rate loans, 0.250%.

The applicable margin for (i) base rate loans ranges from 0.000% to 1.000% per annum and (ii) for LIBOR loans ranges from 1.000% to 2.000% per annum, in each case, based on the Total Net Leverage Ratio (as defined in the New Facility).

The interest rate at September 25, 2021 was LIBOR plus 125 basis points (1.33%).

The commitment fee is initially equal to 0.150% and thereafter ranges from 0.125% to 0.250% based on the Total Net Leverage Ratio.

The New Facility contains affirmative and negative covenants, including, but not limited to, covenants regarding capital expenditures, share repurchases, and financial covenants related to the ratio of consolidated interest expense to consolidated EBITDA and the ratio of total net indebtedness to consolidated EBITDA, each as defined by the New Facility.

As of September 25, 2021, we were not in default with respect to the credit agreement.

As of September 25, 2021, there was $249.4 million in outstanding borrowings under the New Facility and two outstanding letters of credit for $0.8 million in the aggregate which were issued to secure ordinary course of business transactions.

Net of outstanding borrowings and letters of credit, we had $349.8 million available under the New Facility at September 25, 2021.

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

Six Months Ended

Nine Months Ended

(in thousands)

June 26, 2021

June 27, 2020

September 25, 2021

September 26, 2020

Cash provided by operating activities

Cash used in investing activities

Cash (used in) provided by financing activities

Cash provided by (used in) financing activities

Net (decrease) increase in cash and cash equivalents

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.

During the nine months ended September 25, 2021, cash provided by operating activities was $77.6 million compared to $145.7 million during the nine months ended September 26, 2020.

The $68.1 million decrease was driven by higher inventory purchases to maintain customer fill rates, as compared to the prior year, partially offset by higher proceeds from accounts receivable due to higher sales of accounts receivable in the nine months ended September 25, 2021.

Investing activities used cash of $360.8 million and $26.4 million during the nine months ended September 25, 2021 and September 26, 2020, respectively.

During the nine months ended September 25, 2021, we used $345.5 million to acquire Dayton Parts, net of cash acquired and during the nine months ended September 26, 2020 we used $14.3 million to acquire the remaining 60% of the outstanding equity of PTI, net of cash acquired.

Financing activities used $184.9 million of cash during the nine months ended September 25, 2021, compared to $17.2 million of cash provided during the nine months ended September 26, 2020.

During the nine months ended September 25, 2021, we borrowed $252.4 million under the New Facility to help fund the acquisition of Dayton Parts in August 2021, and subsequently repaid $3.0 million of that borrowing during the nine months ended September 25, 2021.

Additionally, during the nine months ended September 25, 2021, we paid $54.2 million to repurchase 534,507 common shares under our share repurchase plan.

During the nine months ended September 26, 2020, we paid $16.2 million to repurchase 218,836 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis