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MCINTIRE INVESTMENT INSTITUTE AT THE UNIVERSITY OF VIRGINIA

Marshall Masterson| 3/28/13

Long – Dorman Products (NASDAQ: DORM)

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DORMAN PRODUCTS

•  Business Overview •  Thesis Points •  Risks •  Conclusion

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STOCK PERFORMANCE – 3/25/13

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PE: 20.31 52 Week: 21.93 – 38.45 EPS: 1.81 Market Cap: 1.34B

NASDAQ: DORM -- $36.86 as of 3/25/13

Beta: 1.22 PEG Ratio: 0.60127 D/E: 0.0 FCF: 16.67 million

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DORMAN PRODUCTS

•  Founded in 1978 •  Supplier of automotive and light truck

replacement parts, fasteners, and service line products for the automotive aftermarket

•  Design, engineer and market 133,000 SKUs

•  Nine sub-brands

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DORMAN PRODUCTS

•  85 percent of products sold are under the Dorman Products brand name

•  Products are sold primarily through: – Automotive aftermarket retailers – Warehouse distributors – Specialty markets – Salvage yards

•  Majority of products fall within “Repair” Segment

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DORMAN PRODUCTS BREAKDOWN OF NET SALES

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33 30

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Sales by Category

Powertrain Automotive Body Chassis Hardware

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CUSTOMER VALUE PROPOSITION

•  Main customers include: – Retail – Traditional

•  Aftermarket supplier of original equipment, “formerly dealer only,” parts – Originally available at only OEMs and salvage

yards

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ORIGINAL EQUIPMENT MANUFACTURER PRODUCTS

Examples of products marketed by Dorman Products: •  Intake Manifolds •  Exhaust Manifolds •  Oil Cooler Lines •  Window Regulators •  Radiator Fan Assemblies •  Power Steering Pulleys •  Harmonic Balancers •  Tire Pressure Monitor Sensors •  Keyless Entry Devices

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HOW IS DORMAN DIFFERENT FROM THE COMPETITION?

•  First mover •  Innovator •  Virtually no debt •  No parts manufacturing •  Physical products and kits

–  No training to technicians •  Large product variety with a “pull” emphasis •  Competes with the OE Dealers, not with other

aftermarket players

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MISPERCEPTION

Wall Street thinks that Dorman Products is a Sell. Here’s why: -  People will buy new cars as economic

conditions improve -  Majority of revenues from five major

customers -  Since they are prone to softness in revenue, so

is Dorman -  Insiders have been selling

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THESIS

•  Dorman Products generates strong operating cash flows and has good financials

•  Trends in the U.S. point toward continued growth in the automotive aftermarket industry

•  The product development team sources new ideas by using knowledge of parts with high failure rates

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CASH FLOW

In 2012: •  $48.9 million in cash flows from

operations up from $38 million in 2011 •  Repayment of $53.3 million in long-term

debt •  Paid a special dividend of $1.50 per share

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CASH FLOW VS. AVERAGE VEHICLE AGE

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9.2 9.4 9.6 9.8 10 10.2 10.4 10.6 10.8 11 11.2

0

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2007 2008 2009 2010 2011 2012 A

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Cash Flows from Operating Activities (In millions of dollars) Average Age of Vehicles (Years)

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VEHICLES IN OPERATION VS. OPERATING PROFITS

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2007 2008 2009 2010 2011 2012

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Cash Flows from Operating Activities (In millions of dollars) VIO

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FORECASTED MILES DRIVEN BY THE US ENERGY INFORMATION ADMINISTRATION (EIA)

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THE FEEDBACK LOOP

•  In-house staff •  Network for product suggestions •  Installer à Check Dormanà Complain •  The real competitors are the OE Dealers •  Systems are in place to alert customers

about new products – Service Guide

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CATALYSTS

•  2nd and 3rd quarter earnings releases •  Auto retailer earnings releases

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RISKS

•  Shelf space may not be available for new products

•  Demand slows for aftermarket parts •  Increase in patent filings may adversely effect

business •  New part failure rates decrease dramatically

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•  Initiate position at 3%

•  Disclosure: I do not own shares in Dorman Products. Nor do I intend to initiate a position within the next 72 hours.

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SUB-BRANDS

DORMAN® OE Solutions™

- Automotive replacement parts, such as intake manifolds, exhaust manifolds, oil cooler lines, window regulators, harmonic balancers and radiator fan assemblies.

DORMAN® HELP!® - Automotive replacement parts, including window handles, switches, door hardware, interior trim parts, headlamp aiming screws and retainer rings, radiator parts, battery hold-down bolts and repair

kits, valve train parts and power steering filler caps.

DORMAN® TECHoice™ - A value line of automotive replacement parts, including mass air flow sensors, belt tensioners, and idler pulleys.

DORMAN® AutoGrade™ - A line of application specific and general automotive hardware that is a necessary element to a complete repair. Product categories include body hardware, general automotive fasteners, oil drain

plugs, and wheel hardware.

DORMAN® Conduct-Tite!® - A selection of electrical connectors, wire, tools, testers, and accessories.

DORMAN® FirstStop™ - Value priced technician quality brake and clutch program containing more than 8,500 SKU’s.

DORMAN® Symmetry®

- A line of home hardware and home organization products specifically designed for retail merchandisers.

DORMAN® Renew® - A selection of remanufactured automotive replacement parts engineered from new replacement parts or renewed parts. Products include transfer case modules and instrument clusters.

DORMAN® HD Solutions™

- A line of heavy duty aftermarket parts for class 4-8 heavy vehicles. Coverage includes coolant tubes, door handles and other body parts, fluid reservoirs, headlights and lighting, hood components, window

regulators, and wiper transmissions.

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