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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 125 added, 83 removed, 186 unchanged (53% of the section changed)

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We are one of the leading suppliers of replacement and upgrade parts in the motor vehicle aftermarket industry, serving passenger cars, light-, medium-, and heavy-duty trucks, as well as specialty vehicles, including utility terrain vehicles (UTVs) and all-terrain vehicles (ATVs).

We operate through three business segments:

Light Duty, Heavy Duty, and Specialty Vehicle, consistent with the sectors of the motor vehicle aftermarket industry in which we operate.

For more information on our segments, refer to Note 8, “Segment Information,” to the Consolidated Financial Statements, included under ITEM 8.

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.

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Prior to October 4, 2022, we operated on a 52-53-week period ending on the last Saturday of the calendar year.

Our 2022 fiscal year under this schedule is a 53-week period that ended on December 31, 2022 (“fiscal 2022”).

Effective October 4, 2022, our Board of Directors approved a change in Dorman’s fiscal year end from the last Saturday in December of each year to December 31 of each year.

This change will result in future years ending on December 31, consistent with fiscal 2022.

Our fiscal 2021 and fiscal 2020 were 52-week periods that ended on December 25, 2021 (“fiscal 2021”) and December 26, 2020 (“fiscal 2020”), respectively.

This change resulted in future years ending on December 31, consistent with fiscal 2022.

Our 2023 fiscal year was a 52-week period that ended on December 31, 2023 ("fiscal 2023").

Our 2022 fiscal year was a 53-week period that ended on December 31, 2022 ("fiscal 2022") and our fiscal 2021 was a 52-week period that ended on December 25, 2021 (“fiscal 2021”).

Business Performance Summary

Net sales increased 11% to $1,929.8 million in fiscal 2023 from $1,733.7 million in fiscal 2022.

Net income decreased 8% to $121.5 million in fiscal 2022 from $131.5 million in fiscal 2021.

Additionally, in fiscal 2022 we generated cash flows from operations of $41.7 million and repurchased 180,750 common shares under our share repurchase program for $17.6 million.

Fiscal 2022 included an additional week, which we estimate contributed $19.2 million in net sales.

increased 6% to $129.3 million in fiscal 2023 from $121.5 million in fiscal 2022.

Additionally, in fiscal 2023 we generated $208.8 million of cash flows from operations, repaid a total of $159.1 million of outstanding debt obligations, and repurchased 201,632 common shares under our share repurchase program for $15.3 million.

New Product Development

New product development is an important success factor for us and traditionally has been our primary vehicle for growth.

New product development is an important success factor for us and has been a source of growth for us.

We have made incremental investments to increase our new product development efforts to grow our business and strengthen our relationships with our customers.

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Please see ITEM 1, “Business – Product Development” for a year-over-year comparison of new product introductions.

One area of focus has been our complex electronics program, which capitalizes on the growing number of electronic components being utilized on today’s OE platforms.

New vehicles contain an average of approximately 50 electronic modules, with some high-end luxury vehicles containing over 100 modules.

One area of focus for the light-duty sector has been our complex electronics program, which capitalizes on the growing number of electronic components being utilized on today’s OE platforms.

New vehicles contain an average of approximately 100 electronic modules, with some high-end luxury vehicles exceeding that.

Our complex electronics products are designed and developed in-house and tested to help ensure consistent performance, and our product portfolio is focused on further developing our leadership position in the category.

Another area of focus has been on products we market for the medium- and heavy-duty truck sector of the motor vehicle aftermarket industry.

We believe that this sector provides many of the same opportunities for growth that the passenger car and light-duty truck sector of the motor vehicle aftermarket industry has provided us.

We specialize in offering heavy-duty parts that were traditionally only available from OE manufacturers or salvage yards, similar to how we approach the passenger car and light-duty truck sector.

During fiscal 2022, we introduced 486 distinct parts in this product line.

We expect to continue to invest in the medium- and heavy-duty product category, as evidenced by our acquisition of Dayton Parts in fiscal 2021.

Another area of focus has been on products we market for the heavy-duty sector.

We believe that this sector provides many of the same growth opportunities that the light-duty sector has provided us.

We specialize in offering parts to this sector that were traditionally only available from OE manufacturers or salvage yards, similar to how we approach the light-duty sector.

Within the specialty vehicle sector, we focus on providing performance parts and accessories, and nondiscretionary repair parts for UTVs and ATVs.

We are dedicated to developing better and more innovative materials that will be compatible across a wide variety of makes and models to enhance both the performance and appearance of customers’ vehicles.

A key component of our strategy is growth through acquisitions.

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On August 10, 2021, we acquired Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket.

See Note 2, Business Acquisitions and Investments under Notes to Condensed Consolidated Financial Statements for additional information.

See Note 2, "Business Acquisitions and Investments" under Notes to Consolidated Financial Statements for additional information.

We may acquire businesses in the future to supplement our financial growth, increase our customer base, add to our distribution capabilities or enhance our product development resources, among other reasons.

Economic Factors

The Company’s financial results are also impacted by various economic and industry factors, including, but not limited to the number, age and condition of vehicles in operation at any one time, and the miles driven by those vehicles.

Industry Factors

The Company’s financial results are also impacted by various industry factors, including, but not limited to the number, age and condition of vehicles in operation at any one time, and the miles driven by those vehicles.

Vehicles in Operation

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We believe that the declining US SAAR during that period resulted in a follow-on decline in our primary VIO subsegment (8-to 13-year-old vehicles) commencing in 2016.

However, following 2011 and the impact of the Great Recession of 2008, U.S.

However, following

2011 and the impact of the Great Recession of 2008, U.S.

consumers began to increase their purchases of new vehicles which over time caused the US SAAR to recover and return to more historical levels.

Consequently, we expect the VIO for vehicles aged 8 to 13 years old to continue to recover over the next several years.

Additionally, during 2023, we expect fewer new vehicles to be purchased in the near term, benefiting demand for aftermarket parts, given the lack of availability of new vehicles and increased interest rates.

The 8-to-13-year-old vehicle car parc has continued to grow over the past several years, which we expect will expand demand for aftermarket replacement parts as more vehicles remain in operation.

In addition, we believe that vehicle owners generally are operating their current vehicles longer than they did several years ago, performing necessary repairs and maintenance to keep those vehicles well maintained.

We believe this trend has supported an increase in VIO, which increased to 295.9 million, a 1% increase in 2023 over 2022.

According to data published by Polk, a division of IHS Automotive, the average age of VIO increased to 12.4 years as of October 2022 from 12.2 years as of October 2021 despite increasing new car sales.

According to data published by Polk, a division of IHS Automotive, the average age of VIO increased to 12.6 years as of October 2023 from 12.4 years as of October 2022.

The number of miles driven is another important statistic that impacts our business.

Generally, as vehicles are driven more miles, the more likely it is that parts will fail and there will be increased demand for replacement parts, including our parts.

According the U.S.

Department of Transportation, the number of miles driven through October 2022 increased 1.5% year over year.

We expect this increase in miles driven may continue, given that certain employers have begun to lift work-from-home policies implemented during the pandemic and, consequently, consumers may return to commuting to work on a more regular basis.

However, global gasoline prices have been volatile in recent months, which may negatively impact miles driven as consumers reduce travel or seek alternative methods of transportation.

According to the U.S.

Department of Transportation, the number of miles driven through October 2023 increased 2.1% year over year in the light-duty sector.

However, global gasoline prices remained high during fiscal 2023 and, if they continue, they may negatively impact miles driven as consumers reduce travel or seek alternative methods of transportation.

Brand Protection

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As a result, we are continuously evaluating our approach to brand, pricing and terms to our different customers and channels.

For example, we maintain a brand protection policy, which is designed to ensure that certain products bearing the Dorman name are not advertised below certain approved pricing levels.

In addition, we pursue legal remedies when we see third parties, such as e-commerce retailers, violating our intellectual property rights by wrongfully representing our products as their own or using our product images for their own marketing efforts.

For example, we maintain brand protection policies, which are designed to ensure that certain of our branded products are not advertised below certain approved pricing levels.

In addition, we may pursue legal remedies when we see third parties violating our intellectual property rights, including those that violate our patents, wrongfully represent our products as their own or use our product images for their own marketing efforts.

Discounts, Allowances, and Incentives

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In addition, we may offer pricing discounts based on volume purchased from us or other pricing discounts related to programs under a customer’s agreement.

These discounts can be in the form of “off-invoice” discounts and are immediately deducted from sales at the time of sale.

For those customers that choose to receive a payment on a quarterly or annual basis instead of “off-invoice,” we accrue for such payments as the related sales are made and reduce sales accordingly.

These incentives can be in the form of “off-invoice” discounts that are immediately deducted from sales at the time of sale.

For those customers that choose to receive their incentives on a quarterly or annual basis instead of “off-invoice,” we provide rebates and accrue for such incentives as the related sales are made and reduce sales accordingly.

Finally, rebates and discounts are provided to customers to support promotional activities such as advertising and sales force allowances.

Our customers, particularly our larger retail customers, regularly seek more favorable pricing and product return provisions, and extended payment terms when negotiating with us.

We attempt to avoid or minimize these concessions as much as possible, but we have granted pricing concessions, indemnification rights, extended customer payment terms, and allowed a higher level of product returns in certain cases.

We attempt to avoid or minimize these concessions as much as possible, but we have granted pricing concessions, indemnification rights and extended customer payment terms, and allowed a higher level of product returns in certain cases.

These concessions impact net sales as well as our profit levels and may require additional capital to finance the business.

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New Customer Acquisition Costs

We may incur new customer acquisition costs where we incur change-over costs to induce a customer to switch from a competitor’s brand, including expanding new product lines into our existing customers.

We may incur customer acquisition costs where we incur change-over costs to induce a customer to switch from a competitor’s brand, including expanding new product lines into our existing customers.

Change-over costs include the costs related to removing the new customer’s inventory and replacing it with our inventory, which is commonly referred to as a stock lift.

New customer acquisition costs are recorded as a reduction to revenue when incurred.

Customer acquisition costs are recorded as a reduction to revenue when incurred.

Product Warranty and Overstock Returns

Many of our products carry a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet specifications.

In addition to warranty returns, we also may permit our customers to return new, undamaged products to us within customer-specific limits if they have overstocked their inventories.

At the time products are sold, we accrue a liability for product warranties and overstock

returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return.

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 most of our products in the light- and medium-duty parts categories, with more limited warranties for our heavy-duty and specialty

vehicle products.

In addition to warranty returns, we may permit our customers to return new, undamaged products to us within customer-specific limits if they have overstocked their inventories.

At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return.

Significant judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period.

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Foreign Currency

Our products are purchased from suppliers in the United States and a variety of non-U.S.

Many of our products and related raw materials and components are purchased from suppliers in a variety of non-U.S.

The products generally are purchased through purchase orders with the purchase price specified in U.S.

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To the extent that the U.S.

dollar changes in value relative to those foreign currencies in the future, the prices charged by our suppliers for products under new purchase orders may change in equivalent U.S.

dollar changes in value relative to those foreign currencies in the future, the prices charged by our suppliers for goods under new purchase orders may change in equivalent U.S.

The largest portion of our overseas purchases comes from China.

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Any future changes in the value of the Chinese yuan relative to the U.S.

dollar may result in a change in the cost of products that we purchase from China.

However, the cost of the products we procure is also affected by other factors including raw material availability, labor cost, and transportation costs.

Since our consolidated financial statements are denominated in U.S.

dollar may result in a change in the cost of goods that we purchase from China.

However, the cost of the goods we procure is also affected by other factors, including raw material availability, labor cost, tariffs and transportation costs.

We have operations located outside the United States with various functional currencies.

Because our consolidated financial statements are denominated in U.S.

dollars, the assets, liabilities, net sales, and expenses that are denominated in currencies other than the U.S.

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and wage inflation from an increasingly competitive labor market.

We expect increased freight, higher labor costs and material inflation costs to continue to negatively impact our results through fiscal 2023, despite recent signs of global supply chain constraints easing, which could lead to lower ocean freight and commodity costs.

Higher labor costs and material inflation costs may continue to negatively impact our results in the future, despite signs of global supply chain constraints easing.

We attempt to offset inflationary pressures with cost-saving initiatives, price increases to customers and the use of alternative suppliers.

Although we have implemented pass-through price increases to offset inflationary cost impacts, the price increases have often been implemented after we have experienced higher costs resulting in a lag effect to the full recovery of these costs.

Furthermore, pricing increases that we implemented to pass through the increased costs had no added profit dollars and consequently did not fully offset the impact that the increased costs had on our gross and operating margin percentages.

There can be no assurance that we will be successful in implementing pricing increases in the future to recover increased inflationary costs.

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Under the terms of the credit facility, a change in interest rates affects the rate at which we can borrow funds thereunder and also impacts the interest cost on existing borrowings.

During the year ended December 31, 2022, we saw significant increases in Term SOFR, and other reference rates, which impacted our results as discussed in Results of Operations that follows.

We expect interest rates may continue to increase in the foreseeable future, increasing the costs associated with our accounts receivable sales programs and outstanding borrowings.

Interest rates may hold steady at their current rates for prolonged periods or may increase in the future, resulting in increased costs associated with our accounts receivable sales programs and outstanding borrowings.

Impact of Tariffs

In the third quarter of 2018, the Office of the United States Trade Representative (USTR) began imposing additional tariffs on products imported from China, including many of our products, ranging from

The tariffs enacted to date increase the cost of many of the products that are manufactured for us in China.

We have taken several actions to mitigate the impact of the tariffs including, but not limited to, price increases to our customers and cost concessions from our suppliers.

We expect to continue mitigating the impact of tariffs primarily through selling price increases to offset the higher tariffs incurred.

We expect to continue mitigating the impact of tariffs primarily through, among other things, diversification of suppliers across geographies and selling price

increases to offset the higher tariffs incurred.

Tariffs are not expected to have a material impact on our net income but are expected to increase net sales and lower our gross and operating profit margins.

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However, in March 2022, the USTR reinstated tariff relief for certain categories of products imported from China.

The reinstated tariff relief applied retroactively to October 12, 2021 and is scheduled to expire on September 30, 2023.

The reinstated tariff relief applies retroactively to October 12, 2021 and is scheduled to expire on May 31, 2024.

The reinstated tariff relief applies to a limited number of our products and is not expected to materially impact our operating results.

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Net sales increased 11% to $1,929.8 million in fiscal 2023 from $1,733.7 million in fiscal 2022.

The increase in net sales reflected a full year of results from Dayton Parts, which was acquired in August 2021;

a continuation of favorable underlying industry dynamics across our customer channels;

increased new product launches;

price increases to offset inflationary costs;

the acquisition of SuperATV in October 2022;

and the benefit of an extra week in fiscal 2022.

Year-over-year net sales growth for fiscal 2022 excluding Dayton Parts and SuperATV was 13.8%.

The increase in net sales reflected the addition of SuperATV in October 2022, price increases to offset inflation, and higher volume including the introduction of new products to market, partially offset by an additional week in fiscal 2022, which we estimate increased fiscal 2022 net sales by $19.2 million.

Net sales growth for the year ended December 31, 2023 excluding the incremental period of SuperATV net sales was 2%.

Gross profit margin was 35.5% of net sales in fiscal 2023 compared to 32.6% of net sales in fiscal 2022.

Gross margin contraction was driven by broad-based cost pressures due to global supply chain constraints as well as commodity and wage rate inflation.

We continued to implement price increases and cost-savings initiatives to offset the inflationary cost pressures experienced during the period, which maintained gross profit dollars but resulted in a lower gross margin percentage.

Selling, general and administrative expenses were $393.4 million, or 22.7% of net sales, in fiscal 2022 compared to $291.4 million, or 21.7% of net sales, in fiscal 2021.

The increase in SG&A as a percentage of net sales was primarily due to the impact of higher interest rates on our customer accounts receivable factoring programs and higher amortization of intangible assets resulting from the Dayton Parts acquisition in August 2021 and the SuperATV acquisition in October 2022, partially offset by operating leverage from the increase in net sales in fiscal 2022 as compared to fiscal 2021.

SG&A expenses as a percentage of net sales also increased as a result of the transaction expenses associated with the acquisition of SuperATV in fiscal 2022.

Our effective tax rate decreased to 22.2% in fiscal 2022 from 22.5% in fiscal 2021.

The lower effective tax rate in 2022 was the result of an increase to the acquired Dayton Parts net operating loss deferred tax asset and favorable provision-to-return items, offset by an increase in state tax expense.

The increase in gross margin as a percentage of net sales was primarily due to the addition of SuperATV, which has a higher gross margin percentage than the Company average, cost saving initiatives, and pricing actions taken to offset inflation, partially offset by the sell-through of high-cost inventory purchased in 2022 that was impacted by inflationary costs.

Selling, general and administrative ("SG&A") expenses were $470.7 million, or 24.4% of net sales, in fiscal 2023 compared to $393.4 million, or 22.7% of net sales, in fiscal 2022.

The increase in SG&A expenses as a percentage of net sales was primarily due to the impact of higher interest rates on our customer accounts receivable factoring programs and the addition of SuperATV, which has higher SG&A expenses as a percentage of net sales than the Company average.

The increase was also impacted by higher amortization of intangible assets, and a charge recorded related to a customer bankruptcy filing, partially offset by a decrease in the fair value estimate of a contingent consideration obligation for a potential earnout payment on a previous acquisition in the year ended December 31, 2023.

Our effective tax rate increased to 23.3% in fiscal 2023 from 22.2% in fiscal 2022.

The increase in the effective tax rate was primarily due to the effect of foreign operations and a favorable discrete benefit recorded in fiscal 2022.

Segment Operating Results

Segment operating results were as follows:

For the Year Ended

(in thousands) December 31, 2023 December 31, 2022

Light Duty $ 1,462,474 $ 1,425,892

Heavy Duty 256,913 258,215

Specialty Vehicle 210,401 49,642

Total $ 1,929,788 $ 1,733,749

Segment income from operations:

Light Duty 187,159 169,579

Heavy Duty 14,505 29,738

Specialty Vehicle 31,618 8,537

Total $ 233,282 $ 207,854

Light Duty net sales increased 3% to $1,462.5 million in fiscal 2023 from $1,425.9 million in fiscal 2022.

The increase in net sales reflected price increases to offset inflation, and higher volume including the introduction of new products to market, partially offset by an additional week in fiscal 2022, which we estimate increased fiscal 2022 Light Duty net sales by $16.8 million.

Light Duty segment income from operations as a percentage of net sales increased to 12.8% in fiscal 2023 from 11.9% in fiscal 2022.

This increase was primarily driven by pricing increases and cost savings initiatives to offset inflation.

Heavy Duty net sales decreased 1% to $256.9 million in fiscal 2023 from $258.2 million in fiscal 2022.

The decrease in net sales was primarily due to lower trucking demand in fiscal 2023 which reduced the demand for replacement parts.

Additionally, fiscal 2022 included higher volumes as customers restocked inventories coming out of the global pandemic and supply chain pressures began to ease.

Heavy Duty segment income from operations as a percentage of net sales decreased to 5.6% in fiscal 2023 from 11.5% in fiscal 2022.

This decrease was primarily driven by the sell through of high-cost inventory that was purchased during peak inflationary times, partially offset by cost savings initiatives and pricing actions implemented.

Specialty Vehicle

Specialty Vehicle net sales were $210.4 million in fiscal 2023 compared to $49.6 million in fiscal 2022.

The increase in net sales was due to inclusion of a full-year results in fiscal 2023 whereas fiscal 2022 only included results following our acquisition of SuperATV in October 2022.

Specialty Vehicle segment income from operations as a percentage of net sales decreased to 15.0% in fiscal 2023 from 17.2% in fiscal 2022.

This decrease was primarily driven by product mix.

Liquidity and Capital Resources

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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.

However, our liquidity could be negatively affected by extending payment terms to customers, a decrease in demand for our products, the outcome of contingencies or other factors.

However, our liquidity could be negatively affected by extending payment terms to customers, a decrease in demand for our products, higher interest rates, the outcome of contingencies or other factors.

See Note 10, “Commitments and Contingencies”, in the accompanying consolidated financial statements for additional information regarding commitments and contingencies that may affect our liquidity.

At December 31, 2023, our long-term cash requirements under our various contractual obligations include non-cancellable operating leases and outstanding borrowings under our credit agreement as follows:

• Operating leases – total obligations under non-cancellable operating leases were $124.0 million, with $21.1 million due over the next twelve months.

Refer to Note 5, “Leases”, in the accompanying consolidated financial statements for additional information regarding our leases.

• Credit agreement – total obligations under our credit agreement were $577.1 million, with $15.6 million due over the next twelve months.

Refer to Note 7, “Long-Term Debt”, in the accompanying consolidated financial statements for additional information regarding our credit agreement.

Tariffs increase our use of cash since we pay for the tariffs upon the arrival of our goods in the United States but collect the cash on any passthrough price increases from our customers on a delayed basis according to the payment terms negotiated with our customers.

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These extended terms have resulted in increased accounts receivable levels and significant uses of cash.

We participate in accounts receivable sales programs with several customers that allow us to sell our accounts receivable to financial institutions to offset the negative cash flow impact of these payment term extensions.

Where available and when we deem appropriate, we participate in accounts receivable sales programs with several customers that allow us to sell our accounts receivable to financial institutions to offset the negative cash flow impact of these payment term extensions.

However, any sales of accounts receivable through these programs ultimately result in us receiving a lesser amount of cash upfront than if we collected those accounts receivable ourselves in due course, resulting in accounts receivable factoring costs.

Moreover, to the extent that any of these accounts receivable sales programs bear interest rates tied to the Term SOFR, or other reference rates, increases in these applicable rates increase our cost to sell our receivables and reduce the amount of cash we receive.

Moreover, since these accounts receivable sales programs bear interest at rates tied to the Term SOFR or other reference rates, increases in these applicable rates increase our cost to sell our receivables and reduce the amount of cash we receive.

See ITEM 7A, “Quantitative and Qualitative Disclosures about Market Risk” for more information.

Further extensions of customer payment terms would result in additional uses of cash or increased costs associated with the sales of accounts receivable.

During fiscal 2023 and fiscal 2022, we sold approximately $949.5 million and $1,048.7 million, respectively, under these programs.

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During the years ended December 31, 2023 and December 31, 2022, factoring costs associated with these accounts receivable sales programs were $50.2 million and $37.2 million, respectively.

The increase in factoring costs year over year was primarily driven by higher Term SOFR and other reference rates, and higher accounts receivable sold under these programs.

The increase in factoring costs year over year was primarily driven by higher Term SOFR and other reference rates, partially offset by lower accounts receivable sold under these programs.

Credit Agreement

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The 2021 Facility replaced our previous $100.0 million revolving credit facility.

The 2021 Facility was scheduled to mature on August 10, 2026, was guaranteed by the Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and was supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

The 2021 Facility was scheduled to mature on August 10, 2026, was guaranteed by the

Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and was supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

On October 4, 2022, Dorman entered into an amendment and restatement of the 2021 Facility (as amended and restated, the “New Facility”) by and among Dorman, the lenders from time to time party thereto, and the administrative agent.

In addition to including the existing $600.0 million revolving facility, the New Facility includes a $500.0 million term loan, which was used to fund the SuperATV acquisition.

In addition to including the existing $600.0 million revolving credit facility, the New Facility includes a $500.0 million term loan, which was used to fund the SuperATV acquisition.

The New Facility (including the revolving portion of the New Facility) matures on October 4, 2027, is guaranteed by the Credit Parties and is supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions.

As of December 31, 2023, we were not in default with respect to the New Facility.

As of December 31, 2022, there was $239.4 million in outstanding borrowings under the revolver, and $496.9 million in outstanding borrowings under the term loan portions of the New Facility, and as of such date we had three outstanding letters of credit for $1.0 million in the aggregate.

As of December 31, 2023, there was $92.8 million in outstanding borrowings under the revolver, and $484.4 million in outstanding borrowings under the term loan portions of the New Facility, and as of such date we had outstanding letters of credit for $1.3 million in the aggregate.

Net of outstanding borrowings and letters of credit, we had $505.9 million available under the New Facility at December 31, 2023.

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Cash used in investing activities (43,901) (526,839)

Cash provided by financing activities 472,496 168,235

Cash (used in) provided by financing activities (174,109) 472,496

Effect of foreign exchange on cash and cash equivalents 32 (93)

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During fiscal 2023, cash provided by operating activities was $208.8 million compared to $41.7 million during fiscal 2022.

The $58.7 million decrease was driven by higher cash outflows for working capital.

The cash outflows for working capital were primarily driven by higher inventory purchases to meet demand and provide safety stock due to global supply chain constraints, partially offset by the benefits of accounts receivable collections from higher factoring.

The $167.1 million increase was driven by cash inflows for working capital versus cash outflows from working capital in the prior year period, primarily from the reduction of inventory, as well as higher income.

Investing activities used $43.9 million and $526.8 million of cash in fiscal 2023 and 2022, respectively.

• During fiscal 2022, we used $489.0 million to acquire SuperATV, net of cash acquired, and during fiscal 2021, we used $345.5 million to acquire Dayton Parts, net of cash acquired.

• Capital spending in fiscal 2022 totaled $37.9 million and primarily consisted of tooling associated with new products, enhancements and upgrades to our information systems and infrastructure, scheduled equipment replacements, certain facility improvements and other capital projects, including the opening of a new leased distribution center in Whiteland, Indiana.

• Capital spending in fiscal 2021 totaled $19.8 million and primarily consisted of tooling associated with new products, enhancements and upgrades to our information systems and infrastructure, scheduled equipment replacements, certain facility improvements and other capital projects.

Financing activities provided cash of $472.5 million in fiscal 2022 and used cash of $168.2 million in fiscal 2021.

• During fiscal 2022, we used $489.0 million to acquire SuperATV, net of cash acquired.

• Capital spending totaled $44.0 million and $37.0 million in fiscal 2023 and 2022, respectively.

The increase in capital spending is primarily due to the inclusion of a full year of SuperATV spending compared to a partial year in fiscal 2022 following its acquisition in October 2022.

Financing activities used cash of $174.1 million in fiscal 2023 and provided cash of $472.5 million in fiscal 2022.

• During fiscal 2023, we repaid $146.6 million of outstanding borrowings under our revolving credit facility, and $12.5 million of our term loan balance under our credit agreement.

• During fiscal 2023, we paid $15.3 million to repurchase 201,632 common shares under our share repurchase plan.

• During fiscal 2022, we borrowed $500.0 million under the New Facility to help fund the acquisition of SuperATV in October 2022, and subsequently repaid $3.1 million of that borrowing in December 2022.

Additionally, during fiscal 2022, we paid $17.6 million to repurchase 180,750 common shares under our share repurchase plan.

• During fiscal 2021, we borrowed $252.4 million under the Prior Facility to help fund the acquisition of Dayton Parts in August 2021, and subsequently repaid $13.0 million of that borrowing during fiscal 2021.

Additionally, during fiscal 2021, we paid $61.5 million to repurchase 604,628 common shares under our share repurchase plan.

• The remaining uses of cash from financing activities in each period resulted from stock compensation plan activity and the repurchase of shares of our common stock held in a fund under our 401(k) Plan.

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We may issue standby letters of credit under our credit agreement.

Letters of credit totaling $1.0 million were outstanding at December 31, 2022 and $0.8 million were outstanding at December 25, 2021.

Letters of credit totaling $1.3 million and $1.0 million were outstanding at December 31, 2023 and 2022, respectively.

Those letters of credit are issued primarily to satisfy the requirements of workers compensation, general liability and other insurance policies.

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Related-Party Transactions

We have two non-cancelable operating leases for operating facilities from companies in which Steven L.

Berman, our Executive Chairman, and his family members are owners.

Total annual rental payments each year to those companies under the lease arrangements were $2.5 million and $2.3 million in fiscal 2022 and fiscal 2021, respectively.

During fiscal 2022 and a portion of fiscal 2023, we had two non-cancelable operating leases for operating facilities from entities in which Steven L.

Berman, our Non-Executive Chairman, and his family members were owners.

Total annual rental payments each year to those entities under the lease arrangements were $2.9 million and $2.5 million in fiscal 2023 and fiscal 2022, respectively.

On December 1, 2023, one of the leases was assumed by a third-party purchaser in connection with a sale of the underlying property to the third party.

During fiscal 2023 and for a portion of fiscal 2022, we leased 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 were $2.6 million in fiscal 2023 and $0.5 million in fiscal 2022.

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.

During fiscal 2023 and for a portion of fiscal 2022, we had a warehouse storage and services agreement with a counterparty that is majority-owned by a family member of Ms.

Lindsay Hunt, our President and Chief Executive Officer, Specialty Vehicle.

The agreement provides for indoor storage space and material handling services at agreed-upon rates.

Total payments under the arrangement were $0.2 million in fiscal 2023 and less than $0.1 million in fiscal 2022.

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 minority interest investments in two other suppliers.

24 unchanged sentences

Any adjustments to fair value assessments are recorded to goodwill over the purchase price allocation period which cannot exceed twelve months from the date of acquisition.

Refer to Note 2 to the Consolidated Financial Statements for additional information.

Refer to Note 2, "Business Acquisitions and Investments”, in the accompanying consolidated financial statements for additional information.

Recently Issued Accounting Pronouncements

Refer to Note 1, “Summary of Significant Accounting Policies” in the accompanying consolidated financial statements for additional information on recently issued accounting pronouncements.

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 7. Management’s Discussion and Analysis