What changed in this filing

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Item 1. Business

2024-02-28 compared with 2023-03-01 · 69 added, 75 removed, 148 unchanged (49% of the section changed)

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As of December 31, 2023, we marketed approximately 133,000 distinct parts compared to approximately 129,000 as of December 31, 2022, many of which we designed and engineered.

T his number excludes private label stock keeping units and other variations in how we market, package and distribute our products, includes distinct parts of acquired companies and reflects distinct parts that have been discontinued at the end of their lifecycle.

This number excludes private label stock keeping units and other variations in how we market, package and distribute our products, includes distinct parts of acquired companies and reflects distinct parts that have been discontinued at the end of their lifecycle.

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 parts that were traditionally available to professional installers and consumers only from original equipment manufacturers or salvage yards.

We are one of the leading aftermarket suppliers of parts that were traditionally available to professional installers and consumers only from original equipment manufacturers (OEMs) 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, UTV windshields, and complex electronics modules.

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

national, regional and local warehouse distributors and specialty markets;

national, regional and local wholesale distributors and specialty markets;

and salvage yards.

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The Motor Vehicle Aftermarket Industry

The motor vehicle aftermarket that we operate in consists of the automotive aftermarket industry and the powersports aftermarket industry.

The automotive aftermarket industry has two distinct sectors:

parts for passenger cars and light trucks, which according to the 2023 Auto Care Association Factbook, accounted for projected industry sales of approximately $356.5 billion in 2022, and parts for medium- and heavy-duty trucks, which accounted for projected industry sales of approximately $117.0 billion in 2022.

We sell products into both sectors, with a majority of our products being designed for the passenger car and light truck sector.

Two distinct groups of end-users buy replacement vehicle parts for passenger cars and light trucks:

(i) individual consumers, who purchase parts to perform "do-it-yourself" repairs on their own vehicles;

and (ii) professional installers, which include vehicle repair shops and dealership service departments.

We sell our parts in three different sectors of the motor vehicle aftermarket industry:

light-duty, heavy-duty and powersports (i.e., specialty vehicles).

Light-Duty Vehicle Sector

The majority of our products are designed for light-duty vehicles, which are passenger cars and light-duty trucks.

The light-duty vehicle sector accounted for projected industry sales of approximately $135.1 billion in 2023, according to information derived from the 2024 Auto Care Association Factbook.

Two distinct groups of end-users buy replacement and upgrade vehicle parts for this sector:

(i) individual consumers, who purchase parts to perform "do-it-yourself" repairs and upgrades on their own vehicles;

and (ii) professional installers, which include individual vehicle repair shops, representing approximately 70% of the total aftermarket vehicle repair industry according to the Motor & Equipment Manufacturers Association, which generally service a variety of OEM vehicle makes and models and sell and install non-OEM aftermarket parts, and dealership service departments, which generally only service specific brands of OEM vehicles and sell and install those same OEM brand aftermarket parts.

Individual consumers typically are supplied through retailers and the retail arms of warehouse distributors.

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Automobile dealership service departments generally obtain parts through the distribution systems of vehicle manufacturers and specialized national and regional parts distributors.

The largest purchasers of medium- and heavy-duty vehicle aftermarket parts are original equipment, or OE, manufacturers, independent distributors, including organizations associated with large buying groups and other distributors, as well as independent component specialists and rebuilders, and auto parts stores.

The service work performed on medium- and heavy-duty vehicles is generally completed by end-user businesses that utilize these vehicles in their operations, fleets, and independent garages and distributors, who buy parts from the purchasers above or in some instances directly from suppliers like us.

Spending in the motor vehicle aftermarket industry generally can be grouped into three categories:

Spending in the light-duty vehicle sector generally can be grouped into three categories:

discretionary, maintenance, and repair.

Discretionary, such as accessories and performance, tends to move in line with consumer discretionary spending.

Discretionary, such as upgrade accessories and performance, tends to move in line with consumer discretionary spending.

Maintenance is composed of products and services, such as oil and oil changes, and tends to be less correlated with discretionary spending.

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The majority of our products fall into the repair category.

The increasing complexity and the number of different makes and models of automobiles have resulted in a significant increase in the number of products required to service the domestic and foreign automotive fleets.

The increasing complexity and the number of different makes and models of light-duty vehicles have resulted in a significant increase in the number of products required to service the domestic and foreign automotive fleets.

The requirement to include more products in inventory and the significant consolidation among distributors of automotive replacement parts have in turn resulted in larger distributors.

See ITEM 1A, “Risk Factors – Risks Related to Our Business – Our Industry, Operations and Competition” for information regarding the potential impacts of consolidation on our business.

Retailers and others who purchase automotive aftermarket parts for resale often are constrained to a finite amount of space in which to display and stock products.

“Risk Factors – Risks Related to Our Business – Our Industry, Operations and Competition” for information regarding the potential impacts of consolidation on our business.

Retailers and others who purchase light-duty aftermarket parts for resale often are constrained to a finite amount of space in which to display and stock products.

Thus, the reputation for quality, customer service, and line profitability that a supplier provides typically are significant factors in a retailer’s or other reseller’s decision as to which product lines to carry in the limited space available.

Further, because of the efficiencies achieved through the ability to order all or part of a complete line of products from one supplier (with possible volume discounts), as opposed to satisfying the same requirements through a variety of different sources, retailers and other resellers of automotive aftermarket parts often seek to purchase products from fewer but stronger suppliers.

The powersports aftermarket generally consists of parts for specialty vehicles such as UTVs and ATVs for both functional and upgrade accessories as well as replacement parts.

Further, because of the efficiencies achieved through the ability to order all or part of a complete line of products from one supplier (with possible volume discounts), as opposed to satisfying the same requirements through a variety of different sources, retailers and other resellers of light-duty aftermarket parts often seek to purchase products from fewer but stronger suppliers.

Heavy-Duty Vehicle Sector

The heavy-duty vehicle sector, which is focused on medium- and heavy-duty vehicles, accounted for projected industry sales of approximately $21.9 billion in 2023, according to information derived from the 2024 Auto Care Association Factbook.

The largest purchasers of aftermarket parts for this sector are original equipment, or OE, manufacturers, independent distributors, including organizations associated with large buying groups and other distributors, as well as independent component specialists and rebuilders, and auto parts stores.

The majority of our sales in the heavy-duty vehicle sector are related to replacement parts.

Specialty Vehicle Sector

The specialty vehicle sector, which is focused on powersport and off-road vehicles, accounted for projected industry sales of approximately $8.0 billion in 2023, according to information derived from the 2024 Auto Care Association Factbook.

The specialty vehicle sector generally consists of parts for powersports vehicles, such as UTVs and ATVs, for both functional and upgrade accessories as well as replacement parts.

Functional and upgrade accessories include parts such as engine performance upgrades, lighting and electronics, storage and cargo, tires and wheels, cabs, roofs and windshields, and other cosmetic parts.

Replacement parts consist of brake systems, engine systems, electronics, frame and body parts, and driveline and transmission parts and are critical given the significant wear and tear often placed on those parts during normal use.

This industry consists of direct-to-consumer and direct-to-dealer channels through both retail and e-commerce platforms.

Key purchasing decisions of customers in the powersports aftermarket industry include ease of ordering, ease of installation, the availability of products, delivery times, and overall product quality.

Nondiscretionary repair parts consist of brake systems, engine systems, electronics, frame and body parts, and driveline and transmission parts and are critical given the significant wear and tear often placed on those parts during normal use.

Given the critical nature of repair parts to ensure a vehicle to functions properly, purchases of those parts are generally nondiscretionary purchases.

Approximately half of our sales of specialty vehicle parts constitute nondiscretionary repair parts.

This sector consists of direct-to-consumer and direct-to-dealer channels through both retail and e-commerce platforms.

Key purchasing decisions of customers in this sector include ease of ordering, ease of installation, the availability of products, delivery times, and overall product quality.

Brands and Products

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GDP – Premium quality transmission, portals, differentials and more for UTVs and ATVs.

We group our products into four major classes:

powertrain, chassis, motor vehicle body, and hardware.

The following table represents each of the four classes as a percentage of net sales for each of the last three fiscal years:

Percentage of Net Sales

December 31, 2022 December 25, 2021 December 26, 2020

Powertrain 37 % 40 % 40 %

Chassis 41 % 34 % 30 %

Motor Vehicle Body 18 % 22 % 25 %

Hardware 4 % 4 % 5 %

Total 100 % 100 % 100 %

Our powertrain product line includes intake and exhaust manifolds, cooling products, harmonic balancers, fluid lines, fluid reservoirs, connectors, 4-wheel drive components and axles, drain plugs, and other engine, transmission and axle components.

Chassis products include control arms, ball joints, tie-rod ends, brake hardware and hydraulics, wheel and axle hardware, suspension arms, knuckles, links, bushings, leaf springs, and other suspension, steering, and brake components.

Our line of motor vehicle body products includes door handles and hinges, window lift motors, window regulators, switches and handles, wiper components, lighting, electrical, and other interior and exterior vehicle body components, including windshields for UTVs.

Hardware products include threaded bolts and auto body fasteners, automotive and home electrical wiring components, and other hardware assortments and merchandise.

We offer bumper-to-bumper aftermarket solutions covering everything from engine, undercar, steering and suspension, body, electronics and hardware.

Our engine products include intake and exhaust manifolds, fans, thermostat housings, and throttle bodies.

Our undercar products include fluid lines, fluid reservoirs, connectors, 4-wheel drive components and axles, drain plugs, and other engine, transmission and axle components.

Our steering and suspension products include control arms, ball joints, tie-rod ends, brake hardware and hydraulics, wheel and axle hardware, suspension arms, knuckles, links, bushings, leaf springs, and other suspension, steering, and brake components.

Our body products include door handles and hinges, window lift motors, window regulators, switches and handles, wiper components, lighting, electrical, and other interior and exterior vehicle body components, including windshields for UTVs.

Our electronics products include new and remanufactured modules, clusters and sensors.

Our hardware products include threaded bolts and auto body fasteners, automotive and home electrical wiring components, and other hardware assortments and merchandise.

We warrant our products against certain defects in material and workmanship when used as designed on the vehicle on which it was originally installed.

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Product Development

Dorman is committed to product development and innovation with a customer-first approach keeping owners and installers in mind.

We are committed to product development and innovation with a customer-first approach keeping owners and installers in mind.

Our engineers and designers focus on solutions designed to help save repair technicians time, save vehicle owners money, and provide sought-after vehicle enhancements and differentiation.

Dorman has dedicated teams devoted solely to ideation and innovation in support of its objective to develop new products, many of which are first to the aftermarket.

We have dedicated teams devoted solely to ideation and innovation in support of our objective to develop new products, many of which are first to the aftermarket.

Our teams of researchers, field analysts, and product specialists visit repair shop technicians and spend time with customers to listen to and understand their repair challenges and vehicle needs.

We categorize our product development opportunities across three different spectrums:

(1) alternative parts - direct aftermarket replacements for factory parts, (2) upgraded parts – parts with enhanced design, functionality or features based on identifying what made original parts problematic and developing new solutions that address the original failure modes, and (3) new parts - identifying parts that are not available from the OE or in the aftermarket that can enhance vehicle performance and user experience.

Some of these

opportunities are brand new to the aftermarket whereas others continue to expand our current portfolio offering.

(1) alternative parts - direct aftermarket replacements for factory parts, (2) upgraded, or what we refer to as "OE FIX" parts – parts with enhanced design, functionality or features based on identifying what made original parts problematic and developing new solutions that address the original failure modes, and (3) new parts - identifying parts that are not available from the OE or in the aftermarket that can enhance vehicle performance and user experience.

Some of these opportunities are brand new to the aftermarket whereas others continue to expand our current portfolio offering.

The following table represents the number of distinct parts we introduced for each of the last three fiscal years:

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Total distinct parts introduced 6,106 5,429 4,315

In 2022, we introduced several first-to-the-aftermarket repair solutions designed to fit a wide range of vehicles.

New products included an upgraded OE FIX aluminum oil filter housing, hub rotor and caliper bracket bolt kits, additions to our roster of turbocharger components, and new complex electronic solutions, such as cruise control distance sensors, blind spot detection modules and other advanced driver assistance system, or ADAS, products.

In 2022, we also released the first-to-aftermarket Tesla OE FIX door handle repair kit for Tesla S vehicles.

Our capabilities in advanced technology automotive components continued to grow in 2022 with the introduction of all-new construction climate control modules, electronic throttle bodies featuring Hall effect sensors and Sensor Shield™ shaft seals, and pre-programmed fuel pump driver modules.

Our product development teams focus on repair solutions engineered to reduce the time technicians and vehicle owners typically spend on repairs requiring multiple related components.

In 2022, that ongoing focus resulted in additions to our line of pre-assembled products, including loaded backing plates, drive shafts, and windshield wiper and transmission assemblies.

We also provide new, cost-effective products designed to extend the life of cars and trucks.

From core categories like window regulators, suspension components, and door lock actuators, to innovative body panel repair kits, we help ensure that aftermarket service providers and end-users have a range of money-saving repair options.

We expanded our growth in the heavy-duty sector with the acquisition of Dayton Parts in 2021 and in 2022 released several new heavy-duty products, including in-demand sensors and products for repairs above and below the chassis of Class 7 and Class 8 trucks.

We also expanded our motor vehicle solutions footprint in 2022 through the acquisition of Super ATV, LLC (“SuperATV”).

SuperATV specializes in the design, manufacturing, and distribution of aftermarket parts and accessories for UTVs and ATVs.

SuperATV is a leader in the powersports aftermarket because of its broad range of solutions, dedication to product development and innovation, and exceptional customer service.

Through its retail presence and growing dealer network, SuperATV offers more than 11,000 products including windshields, axles, lift kits, tires, suspension components, and other accessories for popular ATV and UTV models from manufacturers such as Polaris®, Yamaha®, Honda®, Can-Am® and others.

For the light-duty sector, in 2023 we introduced several innovative first-to-the-aftermarket repair solutions designed to fit a wide range of vehicles in the light-duty vehicle sector.

New products included a patent-pending OE FIX engine coolant thermostat housing assembly, an OE FIX intake manifold, and an OE FIX liftgate handle trim kit.

In addition, we continued to invest in our “Emerging Technology” solutions portfolio that helps support repair opportunities for complex automotive electronics components as well as hybrid and electric motor vehicle platforms.

In 2023, we introduced several transmission control modules, variable geometry timing actuators (“VGTA”), and various other control modules and sensors.

We also introduced several new control arms, suspension components, door lock actuators and handles specifically designed for electric vehicles.

In the heavy-duty sector, in 2023 we introduced numerous new products in categories such as air tanks, shock absorbers, and air springs.

Additionally, we commercialized several new, aftermarket exclusive products across engine component, after-treatment, and the cab and body categories, further expanding repair options for both above and below chassis for Class 7 and Class 8 trucks.

In the specialty vehicles sector, in 2023 we released many first to market solutions for 2023 model vehicles along with a new line of glass windshields.

We also completed a new turn signal kit line and focused on adding more break-fix solutions.

Sales and Marketing

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Our sales efforts are not directed merely at selling individual products, but more broadly towards selling our entire product portfolio.

Our sales strategy includes increasing sales not only by securing new customers, but also by adding new product lines and expanding product selection within existing customers in an effort to make our customers a destination for new-to-the-aftermarket products.

Among other things, we use digital advertising, social media, email, catalogs and brochures to describe and promote our products.

Our websites include www.DormanProducts.com, www.DaytonParts.com and

www.SuperATV.com.

Our websites include DormanProducts.com, DaytonParts.com and SuperATV.com.

These sites are not and should not be considered part of this Form 10-K and are not incorporated by reference in this Form 10-K.

As of December 31, 2022, we serviced more than 9,000 active accounts.

As of December 31, 2023, we serviced approximately 10,000 active accounts.

During fiscal 2023, three customers each accounted for more than 10% of net sales and in the aggregate accounted for approximately 44% of net sales.

Manufacturing and Procurement

Most of our light- and medium-duty aftermarket automotive products are manufactured by third parties, while most of our heavy-duty products are manufactured in our facilities in the United States.

The majority of our powersports aftermarket products are manufactured in our facilities in the United States and China.

Most of our light-duty vehicle products are manufactured by third parties, as are the majority of our heavy-duty vehicle products.

The remainder of our heavy-duty vehicle products are manufactured in our facilities in the United States.

The majority of our specialty vehicle products are manufactured in our facilities in the United States and China.

We engage third-party manufacturers around the world to develop and manufacture products according to our performance and design requirements, oftentimes using tooling that we own.

In fiscal 2022, as a percentage of our total dollar volume of purchases, approximately 36% of our products were purchased from various suppliers throughout the United States and the balance of our purchases were directly from suppliers outside of the United States.

In fiscal 2023, as a percentage of our total dollar volume of purchases, approximately 30% of our products were purchased from third-party suppliers throughout the United States and the balance of our purchases were from third-party suppliers outside of the United States.

Approximately 50% of our products were purchased from third-party suppliers located in China and Taiwan in fiscal 2023.

Our global supplier network provides access to a broad array of manufacturing capabilities and technologies while limiting our dependency on any single source of supply.

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We make a concerted effort to build and nurture strong, healthy relationships with our suppliers.

In fiscal 2022, we purchased automotive products in substantial volumes from over 250 suppliers, and no single supplier accounted for more than 10% of our total product purchases in fiscal 2022.

In fiscal 2023, we purchased automotive products in substantial volumes from over 300 suppliers, and no single supplier accounted for more than 10% of our total product purchases.

For more information on risks relating to our supply chain, see ITEM 1A.

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Products are also sold in bulk to automotive parts manufacturers and packagers.

Computerized tracking systems, mechanical counting devices and experienced workers combine to help ensure that the proper variety and numbers of parts meet the correct packaging materials at the appropriate places and times to produce the required quantities of finished products.

Computerized tracking systems, mechanical counting devices and experienced workers combine

to help ensure that the proper variety and numbers of parts meet the correct packaging materials at the appropriate places and times to produce the required quantities of finished products.

Packaged inventory is either stocked in the warehouse portions of our facilities or in distribution centers maintained by our third-party logistics providers and is organized to facilitate the most efficient methods of retrieving product to fill customer orders.

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Products are generally shipped to each customer's main warehouses for redistribution within its network or to dealers for further resale.

In addition to utilizing our dealer networks, our specialty vehicle products that are ordered through the SuperATV website may be shipped directly to customers.

In addition to utilizing our dealer networks, our specialty vehicle products that are ordered through SuperATV websites may be shipped directly to customers.

In certain circumstances, at the request of a customer, we ship directly to that customer's warehouses, stores or other locations, either via smaller direct ship orders or consolidated store orders that are cross-docked.

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We refer to the used product that is ultimately remanufactured as core.

A used core is

remanufactured and sold to the customer as a replacement for a unit on a vehicle.

A used core is remanufactured and sold to the customer as a replacement for a unit on a vehicle.

Customers and end-users that purchase a remanufactured replacement part will generally return the used core to us, which we then use in the remanufacturing process to make another finished good.

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Competitive factors include price, product quality, breadth of product line, range of applications, customer service and the growth of e-commerce.

Substantially all our products are subject to competition with similar products offered by other providers of aftermarket repair and replacement parts.

Substantially all our products are subject to competition with similar products offered by other providers.

Some of these competitors are divisions and subsidiaries of companies much larger than us who possess a longer history of operations and greater financial and other resources than we do.

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Extremely hot or cold weather generally results in an increase in parts failure at an accelerated rate, which generally leads to an increase in our sales for the duration of the extreme weather event.

Impact of COVID-19

While COVID-19 did not adversely affect demand for our products for the year ended December 31, 2022, during the year we did experience lingering 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 will continue to closely monitor updates regarding COVID-19 and any impacts on our business and 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.

Patents, Trademarks and Other Intellectual Property

We own a number of patents important to our business, and we expect to continue to file patent applications to protect our research and development investments in new products.

In fact, in 2023 we filed more patents than in the previous three years combined.

As of December 31, 2023, we held 107 patents and 72 pending patent applications worldwide.

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We have created and implemented processes to help eliminate safety events and reduce their frequency and severity.

We also review and monitor our performance closely.

We also review and monitor our safety performance closely.

We have adopted an environmental, health and safety policy outlining our commitment to policies and practices that support the health and safety of our employees, contractors and the community, and the protection of the environment in the communities where we operate.

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We strive to cultivate a culture and vision that supports and enhances our ability to recruit, develop and retain diverse talent at every level.

Our Vice President of Development and Diversity is responsible for leading our diversity and inclusion strategy.

Among other things, we demonstrate our commitment to diversity and inclusion through our annual “All In” initiative, a summit focused on inviting our employees to think and engage more with ideas such as diversity and inclusion to foster a collaborative environment.

Our Vice President of Talent Management and Belonging is responsible for leading our diversity and inclusion strategy.

Among other things, we demonstrate our commitment to diversity and inclusion through our biennial “All In” initiative, a summit focused on inviting our employees to think and engage more with ideas such as diversity and inclusion to foster a collaborative environment.

We also embrace diversity on our Board of Directors, where 33% of our independent directors are female and 17% of our independent directors are ethnically diverse.

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Available Information

Our Internet address is www.dormanproducts.com.

Our Internet address is dormanproducts.com.

The information on the website is not and should not be considered part of this Form 10-K and is not incorporated by reference in this Form 10-K.

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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 1. Business