Dorman Products, Inc. 10-Q

ITEM 1. Financial Statements DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended Nine Months Ended (in thousands, except per share data) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Net sales $ 488,186 $ 413,470 $ 1,435,492 $ 1,232,468 Cost of goods sold 304,968 281,559 944,291 825,792 Gross profit 183,218 131,911 491,201 406,676 Selling, general and administrative expenses 119,010 89,814 353,681 268,400 Income from operations 64,208 42,097 137,520 138,276 Interest expense, net 12,215 2,344 36,733 5,140 Other (income) expense, net ( 605 ) 65 ( 1,358 ) ( 130 ) Income before income taxes 52,598 39,688 102,145 133,266 Provision for income taxes 12,076 9,087 23,170 29,553 Net income $ 40,522 $ 30,601 $ 78,975 $ 103,713 Other comprehensive income: Change in foreign currency translation adjustment $ ( 1,214 ) $ ( 2,112 ) $ ( 529 ) $ ( 2,415 ) Comprehensive Income $ 39,308 $ 28,489 $ 78,446 $ 101,298 Earnings per share: Basic $ 1.29 $ 0.97 $ 2.51 $ 3.30 Diluted $ 1.28 $ 0.97 $ 2.50 $ 3.29 Weighted average shares outstanding: Basic 31,483 31,411 31,462 31,444 Diluted 31,555 31,545 31,540 31,561 See accompanying Notes to Condensed Consolidated Financial Statements 3 Table of Contents DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED ) (in thousands, except for share data) September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 31,953 $ 46,034 Accounts receivable, less allowance for doubtful accounts of $ 1,715 and $ 1,363 484,447 427,385 Inventories 625,593 755,901 Prepaids and other current assets 53,363 39,800 Total current assets 1,195,356 1,269,120 Property, plant and equipment, net 157,737 148,477 Operating lease right-of-use assets 107,645 109,977 Goodwill 443,220 443,035 Intangible assets, net 306,802 322,409 Other assets 49,594 48,768 Total assets $ 2,260,354 $ 2,341,786 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 158,418 $ 179,819 Accrued compensation 15,844 19,490 Accrued customer rebates and returns 192,014 192,116 Revolving credit facility 119,660 239,363 Current portion of long-term debt 12,500 12,500 Other accrued liabilities 34,612 35,007 Total current liabilities 533,048 678,295 Long-term debt 473,389 482,464 Long-term operating lease liabilities 95,200 98,221 Other long-term liabilities 15,484 28,349 Deferred tax liabilities, net 15,140 11,826 Commitments and contingencies (Note 7) Shareholders’ equity: Common stock, $ 0.01 par value; 50,000,000 shares authorized; 31,487,494 and 31,430,632 shares issued and outstanding in 2023 and 2022, respectively 315 314 Additional paid-in capital 97,342 88,750 Retained earnings 1,034,268 956,870 Accumulated other comprehensive loss ( 3,832 ) ( 3,303 ) Total shareholders’ equity 1,128,093 1,042,631 Total liabilities and shareholders' equity $ 2,260,354 $ 2,341,786 See accompanying Notes to Condensed Consolidated Financial Statements 4 Table of Contents DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED ) Three Months Ended September 30, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at July 1, 2023 31,488,164 $ 315 $ 94,452 $ 993,923 $ ( 2,618 ) $ 1,086,072 Exercise of stock options 460 — 37 — — 37 Compensation expense under Incentive Stock Plan — — 2,901 — — 2,901 Purchase and cancellation of common stock ( 2,010 ) — ( 3 ) ( 177 ) — ( 180 ) Issuance of non-vested stock, net of cancellations 1,419 — — — — — Other stock-related activity, net of tax ( 539 ) — ( 45 ) — — ( 45 ) Change in foreign currency translation adjustment — — — — ( 1,214 ) ( 1,214 ) Net income — — — 40,522 — 40,522 Balance at September 30, 2023 31,487,494 $ 315 $ 97,342 $ 1,034,268 $ ( 3,832 ) $ 1,128,093 Three Months Ended September 24, 2022 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at June 25, 2022 31,425,224 $ 314 $ 82,192 $ 910,194 $ ( 1,743 ) $ 990,957 Exercise of stock options 169 — 14 — — 14 Compensation expense under Incentive Stock Plan — — 2,472 — — 2,472 Purchase and cancellation of common stock ( 14,700 ) — ( 26 ) ( 1,496 ) — ( 1,522 ) Issuance of non-vested stock, net of cancellations 9,626 — 812 — — 812 Other stock-related activity, net of tax ( 927 ) — ( 90 ) ( 91 ) — ( 181 ) Change in foreign currency translation adjustment — — — — ( 2,112 ) ( 2,112 ) Net income — — — 30,601 — 30,601 Balance at September 24, 2022 31,419,392 $ 314 $ 85,374 $ 939,208 $ ( 3,855 ) $ 1,021,041 Nine Months Ended September 30, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at December 31, 2022 31,430,632 $ 314 $ 88,750 $ 956,870 $ ( 3,303 ) $ 1,042,631 Exercise of stock options 17,489 — 1,167 — — 1,167 Compensation expense under Incentive Stock Plan — — 8,336 — — 8,336 Purchase and cancellation of common stock ( 11,850 ) — ( 21 ) ( 987 ) — ( 1,008 ) Issuance of non-vested stock, net of cancellations 76,747 1 1,003 — — 1,004 Other stock-related activity, net of tax ( 25,524 ) — ( 1,893 ) ( 590 ) — ( 2,483 ) Change in foreign currency translation adjustment — — — — ( 529 ) ( 529 ) Net income — — — 78,975 — 78,975 Balance at September 30, 2023 31,487,494 $ 315 $ 97,342 $ 1,034,268 $ ( 3,832 ) $ 1,128,093 Nine Months Ended September 24, 2022 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at December 25, 2021 31,607,509 $ 316 $ 77,451 $ 856,409 $ ( 1,440 ) $ 932,736 Exercise of stock options 17,455 — 971 — — 971 Compensation expense under Incentive Stock Plan — — 6,742 — — 6,742 Purchase and cancellation of common stock ( 201,135 ) ( 2 ) ( 362 ) ( 19,353 ) — ( 19,717 ) Issuance of non-vested stock, net of cancellations 13,847 — 1,189 — — 1,189 Other stock-related activity, net of tax ( 18,284 ) — ( 617 ) ( 1,561 ) — ( 2,178 ) Change in foreign currency translation adjustment — — — — ( 2,415 ) ( 2,415 ) Net income — — — 103,713 — 103,713 Balance at September 24, 2022 31,419,392 $ 314 $ 85,374 $ 939,208 $ ( 3,855 ) $ 1,021,041 See accompanying Notes to Condensed Consolidated Financial Statements 5 Table of Contents DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended (in thousands) September 30, 2023 September 24, 2022 Cash Flows from Operating Activities: Net income $ 78,975 $ 103,713 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization and accretion 40,786 31,131 Fair value adjustment to contingent consideration ( 13,400 ) — Provision for doubtful accounts 2,721 80 Provision (benefit) for deferred income taxes 3,319 ( 546 ) Provision for stock-based compensation 8,407 6,742 Changes in assets and liabilities: Accounts receivable ( 59,786 ) 39,325 Inventories 130,156 ( 146,278 ) Prepaids and other current assets ( 6,597 ) ( 7,228 ) Other assets ( 3,981 ) 157 Accounts payable ( 21,615 ) 17,887 Accrued customer rebates and returns ( 101 ) 11,712 Accrued compensation and other liabilities ( 9,774 ) ( 27,351 ) Cash provided by operating activities 149,110 29,344 Cash Flows from Investing Activities: Acquisition, net of cash acquired 67 595 Property, plant and equipment additions ( 32,936 ) ( 23,780 ) Cash used in investing activities ( 32,869 ) ( 23,185 ) Cash Flows from Financing Activities: Payments of revolving credit line ( 119,700 ) ( 10,000 ) Payments of long-term debt ( 9,375 ) — Proceeds from exercise of stock options 1,167 971 Purchase and cancellation of common stock ( 1,008 ) ( 19,717 ) Other stock-related activity ( 1,389 ) ( 664 ) Cash used in financing activities ( 130,305 ) ( 29,410 ) Effect of exchange rate changes on Cash and Cash Equivalents ( 17 ) ( 96 ) Net Decrease in Cash and Cash Equivalents ( 14,081 ) ( 23,347 ) Cash and Cash Equivalents, Beginning of Period 46,034 58,782 Cash and Cash Equivalents, End of Period $ 31,953 $ 35,435 Supplemental Cash Flow Information Cash paid for interest expense $ 38,613 $ 4,366 Cash paid for income taxes $ 27,242 $ 49,670 See accompanying Notes to Condensed Consolidated Financial Statements 6 Table of Contents DORMAN PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 24, 2022 (UNAUDITED) 1. Basis of Presentation As used herein, unless the context requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc. and its subsidiaries. Our ticker symbol on the NASDAQ Global Select Market is “DORM.” The accompanying unaudited condensed consolidated financial statements have been prepared under U.S. generally accepted accounting principles (“GAAP”) for interim financial information and under the rules and regulations of the U.S. Securities and Exchange Commission. However, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any future period. We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers and the introduction of new products and product lines to customers. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 2. Acquisitions On October 4, 2022 (the “Closing Date”), Dorman acquired 100 % of the issued and outstanding equity interests of Super ATV, LLC ("SuperATV") (the “Transaction”), for aggregate consideration of $ 509.8 million (net of $ 6.8 million cash acquired), plus a potential earn-out payment to the sellers of SuperATV not to exceed $ 100 million in the aggregate, which remains subject to the achievement by SuperATV of certain revenue and gross margin targets in the years ending December 31, 2023 and December 31, 2024. In the nine months ended September 30, 2023, we received $ 0.3 million in cash as proceeds from the closing net working capital adjustments. SuperATV is 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. The Transaction was accounted for as a business combination under the acquisition method of accounting. We have allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. Our purchase price allocation for SuperATV assets acquired and liabilities assumed was complete as of September 30, 2023. 7 Table of Contents The table below details the fair values of the assets acquired and the liabilities assumed at the acquisition date, including applicable measurement period adjustments: (in thousands) Accounts receivable $ 3,317 Inventories 90,428 Prepaids and other current assets 5,293 Property, plant and equipment 23,776 Goodwill 247,474 Identifiable intangible assets 157,500 Operating lease right-of-use assets 11,661 Other Assets 3,001 Accounts payable ( 7,436 ) Accrued compensation ( 2,086 ) Accrued customer rebates and returns ( 1,609 ) Other current liabilities ( 8,726 ) Long-term operating lease liabilities ( 9,508 ) Other long-term liabilities ( 3,307 ) Net cash consideration $ 509,778 The financial results of the Transaction have been included in the consolidated financial statements since the date of acquisition. 3. Sales of Accounts Receivable We have entered several customer-sponsored programs administered by unrelated financial institutions that permit us to sell (factor) certain accounts receivable at discounted rates to the financial institutions. Transactions under these agreements were accounted for as sales of accounts receivable and the related accounts receivable were removed from our Condensed Consolidated Balance Sheets at the times of the sales transactions. Sales of accounts receivable under these agreements, and related factoring costs, which were included in selling, general and administrative expenses, were as follows: Three Months Ended Nine Months Ended (in thousands) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Sales of accounts receivable $ 233,513 $ 239,926 $ 713,190 $ 778,051 Factoring costs 12,255 9,828 37,674 22,989 4. Inventories Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of our products and are stated at the lower of cost or net realizable value. Inventories were as follows: (in thousands) September 30, 2023 December 31, 2022 Raw materials $ 30,570 $ 34,267 Bulk product 193,470 234,871 Finished product 393,271 478,032 Packaging materials 8,282 8,731 Total $ 625,593 $ 755,901 8 Table of Contents 5. Goodwill and Intangible Assets Goodwill Goodwill included the following: (in thousands) Balance at December 31, 2022 $ 443,035 Measurement period adjustments for SuperATV acquisition 233 Foreign currency translation ( 48 ) Balance at September 30, 2023 $ 443,220 Intangible Assets Intangible assets included the following: September 30, 2023 December 31, 2022 Intangible assets subject to amortization Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value (in thousands) Customer relationships $ 175,430 $ 29,388 $ 146,042 $ 175,430 $ 21,643 $ 153,787 Trade names 67,690 9,591 58,099 67,690 6,370 61,320 Product portfolio 107,800 8,012 99,788 107,800 2,953 104,847 Technology 2,167 1,006 1,161 2,167 820 1,347 Patents and other 2,230 518 1,712 1,430 322 1,108 Total $ 355,317 $ 48,515 $ 306,802 $ 354,517 $ 32,108 $ 322,409 Amortization expense was $ 5.5 million and $ 3.0 million during the three months ended September 30, 2023 and September 24, 2022, respectively, and $ 16.5 million and $ 9.1 million during the nine months ended September 30, 2023 and September 24, 2022, respectively. 6. Debt As of September 30, 2023 and December 31, 2022, the weighted average interest rate on the outstanding borrowings under our credit facility was 6.92 % and 5.78 %, respectively. 7. Commitments and Contingencies Acquisitions We have contingent consideration related to acquisitions due to the uncertainty of the ultimate amount of any payments that will become due as earnout payments if performance targets are achieved. If the remaining performance targets for the acquisitions are fully achieved, the maximum additional contingent payments to be made under the transaction documents would be $ 102.0 million in aggregate. As of September 30, 2023 and December 31, 2022, we accrued $ 7.0 million and $ 20.0 million, respectively, representing the fair value of the estimated payments that we expect could become due in connection with the transactions. For the nine months ended September 30, 2023, we recorded a net decrease of $ 13.0 million to the contingent consideration liability, comprising a $ 13.4 million decrease in fair value based on the modeling of a range of performance outcomes relative to the achievement of targets established in the purchase agreement, partially offset by $ 0.4 million of accretion on the liability resulting from the passage of time. The net benefit was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. 9 Table of Contents The contingent consideration liability is measured each reporting period and recorded at fair value. The inputs used to calculate the fair value of the contingent consideration liability are considered to be Level 3 inputs due to the lack of relevant observable market activity and significant management judgment. The approach to valuing the contingent consideration uses unobservable factors such as projected revenues and cost of goods sold over the term of the earnout period, discounted for the period over which the contingent consideration is measured, and volatility rates. Based upon these assumptions, the contingent consideration is then valued using a Monte Carlo simulation. An increase in future revenue and gross profit may result in a higher estimated fair value while a decrease in future revenue and gross profit may result in a lower estimated fair value of the contingent consideration liability. Other Contingencies We are a party to or otherwise involved in legal proceedings that arise in the ordinary course of business, such as various claims and legal actions involving contracts, employment claims, competitive practices, intellectual property infringement, product liability claims and other matters arising out of the conduct of our business. In the opinion of management, none of the actions, individually or in the aggregate, taking into account relevant insurance coverage, would likely have a material financial impact on the Company and we believe the range of reasonably possible losses from current matters, taking into account relevant insurance coverage, is immaterial. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of any of these matters could have a material adverse impact on the Company’s cash flows, financial position or results of operations in the period in which any such effects are recorded. 8. Revenue Recognition The following tables present our disaggregated revenue by type of major good / product line and geography. Three Months Ended Nine Months Ended (in thousands) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Powertrain $ 193,493 $ 153,773 $ 546,212 $ 462,556 Chassis 181,723 174,707 559,509 513,301 Motor Vehicle body 97,843 72,717 283,468 215,764 Hardware 15,127 12,273 46,303 40,847 Total $ 488,186 $ 413,470 $ 1,435,492 $ 1,232,468 Three Months Ended Nine Months Ended (in thousands) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Net sales to U.S. customers $ 448,360 $ 380,842 $ 1,317,353 $ 1,138,683 Net sales to non-U.S. customers 39,826 32,628 118,139 93,785 Total $ 488,186 $ 413,470 $ 1,435,492 $ 1,232,468 9. Stock-Based Compensation Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) We issue RSAs and RSUs to participants in our equity plans in the form of time-based RSAs and RSUs and performance-based RSAs and RSUs. Compensation cost related to RSA and RSU grants was $ 2.4 million and $ 1.8 million for the three months ended September 30, 2023 and September 24, 2022, respectively, and $ 6.7 million and $ 5.1 million for the nine months ended September 30, 2023 and September 24, 2022, respectively, and 10 Table of Contents was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The following table summarizes our RSA and RSU activity for the nine months ended September 30, 2023: Shares Weighted Average Fair Value Balance at December 31, 2022 238,922 $ 92.07 Granted 109,688 $ 96.01 Vested ( 70,550 ) $ 80.24 Canceled ( 17,692 ) $ 83.49 Balance at September 30, 2023 260,368 $ 97.51 For the nine months ended September 30, 2023, we granted 29,399 performance-based RSUs with a grant date fair value of $ 113.15 per share. For the nine months ended September 24, 2022, we granted 23,995 performance-based RSUs with a grant date fair value of $ 111.31 per share. As of September 30, 2023, there was $ 16.0 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.2 years. Stock Options We grant stock options to participants in our equity plans. Compensation cost related to stock option grants was $ 0.5 million and $ 0.5 million for the three months ended September 30, 2023 and September 24, 2022, respectively, and $ 1.5 million and $ 1.3 million for the nine months ended September 30, 2023 and September 24, 2022, respectively, and was included as selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The following table summarizes our stock option activity for the nine months ended September 30, 2023 : Shares Weighted Average Price Weighted Average Remaining Term (years) Aggregate Intrinsic Value (in thousands) Balance at December 31, 2022 268,119 $ 84.03 Granted 79,404 $ 91.13 Canceled ( 6,510 ) $ 93.48 Exercised ( 24,297 ) $ 72.33 Balance at September 30, 2023 316,716 $ 86.51 5.6 $ 982 Exercisable at September 30, 2023 136,117 $ 80.50 4.6 $ 704 As of September 30, 2023, there was $ 4.6 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted average period of 2.8 years. Employee Stock Purchase Plan ("ESPP") During the nine months ended September 30, 2023, we issued 14,975 shares under the ESPP. During the three and nine months ended September 24, 2022, we issued 8,712 shares and 13,327 shares, respectively, under the ESPP. 11 Table of Contents 10. Earnings Per Share Basic earnings per share was calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding unvested RSAs which are considered to be contingently issuable. To calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding. Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards. For the three months ended September 30, 2023 and September 24, 2022, there were approximately 294,000 shares and 31,000 shares, respectively, and for the nine months ended September 30, 2023 and September 24, 2022 there were approximately 295,000 shares and 32,000 shares, respectively, that were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. The following table sets forth the computation of basic earnings per share and diluted earnings per share: Three Months Ended Nine Months Ended (in thousands, except per share data) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Net income $ 40,522 $ 30,601 $ 78,975 $ 103,713 Denominator: Weighted average basic shares outstanding 31,483 31,411 31,462 31,444 Effect of stock-based compensation awards 71 134 78 117 Weighted average diluted shares outstanding 31,555 31,545 31,540 31,561 Earnings Per Share: Basic $ 1.29 $ 0.97 $ 2.51 $ 3.30 Diluted $ 1.28 $ 0.97 $ 2.50 $ 3.29 11. Common Stock Repurchases We periodically repurchase, at the then current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “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. Shares are generally purchased by the Company 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. The following table summarizes the repurchase and cancellation of common stock by the Company for the periods indicated: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Shares repurchased and canceled 2,010 — 11,850 20,385 Total cost of shares repurchased and canceled (in thousands) $ 181 $ — $ 1,009 $ 2,140 Average price per share $ 89.99 $ — $ 85.11 $ 104.99 Separately, our Board of Directors has authorized the repurchase of up to $ 600 million of our common stock through December 31, 2024 under a previously announced share repurchase program and subsequent authorizations. Under this program, share repurchases may be made from time to time depending on market conditions, share price, share availability and other factors at our discretion. The 12 Table of Contents share repurchase program does not obligate us to acquire any specific number of shares. At September 30, 2023, $ 228.0 million was available for repurchase under this share repurchase program. The following table summarizes the repurchase and cancellation of common stock under the share repurchase program: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Shares repurchased and canceled — 14,700 — 180,750 Total cost of shares repurchased and canceled (in thousands) $ — $ 1,523 $ — $ 17,577 Average price per share $ — $ 103.57 $ — $ 97.24 12. Income Taxes At September 30, 2023, we had $ 3.2 million of net unrecognized tax benefits, all of which would lower our effective tax rate if recognized. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2023, accrued interest and penalties related to uncertain tax positions were not material. We file income tax returns in the United States, Canada, China, India, and Mexico. The statute of limitations for tax years before 2019 is closed for U.S. federal income tax purposes. The statute of limitations for tax years before 2017 is closed for the states in which we filed. The statute of limitations for tax years before 2020 is closed for income tax purposes in Canada and China. The statute of limitations for tax years before 2019 is closed for income tax purposes in India. The statute of limitations for tax years before 2018 is closed for income tax purposes in Mexico. 13. Related-Party Transactions We lease our Colmar, PA facility and a portion of our Lewisberry, PA facility from entities in which Steven L. Berman, our Non-Executive Chairman, and certain of his family members are owners. Each lease is a non-cancelable operating lease. Total rental payments to those entities under these lease arrangements will be $ 2.9 million in fiscal 2023 and were $ 2.5 million in fiscal 2022. The lease for our corporate headquarters in Colmar, PA was renewed in December 2022, effective as of January 1, 2023, and will expire on December 31, 2027. The lease for our Lewisberry, PA operating facility was signed in September 2020 and will expire on December 31, 2027. We also lease our facilities in Madison, IN and Shreveport, LA, from entities in which Lindsay Hunt, our President and Chief Executive Officer, Specialty Vehicles, and certain of her family members are owners. Each lease is a non-cancelable operating lease. Total rental payments to those entities under these lease arrangements will be $ 2.6 million in fiscal 2023. The leases for our operating facilities in Madison, IN and Shreveport, LA were renewed in October 2022 in connection with the acquisition of SuperATV and will expire on October 31, 2027. We signed a warehouse storage and services agreement with a counterparty that is majority-owned by a family member of Lindsay Hunt. The agreement provides for indoor storage space and material handling services at agreed-upon rates. Total payments under the arrangement are expected to be $ 0.2 million in fiscal 2023. The agreement was signed in October 2020 and expired in October 2023, but was extended on a month-to-month basis. We are a partner in a joint venture with one of our suppliers and own a minority interest in two other suppliers. Two of these investments are accounted for under the equity method and one is accounted for under the cost method. 13 Table of Contents 14. Fair Value Disclosures The carrying value of financial instruments such as cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. The carrying value of borrowings under our credit facility approximates fair value because these borrowings bear interest at rates indexed to a market rate (Term SOFR). 14 Table of Contents