1.	Summary of Significant Accounting Policies

Dorman Products, Inc. ("Dorman", the "Company", "we", "us", or "our") is a leading supplier of OE Dealer "Exclusive" automotive replacement parts, automotive hardware, brake products and household hardware to the Automotive Aftermarket and Mass Merchandise markets. Dorman products are marketed under the OE Solutions™, HELP!^®, AutoGrade™, First Stop™, Conduct-Tite^®, Pik-A- Nut^® Renew™ and HD Solutions™ brand names.

We operate on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. The fiscal year ended December 31, 2011 was a fifty-three week period. The fiscal years ended December 25, 2010 and December 26, 2009 were fifty-two week periods.

Principles of Consolidation. The Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents. We consider all highly liquid short-term investments with original maturities of three months or less to be cash equivalents.

Sales of Accounts Receivable. We have entered into several customer sponsored programs administered by unrelated financial institutions that permit us to sell certain accounts receivable at discounted rates to the financial institutions. We do not retain any servicing requirements for these accounts receivable. Transactions under these agreements are accounted for as sales of accounts receivable. During fiscal 2011, fiscal 2010 and fiscal 2009, we sold $208.8 million, $104.3 million and $77.5 million, respectively, under these programs. If receivables had not been sold, $137.0 million and $77.1 million of additional receivables would have been outstanding at December 31, 2011 and December 25, 2010, respectively, based on standard payment terms. Selling, general and administrative expenses include $3.5 million, $2.0 million and $2.0 million in fiscal 2011, fiscal 2010 and fiscal 2009, respectively, in financing costs associated with these accounts receivable sales programs.

Inventories. Inventories are stated at the lower of average cost or market. We provide reserves for discontinued and excess inventory based upon historical demand, forecasted usage, estimated customer requirements and product line updates.

Property and Depreciation. Property, plant and equipment are recorded at cost and depreciated over their estimated useful lives, which range from three to thirty-nine years, using the straight-line method for financial statement reporting purposes and accelerated methods for income tax purposes.

Estimated useful lives by major asset category areas follows:


Buildings and building improvements			10 to 39 years
Machinery, equipment and tooling			3 to 10 years
Furniture, fixtures and leasehold improvements			3 to 15 years

The costs of maintenance and repairs are expensed as incurred. Renewals and betterments are capitalized. Gains and losses on disposals are included in operating results.

Long-lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. We recorded impairment charges relating to long-lived assets of $0.3 and $0.2 million in fiscal 2011 and fiscal 2010, respectively before income taxes in the Consolidated Statements of Operations. We did not record any asset impairment charges in fiscal 2009.

Goodwill. In fiscal 2011, we assessed the qualitative factors which could affect the fair values of our reporting units and determined that it was not more likely than not that the fair values of each reporting unit was less than its carrying amount. In fiscal 2010, we employed a market comparable approach in conducting our annual impairment test, using earnings multiples of 5.75 to 6.0 times EBITDA.

Other Assets. Other assets consist primarily of deposits and costs incurred for the preparation and printing of product catalogs, which are capitalized and amortized upon distribution. During the fourth quarter of 2010, we assessed the recoverability of certain acquired contract rights and trade names in accordance with the above long-lived asset policy. After completing the required analyses, we concluded that the value of these assets had been impaired. Accordingly, we recorded an impairment charge of $1.0 million before income taxes in the Consolidated Statements of Operations.

Research and Development. Research and development costs are expensed as incurred. Research and development costs totaling $8.6 million in 2011, $4.6 million in fiscal 2010 and $3.8 million in fiscal 2009 have been recorded in selling, general and administrative expenses.

Foreign Currency Translation. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the rate of exchange prevailing at the end of the year. Income statement accounts are translated at the average exchange rate prevailing during the year. Translation adjustments resulting from this process are recorded directly in shareholders' equity.

Comprehensive Income. Comprehensive income includes all changes to shareholders' equity during a period, except those resulting from investment by and distributions to shareholders. Components of comprehensive income include net income and changes in foreign currency translation adjustments.

Concentrations of Risk. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. All cash equivalents are managed within established guidelines which limit the amount which may be invested with one issuer. 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 83% and 78% of net accounts receivable as of December 31, 2011 and December 25, 2010, respectively. We continually monitor the credit terms and credit limits to these and other customers. In fiscal 2011, approximately 80% of our products were purchased from suppliers located in a variety of foreign countries, with the largest portion coming from China.

Fair Value Disclosures. The carrying value of financial instruments such as cash, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. At December 31, 2011 we had two foreign exchange forward contracts outstanding to sell forward 10 million Swedish Krona to receive approximately $1.4 million. The fair value of these forward contracts was a liability of approximately $13,000 as determined through the use of quoted market prices for similar forward contracts. These contracts are used to mitigate the risk of fluctuation in our net investment in our ScanTech subsidiary. We did not hold any foreign currency forward contracts at December 25, 2010.

Income Taxes. We follow the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered.

Revenue Recognition. 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. Actual Customer Credits have not differed materially from estimated amounts for each period presented. 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.

Earnings Per Share. The following table sets forth the computation of basic earnings per share and diluted earnings per share for the three years ended December 31, 2011:


(in thousands, except per share data)	2011		2010		2009
Numerator:
Net income	$	53,277	$	46,138	$	26,495
Denominator:
Weighted average shares outstanding used in basic earnings per share calculation		17,933		17,767		17,658
Effect of dilutive stock options		252		349		338

Adjusted weighted average shares outstanding diluted earnings per share		18,185		18,116		17,996

Basic earnings per share	$	2.97	$	2.60	$	1.50
Diluted earnings per share	$	2.93	$	2.55	$	1.47

Options to purchase 15,000, 15,000 and 120,000 shares were outstanding at December 31, 2011, December 25, 2010 and December 26, 2009, respectively, but were not included in the computation of diluted earnings per share, as their effect would have been antidilutive.

Stock-Based Compensation. At December 31, 2011, we had one stock-based employee compensation plan, which is described more fully in Note 11, Capital Stock. We record equity-classified compensation expense for all awards granted. The fair value of stock options granted was determined using the Black-Scholes model.

Product Warranties. We warrant our products against certain defects in material and workmanship when used as designed on the vehicle on which it was originally installed. We offer a limited lifetime warranty on all of our products. Our warranty limits the customer's remedy to the repair or replacement of the part that is defective. Estimated warranty costs are based upon actual experience and forecasts using the best historical and current claim information available. The following table summarizes the activity of our product warranty liability included in other accrued liabilities in the accompanying Consolidated Balance Sheets:


(in thousands)	2011			2010			2009
Balance at beginning of year	$	25		$	169		$	503
Provisions for warranty costs		586			325			258
Charge-offs		(541	)		(469	)		(592	)

Balance at end of year	$	70		$	25		$	169