What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-22 · 105 added, 102 removed, 164 unchanged (56% of the section changed)

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Discussions of fiscal 2020 results and comparisons of fiscal 2021 results to fiscal 2020 results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in PART II, ITEM 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

We are one of the leading suppliers of replacement parts and fasteners for passenger cars and light-, medium-, and heavy-duty trucks in the automotive aftermarket industry.

We are one of the leading suppliers of replacement and upgrade parts in the motor vehicle aftermarket industry, serving passenger cars, light-, medium-, and heavy-duty trucks, as well as specialty vehicles, including utility terrain vehicles (UTVs) and all-terrain vehicles (ATVs).

As of December 31, 2022, we marketed approximately 129,000 distinct parts compared to approximately 118,000 as of December 25, 2021, many of which we designed and engineered.

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Our products are sold under our various brand names, under our customers’ private label brands or in bulk.

We are one of the leading aftermarket suppliers of OE “dealer exclusive” parts.

OE “dealer exclusive” parts are those parts that were traditionally available to consumers only from OE manufacturers or salvage yards.

These parts include, among other parts, leaf springs, intake manifolds, exhaust manifolds, window regulators, radiator fan assemblies, tire pressure monitor sensors, exhaust gas recirculation (EGR) coolers, and complex electronics modules.

We generate the majority of our net sales from customers in the North American automotive aftermarket industry, primarily in the United States.

Our products are sold primarily through automotive aftermarket retailers, including through their on-line platforms;

We are one of the leading aftermarket suppliers of parts that were traditionally available to consumers only from OE manufacturers or salvage yards.

We generate most of our net sales from customers in North America, primarily in the United States.

Our products are sold primarily through aftermarket retailers, including through their online platforms;

national, regional and local warehouse distributors and specialty markets;

and salvage yards.

We also distribute automotive aftermarket parts outside the United States, with sales primarily into Canada and Mexico, and to a lesser extent, Europe, the Middle East and Australia.

We also distribute aftermarket parts outside the United States, with sales primarily into Canada and Mexico, and to a lesser extent, Europe, the Middle East and Australia.

We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers as well as our ability and the ability of our suppliers to deliver products ordered by our customers.

The introduction of new products and product lines to customers, as well as business acquisitions, may also cause significant fluctuations from quarter to quarter.

We operate on a 52-53-week period ended on the last Saturday of the calendar year.

The fiscal years ended December 25, 2021 (“fiscal 2021”), December 26, 2020 (“fiscal 2020”) and December 28, 2019 (“fiscal 2019”) were 52-week periods.

Prior to October 4, 2022, we operated on a 52-53-week period ending on the last Saturday of the calendar year.

Our 2022 fiscal year under this schedule is a 53-week period that ended on December 31, 2022 (“fiscal 2022”).

Effective October 4, 2022, our Board of Directors approved a change in Dorman’s fiscal year end from the last Saturday in December of each year to December 31 of each year.

This change will result in future years ending on December 31, consistent with fiscal 2022.

Our fiscal 2021 and fiscal 2020 were 52-week periods that ended on December 25, 2021 (“fiscal 2021”) and December 26, 2020 (“fiscal 2020”), respectively.

Business Performance Summary

Net sales increased 23% to $1,345.2 million in fiscal 2021 from $1,092.7 million in fiscal 2020, while net income increased 23% to $131.5 million in fiscal 2021 from $106.9 million in fiscal 2020.

Net sales increased 29% to $1,733.7 million in fiscal 2022 from $1,345.2 million in fiscal 2021.

Net income decreased 8% to $121.5 million in fiscal 2022 from $131.5 million in fiscal 2021.

Additionally, in fiscal 2022 we generated cash flows from operations of $41.7 million and repurchased 180,750 common shares under our share repurchase program for $17.6 million.

Impacts of COVID-19

In late March 2020, we began experiencing softening customer demand as a result of government-imposed restrictions designed to slow the spread of COVID-19.

While customer orders dropped significantly early in the second quarter of 2020 due to government-imposed restrictions, we saw a rapid recovery as the second quarter progressed with June orders up above June 2019 levels.

While COVID-19 did not adversely affect demand for our products for the year ended December 25, 2021, during the period we did experience pandemic-related pressures in the global supply network that caused logistical issues, including higher freight costs, supplier lead time delays of products, and inflation with respect to materials and labor costs, which impacted our results.

We currently expect those pressures to continue to exist into fiscal 2022.

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.

New Product Development

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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.

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

We believe that this sector provides many of the same opportunities for growth that the passenger car and light-duty truck sector of the motor vehicle aftermarket industry has provided us.

We specialize in offering heavy-duty parts that were traditionally only available from OE manufacturers or salvage yards, similar to how we approach the passenger car and light-duty truck sector.

During fiscal 2022, we introduced 486 distinct parts in this product line.

We expect to continue to invest in the medium- and heavy-duty product category, as evidenced by our acquisition of Dayton Parts in fiscal 2021.

Our growth is also impacted by acquisitions.

For example, on August 10, 2021, we acquired Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket.

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

A key component of our strategy is growth through acquisitions.

On October 4, 2022, we acquired Super ATV, a leading independent supplier to the powersports aftermarket with a family of highly respected brands spanning functional accessories and upgrades, as well as replacement parts for specialty vehicles.

On August 10, 2021, we acquired Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket.

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.

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

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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.

Consequently, we expect the VIO for vehicles aged 8 to 13 years old to continue to recover over the next several years.

Additionally, during 2023, we expect fewer new vehicles to be purchased in the near term, benefiting demand for aftermarket parts, given the lack of availability of new vehicles and increased interest rates.

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.

We believe this trend has supported an increase in VIO, which increased to 293.4 million, a 1% increase in 2022 over 2021.

According to data published by Polk, a division of IHS Automotive, the average age of VIO increased to 12.4 years as of October 2022 from 12.2 years as of October 2021 despite increasing new car sales.

Additionally, while the number of VIO in the United States increased 4% in 2021 to 291.9 million from 279.8 million in 2020, the number of VIO that are 11 years old or older decreased from 60% in 2020 to 57 % in 2021.

The number of miles driven is another important statistic that impacts our business.

Generally, as vehicles are driven more miles, the more likely it is that parts will fail and there will be increased demand for replacement parts, including our parts.

According the U.S.

Department of Transportation, the number of miles driven through October 2022 increased 1.5% year over year.

Generally, as vehicles are driven more miles, the more likely it is that parts will fail and there will be increased demand for replacement parts, including our parts.

We expect this increase in miles driven may continue, given that certain employers have begun to lift work-from-home policies implemented during the pandemic and, consequently, consumers may return to commuting to work on a more regular basis.

However, global gasoline prices have been volatile in recent months, which may negatively impact miles driven as consumers reduce travel or seek alternative methods of transportation.

Brand Protection

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As a result, we are continuously evaluating our approach to brand, pricing and terms to our different customers and channels.

For example, in the third quarter of 2019, we modified our brand protection policy, which is designed to ensure that certain products bearing the Dorman name are not advertised below certain approved pricing levels.

For example, we maintain a brand protection policy, which is designed to ensure that certain products bearing the Dorman name are not advertised below certain approved pricing levels.

In addition, we pursue legal remedies when we see third parties, such as e-commerce retailers, violating our intellectual property rights by wrongfully representing our products as their own or using our product images for their own marketing efforts.

Discounts, Allowances, and Incentives

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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.

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.

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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.

We may incur new customer acquisition costs where we incur change-over costs to induce a customer to switch from a competitor’s brand, including expanding new product lines into our existing customers.

Change-over costs include the costs related to removing the new customer’s inventory and replacing it with our inventory, which is commonly referred to as a stock lift.

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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.

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.

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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.

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

dollar must be converted into U.S.

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Impact of Labor Market and Inflationary Costs

We have experienced broad-based inflationary impacts during the year ended December 25, 2021, due primarily to global transportation and logistics constraints, which have resulted in significantly higher

transportation costs;

We have experienced broad-based inflationary impacts during the year ended December 31, 2022, due primarily to global transportation and logistics constraints, which have resulted in significantly higher transportation costs;

material 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 through fiscal 2022 .

We expect increased freight, higher labor costs and material inflation costs to continue to negatively impact our results through fiscal 2023, despite recent signs of global supply chain constraints easing, which could lead to lower ocean freight and commodity costs.

We attempt to offset inflationary pressures with cost-saving initiatives, price increases to customers and the use of alternative suppliers.

Although we have implemented pass-through price increases to offset inflationary cost impacts, the price increases have often been implemented after we have experienced higher costs resulting in a lag effect to the full recovery of these costs.

Furthermore, pricing increases that we implemented to pass through the increased costs had no added profit dollars and consequently resulted in lower gross and operating margin percentages .

Furthermore, pricing increases that we implemented to pass through the increased costs had no added profit dollars and consequently did not fully offset the impact that the increased costs had on our gross and operating margin percentages.

There can be no assurance that we will be successful in implementing pricing increases in the future to recover increased inflationary costs.

Impact of Interest Rates

Our business is subject to interest rate risk under the terms of our customer accounts receivable sales programs, as a change in the T erm Secured Overnight Financing Rate (“Term SOFR”) , or alternative discount rate affects the cost incurred to factor eligible accounts receivable.

Additionally, our outstanding borrowings under our credit facility bear interest at variable rates tied to Term SOFR, or the applicable base rate.

Under the terms of the credit facility, a change in interest rates affects the rate at which we can borrow funds thereunder and also impacts the interest cost on existing borrowings.

During the year ended December 31, 2022, we saw significant increases in Term SOFR, and other reference rates, which impacted our results as discussed in Results of Operations that follows.

We expect interest rates may continue to increase in the foreseeable future, increasing the costs associated with our accounts receivable sales programs and outstanding borrowings.

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.

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We expect to continue mitigating the impact of tariffs 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.

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.

In January 2020, the USTR granted temporary tariff relief for certain categories of products being imported from China.

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 publicly stated that it is considering reinstating temporary tariff relief on a subset of the previously exempt categories of products imported from China after October 12, 2021 following its review of public comments submitted to the USTR prior to December 1, 2021.

As of the date of this filing, the USTR has not reinstated exemptions from tariffs on the subset of previously exempt categories of products imported from China.

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.

However, in March 2022, the USTR reinstated tariff relief for certain categories of products imported from China.

The reinstated tariff relief applied retroactively to October 12, 2021 and is scheduled to expire on September 30, 2023.

The reinstated tariff relief applies to a limited number of our products and is not expected to materially impact our operating results.

Results of Operations

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For the Fiscal Year Ended

(in thousands, except percentage data)

December 25, 2021

December 26, 2020

(in thousands, except percentage data) December 31, 2022 December 25, 2021

Net sales $ 1,733,749 100.0 % $ 1,345,249 100.0 %

Cost of goods sold 1,169,299 67.4 % 882,333 65.6 %

Gross profit 564,450 32.6 % 462,916 34.4 %

Selling, general and administrative expenses 393,402 22.7 % 291,365 21.7 %

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Provision for income taxes 34,652 2.0 % 38,234 2.8 %

Net income $ 121,549 7.0 % $ 131,532 9.8 %

* Percentage of sales information may not add due to rounding

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Net sales increased 29% to $1,733.7 million in fiscal 2022 from $1,345.2 million in fiscal 2021.

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 fiscal 2021 was 16%.

The absence of the government imposed shut-downs that negatively impacted fiscal 2020 was also a significant contributor to the year-over-year growth.

The increase in net sales reflected a full year of results from Dayton Parts, which was acquired in August 2021;

a continuation of favorable underlying industry dynamics across our customer channels;

increased new product launches;

price increases to offset inflationary costs;

the acquisition of SuperATV in October 2022;

and the benefit of an extra week in fiscal 2022.

Year-over-year net sales growth for fiscal 2022 excluding Dayton Parts and SuperATV was 13.8%.

Gross profit margin was 32.6% of net sales in fiscal 2022 compared to 34.4% of net sales in fiscal 2021.

Gross margin contraction was driven 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 fiscal 2021.

These factors were partially offset by cost saving initiatives and price increases.

Additionally, we benefitted from the absence of out-of-pocket costs incurred due to the COVID-19 pandemic in fiscal 2020.

Gross margin contraction was driven by broad-based cost pressures due to global supply chain constraints as well as commodity and wage rate inflation.

We continued to implement price increases and cost-savings initiatives to offset the inflationary cost pressures experienced during the period, which maintained gross profit dollars but resulted in a lower gross margin percentage.

Selling, general and administrative expenses were $393.4 million, or 22.7% of net sales, in fiscal 2022 compared to $291.4 million, or 21.7% of net sales, in fiscal 2021.

The decrease in SG&A as a percentage of net sales was due to the operating leverage from the $252.5 million increase in net sales in fiscal 2021 as compared to fiscal 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 fiscal 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 fiscal 2021.

Our effective tax rate increased to 22.5% in fiscal 2021 from 21.3% in fiscal 2020.

The higher effective tax rate for fiscal 2021 was the result of higher state tax expense and nondeductible transaction costs related to the Dayton Parts acquisition.

The lower fiscal 2020 effective tax rate was the result of a nontaxable book gain and the write-off of a deferred tax liability in connection with our acquisition of the controlling interest in Power Train Industries, Inc.

(“PTI”) in January 2020, and a foreign tax credit carry-back claim.

The increase in SG&A as a percentage of net sales was primarily due to the impact of higher interest rates on our customer accounts receivable factoring programs and higher amortization of intangible assets resulting from the Dayton Parts acquisition in August 2021 and the SuperATV acquisition in October 2022, partially offset by operating leverage from the increase in net sales in fiscal 2022 as compared to fiscal 2021.

SG&A expenses as a percentage of net sales also increased as a result of the transaction expenses associated with the acquisition of SuperATV in fiscal 2022.

Our effective tax rate decreased to 22.2% in fiscal 2022 from 22.5% in fiscal 2021.

The lower effective tax rate in 2022 was the result of an increase to the acquired Dayton Parts net operating loss deferred tax asset and favorable provision-to-return items, offset by an increase in state tax expense.

Liquidity and Capital Resources

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See Note 10, “Commitments and Contingencies”, in the accompanying consolidated financial statements for additional information regarding commitments and contingencies that may affect our liquidity.

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.

Tariffs increase our use 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 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.

Se e ITEM 7 A, “ Quantitative and Qualitative Disclosures about Market Risk ” for more information.

During fiscal 2021 and fiscal 2020 , we sold approximately $ 935.8 million and $ 740.0 million, resp ectively, under these programs.

These extended terms have resulted in increased accounts receivable levels and significant uses of cash.

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 term 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, resulting in accounts receivable factoring costs.

Moreover, to the extent that any of these accounts receivable sales programs bear interest rates tied to the Term SOFR, or other reference rates, increases in these applicable rates increase our cost to sell our receivables and reduce the amount of cash we receive.

See ITEM 7A, “Quantitative and Qualitative Disclosures about Market Risk” for more information.

During fiscal 2022 and fiscal 2021, we sold approximately $1,048.7 million and $935.8 million, respectively, under these programs.

If receivables had not been sold, $722.3 million and $598.8 million of additional receivables would have been outstanding at December 31, 2022 and December 25, 2021, respectively, based on standard payment terms.

We had capacity to sell more accounts receivable under these programs if the needs of the business warranted.

Further extensions of customer payment terms would result in additional uses of cash flow or increased costs associated with the sales of accounts receivable.

Further extensions of customer payment terms would result in additional uses of cash or increased costs associated with the sales of accounts receivable.

During the years ended December 31, 2022 and December 25, 2021, factoring costs associated with these accounts receivable sales programs were $37.2 million and $11.7 million, respectively.

The increase in factoring costs year over year was primarily driven by higher Term SOFR and other reference rates, and higher accounts receivable sold under these programs.

Credit Agreement

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, 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 December 25, 2021 was LIBOR plus 125 basis points (1.35%).

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 December 25, 2021, we were not in default with respect to the credit agreement.

As of December 25, 2021, there was $239.4 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.

On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a credit agreement that provided for a $600.0 million revolving credit facility, including a letter of credit sub-facility of up to $60 million (the “2021 Facility”).

The 2021 Facility replaced our previous $100.0 million revolving credit facility.

The 2021 Facility was scheduled to mature on August 10, 2026, was guaranteed by the Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and was supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

On October 4, 2022, Dorman entered into an amendment and restatement of the 2021 Facility (as amended and restated, the “New Facility”) by and among Dorman, the lenders from time to time party thereto, and the administrative agent.

In addition to including the existing $600.0 million revolving facility, the New Facility includes a $500.0 million term loan, which was used to fund the SuperATV acquisition.

The New Facility (including the revolving portion of the New Facility) matures on October 4, 2027, is guaranteed by 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.

As of December 31, 2022, we were not in default with respect to the New Facility.

As of December 31, 2022, there was $239.4 million in outstanding borrowings under the revolver, and $496.9 million in outstanding borrowings under the term loan portions of the New Facility, and as of such date we had three outstanding letters of credit for $1.0 million in the aggregate.

Net of outstanding borrowings and letters of credit, we had $362.7 million available under the New Facility at December 31, 2022.

Refer to Note 2, “Business Acquisitions and Investments,” in the Notes to the Consolidated Financial Statements for additional information.

Refer to Note 7, Long-Term Debt under Notes to Consolidated Financial Statements for additional information regarding the New Facility

Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows:

For the Fiscal Year Ended

(in thousands)

December 25, 2021

December 26, 2020

(in thousands) December 31, 2022 December 25, 2021

Cash provided by operating activities $ 41,688 $ 100,338

Cash used in investing activities (526,839) (365,323)

Cash provided by (used in) financing activities

Cash provided by financing activities 472,496 168,235

Effect of foreign exchange on cash and cash equivalents (93) (44)

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents $ (12,748) $ (96,794)

During fiscal 2022, cash provided by operating activities was $41.7 million compared to $100.3 million during fiscal 2021.

The $51.7 million decrease was driven by higher inventory purchases in the

current year to maintain customer fill rates and meet continued strong demand , partially offset by higher proceeds from accounts receivable due to higher sales of accounts receivable during the year.

The $58.7 million decrease was driven by higher cash outflows for working capital.

The cash outflows for working capital were primarily driven by higher inventory purchases to meet demand and provide safety stock due to global supply chain constraints, partially offset by the benefits of accounts receivable collections from higher factoring.

Investing activities used $526.8 million and $365.3 million of cash in fiscal 2022 and 2021 respectively.

Capital spending in fiscal 2021 primarily consisted of $5.0 million in tooling associated with new products, $5.7 million in enhancements and upgrades to our information systems and infrastructure, scheduled equipment replacements, certain facility improvements and other capital projects.

Capital spending in fiscal 2020 primarily consisted of $5.6 million in tooling associated with new products, $5.9 million in enhancements and upgrades to our information systems and infrastructure, scheduled equipment replacements, certain facility improvements and other capital projects.

During fiscal 2021, we used $345.5 million to acquire Dayton Parts, net of cash acquired, and during fiscal 2020, we used $14.8 million to acquire the remaining 60% of the outstanding equity of PTI, net of cash acquired.

• During fiscal 2022, we used $489.0 million to acquire SuperATV, net of cash acquired, and during fiscal 2021, we used $345.5 million to acquire Dayton Parts, net of cash acquired.

• Capital spending in fiscal 2022 totaled $37.9 million and primarily consisted of tooling associated with new products, enhancements and upgrades to our information systems and infrastructure, scheduled equipment replacements, certain facility improvements and other capital projects, including the opening of a new leased distribution center in Whiteland, Indiana.

• Capital spending in fiscal 2021 totaled $19.8 million and primarily consisted of tooling associated with new products, enhancements and upgrades to our information systems and infrastructure, scheduled equipment replacements, certain facility improvements and other capital projects.

Financing activities provided cash of $472.5 million in fiscal 2022 and used cash of $168.2 million in fiscal 2021.

During fiscal 2021, we borrowed $252.4 million under the New Facility to help fund the acquisition of Dayton Parts in August 2021, and subsequently repaid $13.0 million of that borrowing during fiscal 2021.

• During fiscal 2022, we borrowed $500.0 million under the New Facility to help fund the acquisition of SuperATV in October 2022, and subsequently repaid $3.1 million of that borrowing in December 2022.

Additionally, during fiscal 2022, we paid $17.6 million to repurchase 180,750 common shares under our share repurchase plan.

In fiscal 2020, we paid $36.8 million to repurchase 439,275 common shares under the program.

The remaining uses of cash from financing activities in each period results from stock compensation plan activity and the repurchase of shares of our common stock held in a fund under our 401(k) Plan.

401(k) Plan participants can no longer purchase shares of Dorman common stock as an investment option under the 401(k) Plan.

• During fiscal 2021, we borrowed $252.4 million under the Prior Facility to help fund the acquisition of Dayton Parts in August 2021, and subsequently repaid $13.0 million of that borrowing during fiscal 2021.

Additionally, during fiscal 2021, we paid $61.5 million to repurchase 604,628 common shares under our share repurchase plan.

• The remaining uses of cash from financing activities in each period resulted from stock compensation plan activity and the repurchase of shares of our common stock held in a fund under our 401(k) Plan.

Plan participants can no longer purchase shares of Dorman common stock as an investment option under the 401(k) Plan.

Shares are generally purchased from the 401(k) Plan when participants sell units as permitted by the 401(k) Plan or elect to leave the 401(k) Plan upon retirement, termination or other reasons.

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We historically have not utilized off-balance sheet financial instruments, and currently do not plan to utilize off-balance sheet arrangements in the future to fund our working capital requirements, operations or growth plans.

We may issue stand-by letters of credit under our credit agreement.

Letters of credit totaling $0.8 million were outstanding at both December 25, 2021 and December 26, 2020.

We may issue standby letters of credit under our credit agreement.

Letters of credit totaling $1.0 million were outstanding at December 31, 2022 and $0.8 million were outstanding at December 25, 2021.

Those letters of credit are issued primarily to satisfy the requirements of workers compensation, general liability and other insurance policies.

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Total annual rental payments each year to those companies under the lease arrangements were $2.5 million and $2.3 million in fiscal 2022 and fiscal 2021, respectively.

We are a partner in a joint venture with one of our suppliers and we own a minority interest in two other suppliers.

Purchases from these companies, since we acquired our investment interests were $18.9 million in fiscal 2021 and $10.7 million in fiscal 2020.

Critical Accounting Policies

We are a partner in a joint venture with one of our suppliers and own minority interest investments in two other suppliers.

Purchases from these companies were $24.9 million and $18.9 million in fiscal 2022 and fiscal 2021, respectively.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses.

We regularly evaluate our estimates and judgments, including those related to revenue recognition, customer rebates and returns, inventories, long-lived assets and purchase accounting.

The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses.

Estimates and judgments are based upon historical experience and on various other assumptions believed to be accurate and reasonable under the circumstances.

Actual results may differ materially from these estimates due to different assumptions or conditions.

We believe the following critical accounting policies affect our more significant estimates and judgments used in the preparation of our Consolidated Financial Statements.

The following areas all require the use of subjective or complex estimates, judgments and assumptions.

Revenue Recognition and Accrued Customer Rebates and Returns.

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Refer to Note 2 to the Consolidated Financial Statements for additional information.

New and Recently Adopted Accounting Pronouncements

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 7. Management’s Discussion and Analysis