Cautionary Statement Regarding Forward Looking Statements

Certain statements in this document constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. While forward-looking statements sometimes are presented with numerical specificity, they are based on various assumptions made by management regarding future circumstances over many of which the Company has little or no control. Forward-looking statements may be identified by words including "anticipate," "believe," "estimate," "expect," and similar expressions. The Company cautions readers that forward-looking statements, including, without limitation, those relating to future business prospects, revenues, working capital, liquidity, and income, are subject to certain risks and uncertainties that would cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include but are not limited to competition in the automotive aftermarket industry, concentration of the Company's sales and accounts receivable among a small number of customers, the impact of consolidation in the automotive aftermarket industry, foreign currency fluctuations, dependence on senior management and other risks and factors identified from time to time in the reports the Company files with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. For additional information concerning factors that could cause actual results to differ materially from the information contained in this report, reference is made to the information in Part I, "Item 1A, Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007.

Overview

We are a leading supplier of Original Equipment (OE) Dealer "Exclusive" automotive replacement parts, automotive hardware, brake products, and household hardware to the automotive aftermarket and mass merchandise markets. Dorman automotive parts and hardware are marketed under the OE Solutions™, HELP!®, AutoGrade™, First Stop™, Conduct-Tite®, Pik-A-Nut®, and Scan-Tech™ brand names. We design, package and market over 92,000 different automotive replacement parts (including brake parts), fasteners and service line products manufactured to our specifications. Our products are sold under one of the seven Dorman brand names listed above. Our products are sold primarily in the United States through automotive aftermarket retailers (such as AutoZone, Advance and O'Reilly), national, regional and local warehouse distributors (such as Carquest and NAPA) and specialty markets including parts manufacturers for resale under their own private labels and salvage yards. Through our Scan-Tech subsidiary, we are increasing our international distribution of automotive replacement parts, with sales into Europe, the Middle East and the Far East.

The automotive aftermarket in which we compete has been growing in size; however, the market continues to consolidate. As a result, our customers regularly seek more favorable pricing, product returns and extended payment terms when negotiating with us. While we attempt to avoid or minimize such concessions, in some cases pricing concessions have been made, customer payment terms have been extended and returns of product have exceeded historical levels. The product returns and more favorable pricing primarily affect our profit levels while terms extensions generally reduce operating cash flow and require additional capital to finance the business. We expect both of these trends to continue for the foreseeable future. Gross profit margins have declined over the past three years as a result of this pricing pressure. Another contributing factor in our gross profit margin decline is a shift in mix to higher priced, but lower gross margin products. Both of these trends are expected to continue for the foreseeable future. We have increased our focus on efficiency improvements and product cost reduction initiatives to offset the impact of price pressures.

In addition, we are relying on new product development as a way to offset some of these customer demands and as our primary vehicle for growth. As such, new product development is a critical success factor for us. We have invested heavily in resources necessary for us to increase our new product development efforts and to strengthen our relationships with our customers. These investments are primarily in the form of increased product development resources and awareness programs, customer service improvements and increased customer credits and allowances. This has enabled us to provide an expanding array of new product offerings and grow our revenues.

We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers. Generally, the second and third quarters have the highest level of customer orders, but the introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter.

We operate on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year.

Acquisition and Sale of Assets

In September 2007, we acquired certain assets including inventory and various intangible assets of the Consumer Products Division of Rockford Productions Corporation (Consumer Division) for $3.4 million. The consolidated results for the thirteen week and thirty-nine week periods ended September 27, 2008 includes the results of the Consumer Division. We have not presented pro forma results of operations as this result would not have been materially different than actual results for the periods. In connection with the purchase, we recorded $1.1 million in contract rights, which are included in other assets and are being amortized over a 10 year period.

On May 15, 2008, we sold certain assets of our Canadian subsidiary for $0.9 million, which is being paid in monthly installments throughout 2008.

Change in Vacation Policy

Effective December 31, 2006, we changed our vacation policy so that the current year's vacation time is earned ratably throughout the current year. Prior to December 31, 2006, all rights to the subsequent year's vacation vested to our employees on the last day of the previous fiscal year and the corresponding liability was recorded in that previous year. Since employees had vested all 2007 vacation time prior to the beginning of 2007 under the old policy, no additional vacation time was earned in 2007 and no expense was recorded. This change resulted in a reduction in our vacation accrual of approximately $1.8 million in 2007. As a result, vacation expense in cost of goods sold and selling, general and administrative expenses was reduced during each of the fiscal quarters in 2007. Results for the thirteen and thirty-nine weeks ended September 27, 2008 include vacation expense reductions of $0.1 million and $0.3 million in cost of goods sold and $0.4 million and $1.0 million in selling, general and administrative expenses, respectively.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of net
sales represented by cer­tain items in our Consolidated Statements of
Operations:

                                                                             Percentage of Net Sales
                                                   For the Thirteen Weeks Ended               For the Thirty-nine Weeks Ended
                                                September 27,         September 29,       September 27,            September 29,
                                                    2008                  2007                 2008                     2007
Net Sales                                                100.0 %               100.0 %              100.0 %                  100.0 %
Cost of goods sold                                        67.6                  64.5                 67.8                     65.3
Gross profit                                              32.4                  35.5                 32.2                     34.7
Selling, general and administrative expenses              23.1                  23.9                 23.8                     23.8
Income from operations                                     9.3                  11.6                  8.4                     10.9
Interest expense, net                                      0.2                   0.6                  0.3                      0.6
Income before taxes                                        9.1                  11.0                  8.1                     10.3
Provision for taxes                                        3.6                   4.2                  3.1                      3.9
Net Income                                                 5.5 %                 6.8 %                5.0 %                    6.4 %

Thirteen Weeks Ended September 27, 2008 Compared to Thirteen Weeks Ended September 29, 2007

Sales increased 10% to $91.2 million for the third quarter ended September 27, 2008 from $83.2 million in the same period last year. Our revenue growth was driven by several large line updates that shipped during the quarter, higher new product sales, and increased market penetration.

Cost of goods sold, as a percentage of sales, increased to 67.6% for the thirteen weeks ended September 27, 2008 from 64.5% in the same period last year. The increase is primarily the result of strategic investments to grow market share and higher material and shipping costs caused by commodity price increases and weakness in the U.S. dollar.

Selling, general and administrative expenses for the thirteen weeks ended September 27, 2008 increased 6% to $21.0 million from $19.9 million in the same period last year. Results for the thirteen weeks ended September 27, 2008 include a $0.4 million reduction in vacation expense due to the vacation policy change mentioned above. A tighter focus on cost control resulted in costs increasing just 4% before the vacation adjustment despite our 10% sales growth during the quarter. Costs increased due to higher variable costs related to our sales growth and increased staffing levels in product development, engineering and quality control. These increases were partially offset by cost reductions and incentive compensation expense which was $ 0.3 million lower in the thirteen weeks ended September 27, 2008 than in the prior year due to lower earnings levels in 2008.

Interest expense, net, decreased to $0.2 million in the thirteen weeks ended September 27, 2008 from $0.5 million in the same period last year due to lower borrowing levels and interest rates.

Our effective tax rate increased to 39.0% in the thirteen weeks ended September 27, 2008 from 37.9% in the same period last year. The increase is the result of a loss at our Swedish subsidiary, which has a lower effective tax rate than our U.S. businesses. The business was profitable last year.

Thirty-nine Weeks Ended September 27, 2008 Compared to Thirty-nine Weeks Ended September 29, 2007

Sales increased 8% to $261.6 million for the thirty-nine weeks ended September 27, 2008 from $243.3 million in the same period last year. The favorable effect of foreign currency exchange and the net impact of our acquisition and sale of assets accounted for approximately 2% of the net sales increase. The remaining increase is primarily the result of increased revenues from new sales and increased market penetration.

Cost of goods sold, as a percentage of sales, increased to 67.8% for the thirty-nine weeks ended September 27, 2008 from 65.3% in the same period last year. The increase is primarily the result of competitive selling price pressures, higher material and shipping costs caused by higher commodity price increases and weakness in the U.S. dollar, and a $0.7 million increase in air freight costs necessary to expedite product to fill past due customer orders. Spending on air freight returned to historical levels in the second quarter of 2008.

Selling, general and administrative expenses for the thirty-nine weeks ended September 27, 2008 increased 8% to $62.5 million from $57.9 million in the same period last year. The increase is the result of higher variable costs related to our sales growth and increased staffing levels in product development, engineering and quality control. These increases were partially offset by incentive compensation expense which was $1.3 million lower in the thirty-nine weeks ended September 27, 2008 than in the prior year due to lower earnings levels in 2008. Results for the thirty-nine weeks ended September 27, 2008 also include a $1.0 million reduction in vacation expense due to the vacation policy change mentioned above.

Interest expense, net, decreased to $0.8 million in the thirty-nine weeks ended September 27, 2008 from $1.6 million in the same period last year due to lower borrowing levels and interest rates.

Our effective tax rate increased to 38.7% in the thirty-nine weeks ended September 27, 2008 from 37.8% in the same period last year. The increase is the result of the loss of certain state tax benefits and lower earnings from our Swedish subsidiary.

Liquidity and Capital Resources

Historically, we have financed our growth through a combination of cash flow from operations, accounts receivable sales programs provided by certain customers and through the issuance of senior indebtedness through our bank credit facility and senior note agreements. At September 27, 2008, working capital was $163.3 million, total long-term debt (including the current portion and revolving credit borrowings) was $21.0 million and shareholders' equity was $185.5 million. Cash and cash equivalents as of September 27, 2008 were $7.1 million.

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 flow. We participate in accounts receivable sales programs with several customers which allow us to sell our accounts receivable on a non-recourse basis to financial institutions to offset the negative cash flow impact of these payment terms extensions. As of September 27, 2008 and December 27, 2007, we sold $51.1 million and $39.4 million in accounts receivable under these programs and removed them from our balance sheets based upon standard payment terms. We expect continued pressure to extend our payment terms for the foreseeable future. Further extensions of customer payment terms will result in additional uses of cash flow or increased costs associated with the sale of accounts receivable.

We have a $30.0 million revolving credit facility which expires in June 2010. Borrowings under the facility are on an unsecured basis with interest at rates ranging from LIBOR plus 65 basis points to LIBOR plus 150 basis points based upon the achievement of certain benchmarks related to the ratio of funded debt to EBITDA. The interest rate at September 27, 2008 was LIBOR plus 65 basis points (4.35%). Borrowings under the facility were $20.5 million as of September 27, 2008. We have approximately $7.5 million available under the facility at September 27, 2008. The loan agreement also contains covenants, the most restrictive of which pertain to net worth and the ratio of debt to EBITDA.

We also have outstanding $0.5 million under a commercial loan granted in connection with the opening of a distribution facility which bears interest at 4% payable monthly. The principal balance is paid monthly in equal installments through September 2013. The loan is secured by a letter of credit issued under our revolving credit facility.

Our business activities do not include the use of unconsolidated special purpose entities, and there are no significant business transactions that have not been reflected in the accompanying financial statements.

We reported a net source of cash from our operating activities of $3.0 million in the thirty-nine weeks ended September 27, 2008. Net income, depreciation and a $3.2 million increase in accounts payable were the primary sources of operating cash flow. Accounts payable increased primarily as a result of negotiated terms extensions with several of our suppliers. The primary uses of cash were inventory and accounts receivable, which increased $10.5 million and $8.2 million, respectively. Inventory increased to support sales growth and increases in safety stock levels deemed necessary to enable us to better fill customer orders. Accounts receivable increased due to sales growth, a promotional program that provided extended dating on second time orders of a new product line, and the extension of payment terms to certain customers.

Investing activities used $5.0 million of cash in the thirty-nine weeks ended September 27, 2008 primarily as a result of additions to property, plant and equipment. Capital spending in 2008 consisted of tooling associated with new products, upgrades to information systems and scheduled equipment replacements.

Financing activities generated $2.5 million of cash in the thirty-nine weeks ended September 27, 2008. The primary elements of our financing activities were $12.0 million in borrowings under our revolving credit facility and the repayment of the final installment of $8.6 million on our senior notes originally issued in 1998. We also repurchased $1.0 million in common stock from our 401(k) plan during the nine months ended September 27, 2008.

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.

Foreign Currency Fluctuations

In 2007, approximately 73% of our products were purchased from a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, we do not have exposure to fluctuations in the relationship between the dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. However, weakness in the dollar has resulted in numerous material price increases and continued pressure from several foreign suppliers to increase prices further. To the extent that the dollar decreases in value to foreign currencies in the future the price of the product in dollars for new purchase orders may increase further.

The largest portion of our overseas purchases come from China. The value of the Chinese Yuan has increased relative to the U.S. Dollar since July 2005 when it was allowed to fluctuate against a basket of currencies. Most experts believe that the value of the Yuan will increase further relative to the U.S. Dollar over the next few years. Such a move would most likely result in an increase in the cost of products that are purchased from China.

Impact of Inflation

The overall impact of inflation has not resulted in a significant change in labor costs or the cost of general services utilized by the Company. During the second and third quarter of 2008 we experienced significant increases in the cost of our materials and transportation costs as a result of commodity price increases and weakness in the U.S. Dollar. We expect to be able to offset a portion of these cost increases with higher selling prices; however, we do not expect to be able to do so completely. As a result, cost of goods sold as a percentage of net sales increased in the thirteen weeks ended September 27, 2008 and may increase further over the next few quarters. We will attempt to offset any further cost increases by passing along selling price increases to customers, through the use of alternative suppliers and by resourcing products to other countries. However, there can be no assurance that we will be successful in these efforts.

Related-Party Transactions

We have a noncancelable operating lease for our primary operating facility from a partnership in which Richard N. Berman, our Chief Executive Officer, and Steven L. Berman, our Executive Vice President, are partners. Based upon the terms of the lease, payments in 2008 will be $1.4 million. Total rental payments to the partnership under the lease arrangement were $1.3 million in 2007.

Critical Accounting Policies

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, bad debts, customer credits, inventories, goodwill and income taxes. 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 under 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:

Allowance for Doubtful Accounts. The preparation of our financial statements requires us to make estimates of the collectability of our accounts receivable. We specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts. A significant percentage of our accounts receivable have been, and will continue to be, concentrated among a relatively small number of automotive retailers and warehouse distributors in the United States. Our five largest customers accounted for 71% and 73% of net accounts receivable as of December 29, 2007 and December 30, 2006, respectively. A bankruptcy or financial loss associated with a major customer could have a material adverse effect on our sales and operating results.

Revenue Recognition and Allowance for Customer Credits. Revenue is recognized from product sales when goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. We record estimates for cash discounts, product returns and warranties, discounts and promotional rebates in the period of the sale ("Customer Credits"). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are shown as a reduction of accounts receivable. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. Actual Customer Credits have not differed materially from estimated amounts for each period presented.

Excess and Obsolete Inventory Reserves. We must make estimates of potential future excess and obsolete inventory costs. We provide reserves for discontinued and excess inventory based upon historical demand, forecasted usage, estimated customer requirements and product line updates. We maintain contact with our customer base in order to understand buying patterns, customer preferences and the life cycle of our products. Changes in customer requirements are factored into the reserves as needed.

Goodwill. We follow the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." We employ a discounted cash flow analysis and a market comparable approach in conducting our impairment tests.

Income Taxes. We follow the liability method of accounting for deferred income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year and for the change in the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. We must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our judgments, assumptions and estimates relative to the current provision for income taxes takes into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. Our assumptions, judgments and estimates relative to the value of a deferred tax asset takes into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS No. 141(R) changes the requirements for an acquirer's recognition and measurement of the assets acquired and the liabilities assumed in a business combination. SFAS No. 141(R) is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements -an amendment of ARB No. 51" ("SFAS No. 160"). SFAS No. 160 requires (i) that noncontrolling (minority) interests be reported as a component of shareholders' equity, (ii) that net income attributable to the parent and to the noncontrolling interest be separately identified in the consolidated statement of operations, (iii) that changes in a parent's ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (iv) that any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for annual periods beginning after December 15, 2008 and should be applied prospectively. However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. The adoption of the provisions of SFAS No. 160 is not expected to impact the Company's consolidated results of . . .