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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-03-01 · 161 added, 126 removed, 728 unchanged (28% of the section changed)

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We have audited the accompanying consolidated balance sheets of Dorman Products, Inc.

and subsidiaries (the Company) as of December 31, 2022 and December 25, 2021 , the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and December 25, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrual for customer credits for defective product returns

As disclosed in Notes 1 and 12 to the consolidated financial statements, the Company estimates customer credits for defective product returns and other items.

The accrual for customer credits to be issued for defective

product returns includes assumptions about the length of time between when a sale occurs and a credit is issued.

The provision for customer credits is reflected in the consolidated financial statements as a reduction from gross sales and accruals for customer credits are a portion of accrued customer rebates and returns.

The accrual for customer credits to be issued for defective product returns includes assumptions about the length of time between when a sale occurs and a credit is issued.

The provision for customer credits is reflected in the consolidated financial statements as a reduction from gross

sales and accruals for customer credits are a portion of accrued customer rebates and returns.

At December 31, 2023, accrued customer rebates and returns were $204.5 million.

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We analyzed a sample of customer credits issued after year-end and evaluated their effect on the accrual.

Fair value of product portfolio intangible asset

As discussed in Note 2 to the consolidated financial statements, on October 4, 2022, the Company acquired 100% of the equity interests of Super ATV, LLC (“SuperATV”).

The Transaction was accounted for as a business combination under the acquisition method of accounting.

The fair value of the product portfolio intangible asset at the acquisition date was $82.5 million, which was determined using a multi-period excess earnings valuation methodology.

We identified the evaluation of the fair value of the product portfolio intangible asset acquired in the SuperATV business combination as a critical audit matter.

Subjective auditor judgment was required to assess the future revenue growth rates, technology obsolescence rate, and the discount rate used in the multi-period excess earnings valuation methodology used to determine the fair value of the product portfolio intangible asset.

In addition, valuation professionals with specialized skill and knowledge were required to assess the discount rate.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition-date valuation process, including controls related to the assessment of the future revenue growth rates, technology obsolescence rate, and the discount rate.

We evaluated the future revenue growth rates by comparing them to publicly available information for comparable companies, industry reports, and historical results.

We evaluated the useful life of the technology acquired by the Company which was used to develop the technology obsolescence rate, by comparing it to publicly available information for comparable companies and historical results.

We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the discount rate by comparing it to a discount rate that was independently developed using publicly available market data for comparable companies.

We have served as the Company’s auditor since 2002.

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Other stock-related activity, net of tax ( 14,765 ) — 533 ( 2,636 ) — ( 2,103 )

Other comprehensive loss — — — — ( 1,440 ) ( 1,440 )

Net income — — — 131,532 — 131,532

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Depreciation, amortization and accretion 54,729 44,677 35,193

Gain on equity method investment — — ( 2,498 )

Provision for doubtful accounts 4,592 86 181

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Provision for stock-based compensation 11,484 9,370 8,228

Fair value adjustment to contingent consideration ( 20,468 ) — —

Payment of contingent consideration — ( 120 ) ( 2,418 )

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Other stock-related activity ( 467 ) 132 1,266

Cash provided by (used in) financing activities 472,496 168,235 ( 34,485 )

Cash (used in) provided by financing activities ( 174,109 ) 472,496 168,235

Effect of exchange rate changes on Cash and Cash Equivalents 32 ( 93 ) ( 44 )

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("Dorman", the "Company", “we”, “us”, or “our”) is a supplier 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).

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”).

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.

Effective October 4, 2022, the Company's Board approved a change in Dorman’s fiscal year end from the last Saturday in December of each year to December 31 of each year, to commence with the fiscal year ending on December 31, 2022.

Principles of Consolidation .

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Transactions under these programs were accounted for as sales of accounts receivable and were removed from our Consolidated Balance Sheet at the time of the sales transactions.

During fiscal 2022, fiscal 2021 and fiscal 2020, we sold $ 1,048.7 million, $ 935.8 million and $ 740.0 million, respectively, under these programs.

Selling, general and administrative expenses include factoring costs associated with these accounts receivable sales programs of $ 37.2 million, $ 11.7 million and $ 13.2 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

Factoring costs are impacted both by interest rates and the timing of when accounts receivable are sold in comparison to the original due dates of those accounts receivable.

Sales of accounts receivable under these agreements, and related factoring costs, which were including in selling, general and administrative expenses, were as follows:

(in thousands) December 31, 2023 December 31, 2022 December 25, 2021

Sales of accounts receivable $ 949,517 $ 1,048,671 $ 935,770

Factoring costs $ 50,231 $ 37,188 $ 11,704

Inventories .

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For the annual test, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount (“Step 0”).

If through the Step 0 test we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would perform a quantitative test (“Step 1”) to determine whether an impairment charge was necessary.

During fiscal 2022 and fiscal 2021, we assessed the qualitative factors which could affect the fair values of our reporting units and determined that it was not more likely than not that the fair value of our reporting units were less than their carrying amounts.

If through the Step 0 test we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company elects to not perform Step 0), then we would perform a quantitative test (“Step 1”) to determine whether an impairment charge was necessary.

During fiscal 2023, we elected to perform a Step 1 test of our goodwill for the dual purpose of assessing goodwill for impairment and reallocating goodwill to reporting units, using a representative fair value allocation, as part of reorganizing our reporting structure.

See Note 8, "Segment Information" for additional information on the reorganization of our reporting structure.

During fiscal 2022, we assessed the qualitative factors which could affect the fair values of our reporting units.

For both fiscal 2023 and fiscal 2022, we determined that it was not more likely than not that the fair value of our reporting units were less than their carrying amounts.

Purchase Accounting .

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We believe that the most appropriate classification of core inventory is a long-term asset.

According to guidance provided under the Financial Accounting Standards Board Accounting Standards Codification, current assets are defined as “assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.” The determination of the long-term classification is based on our view that the value of the cores is not expected to be consumed or realized in cash during our normal annual operating cycle.

According to guidance provided under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification, current assets are defined as “assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.” The determination of the long-term classification is based on our view that the value of the cores is not expected to be consumed or realized in cash during our normal annual operating cycle.

We have investments that we account for according to the equity method of accounting.

The total book value of these investments was $ 9.4 million at both of December 31, 2022 and December 25, 2021, respectively.

These investments provided $ 5.5 million, $ 4.6 million and $ 1.3 million of income during fiscal 2022, fiscal 2021, and fiscal 2020, respectively.

In January 2020, we acquired the remaining 60 % of the outstanding stock of Power Train Industries, Inc.

(“PTI”), a privately-held supplier of parts to the automotive aftermarket, based in Reno, Nevada of which we held equity investments with a fair value of $ 12.3 million.

The total book value of these investments was $ 10.8 million and $ 9.4 million at December 31, 2023 and December 31, 2022,

respectively.

These investments provided $ 5.7 million, $ 5.5 million and $ 4.6 million of income during fiscal 2023, fiscal 2022, and fiscal 2021, respectively, and were included in the Light Duty segment income from operations.

Additionally, we have an investment that we account for according to the cost method of accounting.

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Stock-Based Compensation .

At December 31, 2022 and December 25, 2021, we had awards outstanding under two stock-based employee compensation plans, which are described more fully in Note 12, Capital Stock.

We record compensation expense for all awards granted.

At December 31, 2023, we had awards outstanding under a stock-based employee compensation plan, which is described more fully in Note 13, "Capital Stock." We record compensation expense for all awards granted.

The value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) issued was based on the fair value of our common stock on the grant date.

For performance-based RSAs tied to growth in adjusted pre-tax income, compensation costs related to the stock is recognized over the performance period and is calculated using the closing price per share of our common stock on the grant date and an estimate of the probable outcome of the performance conditions as of the reporting date.

The fair value of performance-based RSUs, for which the performance measure is total shareholder return, is determined using a Monte Carlo simulation model.

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Otherwise, no benefit is recognized.

The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being

realized upon ultimate settlement.

The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Additionally, we accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

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Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents and accounts receivable.

All cash equivalents are managed within established guidelines that limit the amount that may be invested with one issuer.

All cash equivalents are managed within

established guidelines that limit the amount that may be invested with one issuer.

A significant percentage of our accounts receivable have been, and will continue to be, concentrated among a relatively small number of automotive retailers and warehouse distributors in the United States.

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We continually monitor the credit terms and credit limits for these and other customers.

In fiscal 2022 and fiscal 2021, approximately 64 % and 74 %, respectively, of our products were purchased from suppliers located in a variety of foreign countries, with the largest portion coming from China.

In fiscal 2023 and fiscal 2022, approximately 70 % and 64 %, respectively, of our products were purchased from suppliers in a variety of non-U.S.

countries, with the largest portion of our overseas purchases being made in China.

Fair Value Disclosures .

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Contingent consideration associated with an acquisition is recorded at fair value at the acquisition date and is adjusted to fair value at each reporting period.

Recent Accounting Pronouncements.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures .

The ASU requires additional disclosures about reportable segments’ significant expenses on an interim and annual basis.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures.

The ASU expands disclosures in the income tax rate reconciliations table and cash taxes paid and is effective for annual periods beginning after December 15, 2024.

We expect to implement these new standards by their effective dates, and do not expect their adoption to have an impact on our results of operations, financial condition or cash flows.

Business Acquisitions and Investments

Super ATV, LLC (“SuperATV”)

On October 4, 2022 (the “Closing Date”), Dorman acquired 100 % of the issued and outstanding equity interests of SuperATV (the “Transaction”), for aggregate consideration of $ 509.6 million (net of $ 6.8 million cash acquired), subject to certain customary adjustments based on, among other things, the amount of cash, debt and working capital in the business of SuperATV as of the closing of the Transaction, 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 ended December 31, 2023 and December 31, 2024.

On October 4, 2022, Dorman acquired 100 % of the issued and outstanding equity interests of 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, subject to the achievement by SuperATV of certain revenue and gross margin targets in the years ended December 31, 2023 and December 31, 2024.

See Note 11, "Commitments and Contingencies," for additional information on contingent consideration associated with the Transaction.

In the year ended December 31, 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 funded in cash through the refinancing of our existing credit facility discussed further in Note 7.

The Transaction was funded in cash through the refinancing of our existing credit facility discussed further in Note 7, "Long-Term Debt."

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.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, as of December 31, 2022, is based upon preliminary information and is subject to change within the permitted measurement period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained.

The fair values that remain preliminary include tax-related liabilities and contingent liabilities.

While they are not expected to be materially different than those shown, any material adjustments to the estimates based upon new information identified during the measurement period will be reflected, retroactively, as of the date of the acquisition.

Our purchase price allocation for SuperATV assets acquired and liabilities assumed was complete as of September 30, 2023.

The table below details the fair values of the assets acquired and the liabilities assumed at the acquisition date:

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Net cash consideration 509,778

The estimated valuation of the intangible assets acquired, and related amortization periods are as follows:

The valuation of the intangible assets acquired, and related amortization periods are as follows:

(in thousands) Fair Value Amortization Period (in years)

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As of December 31, 2023, the total amount of goodwill resulting from the SuperATV acquisition that is expected to be deductible for tax purposes is estimated at $ 400.5 million.

The financial results of the Transaction have been included in the consolidated financial statements since the date of acquisition.

The financial results of the Transaction have been included in the consolidated financial statements from the date of acquisition.

The net sales and net income of SuperATV included in the consolidated financial statements for the fiscal year ended December 31, 2022 were $ 49.6 million and $ 2.3 million, respectively.

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For the Year Ended

(in thousands, unaudited) December 31, 2022 December 25, 2021

(in thousands, except per share data, unaudited) December 31, 2022 December 25, 2021

Net sales $ 1,888,379 $ 1,556,360

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On August 10, 2021, we acquired 100 % of the equity interests of Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket for a purchase price of $ 344.9 million in cash (net of $ 8.8 million of acquired cash), after certain customary post-acquisition purchase price adjustments.

The acquisition was funded by cash on hand as well as through the refinancing of our revolving credit facility discussed further in Note 7.

The acquisition was funded by cash on hand as well as through the refinancing of our revolving credit facility discussed further in Note 7, "Long-Term Debt."

The transaction was accounted for as a business combination under the acquisition method of accounting.

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The goodwill is not expected to be deductible for tax purposes.

The financial results of the acquisition have been included in the consolidated financial statements since the date of acquisition.

The financial results of the acquisition have been included in the consolidated financial statements from the date of acquisition.

The net sales and net income of Dayton Parts included in the consolidated financial statements for the fiscal year ended December 25, 2021 were $ 78.0 million and $ 0.0 million, respectively.

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For the Year Ended

(in thousands, unaudited) December 25, 2021 December 26, 2020

(in thousands, except per share data, unaudited) December 25, 2021

Net sales $ 1,468,415

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The fiscal 2021 unaudited pro forma net income set forth above was adjusted to exclude the impact of acquisition date fair value adjustments to inventory, and to also remove acquisition-related transaction costs.

The 2020 unaudited pro forma net income was adjusted to include the impact of these items.

Power Train Industries, Inc.

On January 2, 2020, we acquired the remaining 60 % of the outstanding stock of PTI.

The total purchase price for PTI was approximately $ 30.7 million, which included $ 18.4 million paid for the remaining 60 % of the outstanding stock, subject to customary purchase price adjustments, and $ 12.3 million which represents the fair value of the previously held 40 % equity interest in PTI that was acquired by the Company in 2016.

As a result of the acquisition, we recorded a gain of approximately $ 2.5 million in other income (expense), net during the year ended December 26, 2020 from the increase in fair value of the previously owned 40 % interest in PTI.

We previously accounted for our 40 % interest as an equity-method investment.

The transaction was accounted for as a business combination under the acquisition method of accounting.

Accordingly, the assets acquired, and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill.

In connection with this acquisition, we recorded $ 16.7 million in goodwill, $ 7.3 million of identified intangibles, and $ 6.7 million of other assets, net, consisting of $ 3.5 million of cash, $ 2.0 million of accounts receivable, $ 5.6 million of inventory, and ($ 4.4 million) of net other assets and liabilities.

Our measurement period adjustments for PTI were complete as of December 26, 2020.

The valuation of the intangible assets acquired and related amortization periods are as follows:

(in thousands) Valuation Amortization

Customer relationships $ 4,600 15

Trade names 700 5

Technology 1,800 8

Total $ 7,290

The fair values of the customer relationships and trade names were estimated using an income approach based on the present value of future cash flows.

The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to existing automotive aftermarket businesses, the assembled workforce of PTI and other factors.

The goodwill is not expected to be deductible for tax purposes.

The financial results of the acquisition have been included in the Consolidated Financial Statements since the date of acquisition.

Inventories were as follows:

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We have operating leases for distribution centers, sales offices and certain warehouse and office equipment.

Our operating leases have remaining lease terms of 1 to 11 years, many of which include one or more renewal

Our operating leases have remaining lease terms of 1 to 10 years, many of which include one or more renewal options.

We consider these renewal options in determining the lease term used to establish our right-of-use assets and lease liabilities when it is determined that it is reasonably certain that the renewal option will be exercised.

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As of December 31, 2023 and December 31, 2022 there were no material variable lease costs or sublease income.

Cash paid for operating leases was $ 16.8 million, $ 9.2 million and $ 7.7 million during fiscal 2022, fiscal 2021 and fiscal 2020, respectively, which are classified in operating activities on the Consolidated Statements of Cash Flows.

Cash paid for operating leases was $ 21.2 million, $ 16.8 million and $ 9.2 million during fiscal

2023, fiscal 2022 and fiscal 2021, respectively, which are classified in operating activities on the Consolidated Statements of Cash Flows.

The following table summarizes the lease expense:

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Goodwill included the following:

(in thousands) December 31, 2022 December 25, 2021

Balance at beginning of period $ 197,332 $ 91,080

(in thousands) Light Duty Heavy Duty Specialty Vehicle Consolidated

Balance at December 25, 2021 $ — $ — $ — $ 197,332

Goodwill acquired — — — 247,247

Measurement period adjustments for Dayton acquisition — ( 2,130 )

Foreign currency translation — — — ( 1,544 )

Balance at end of period $ 443,035 $ 197,332

Balance at December 31, 2022 — — — 443,035

Measurement period adjustments — — — 233

Reporting structure reorganization (see Note 8) 313,704 56,637 72,309 —

Foreign currency translation — — — 621

Balance at December 31, 2023 $ 313,704 $ 56,637 $ 72,309 $ 443,889

Intangible Assets

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The New Facility contains affirmative and negative covenants, including, but not limited to, covenants regarding capital expenditures, share repurchases, and financial covenants related to the ratio of consolidated interest expense to consolidated EBITDA and the ratio of total net indebtedness to consolidated EBITDA, each as defined by the New Facility.

As of December 31, 2022, we were not in default with respect to the New Facility.

As of December 31, 2023, we were not in default of the covenants contained in the New Facility.

Segment Information

Effective beginning the fourth quarter of 2023, the Company reorganized its management and reporting into three segments:

Light Duty, Heavy Duty and Specialty Vehicle.

These segments realign our business along the three sectors of the motor vehicle aftermarket in which we operate and help support the continued growth of the Company following several acquisitions.

The Light Duty segment designs and markets replacement parts and fasteners primarily for passenger cars and light-duty trucks with sales to retailers and wholesale distributors who primarily serve passenger car and light-duty truck customers.

The Heavy Duty segment designs and markets replacement parts primarily for medium- and heavy-duty vehicles with sales to independent distributors, independent component specialists and rebuilders, and auto parts stores who focus on the heavy-duty market.

The Specialty Vehicle segment designs, markets and manufactures aftermarket parts and accessories for the powersports market with sales through direct-to-consumer, dealers and installers.

We measure segment profit based on income from operations excluding acquisition-related intangible assets amortization, acquisition-related transaction and other costs, and other special charges.

Segment assets consist of inventories, accounts receivable, and property, plant and equipment, net.

Intersegment sales are not material.

Segment results are as follows:

For the Year Ended

(in thousands) December 31, 2023 December 31, 2022 December 25, 2021

Light Duty $ 1,462,474 $ 1,425,892 $ 1,247,465

Heavy Duty 256,913 258,215 97,784

Specialty Vehicle 210,401 49,642 —

Total $ 1,929,788 $ 1,733,749 $ 1,345,249

Income from operations:

Light Duty 187,159 169,579 182,020

Heavy Duty 14,505 29,738 10,942

Specialty Vehicle 31,618 8,537 —

Total $ 233,282 $ 207,854 $ 192,962

Depreciation:

Light Duty $ 25,239 $ 25,062 $ 25,296

Heavy Duty 3,239 2,772 1,034

Specialty Vehicle 3,420 798 —

Total $ 31,898 $ 28,632 $ 26,330

Capital Expenditures:

Light Duty $ 33,445 $ 31,682 $ 19,016

Heavy Duty 3,581 4,769 824

Specialty Vehicle 6,942 1,432 —

Total $ 43,968 $ 37,883 $ 19,840

Segment Assets:

Light Duty $ 1,083,347 $ 1,047,987 $ 988,371

Heavy Duty 162,583 177,557 131,245

Specialty Vehicle 78,424 106,219 —

Total $ 1,324,354 $ 1,331,763 $ 1,119,616

A reconciliation of segment adjusted operating income to consolidated income before taxes is as follows:

For the Year Ended

(in thousands) December 31, 2023 December 31, 2022 December 25, 2021

Segment income from operations $ 233,282 $ 207,854 $ 192,962

Acquisition-related intangible assets amortization ( 21,817 ) ( 14,070 ) ( 6,340 )

Acquisition-related transaction and other costs ( 15,373 ) ( 22,736 ) ( 15,071 )

Fair value adjustment to contingent consideration 20,469 — —

Executive transition services expenses ( 1,801 ) — —

Interest expense, net ( 48,061 ) ( 15,582 ) ( 2,162 )

Other income, net 1,804 735 377

Consolidated income before income taxes $ 168,503 $ 156,201 $ 169,766

A reconciliation of segment assets to consolidated assets is as follows:

For the Year Ended

(in thousands) December 31, 2023 December 31, 2022 December 25, 2021

Segment assets $ 1,324,354 $ 1,331,763 $ 1,119,616

Other current assets 69,468 85,834 71,830

Other non-current assets 898,585 924,189 481,673

Consolidated assets $ 2,292,407 $ 2,341,786 $ 1,673,119

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 Executive Chairman, and certain of his family members are owners.

Each lease is a non-cancelable operating lease.

Prior to December 1, 2023, we leased our Colmar, PA facility from an entity in which Steven L.

Berman, our Non-Executive Chairman, and certain of his family members are owners.

On December 1, 2023, the Colmar facility was sold to a third party, subject to our lease.

We also lease a portion of our Lewisberry, PA facility from an entity in which Mr.

Berman, and certain of his family members are owners.

Each lease is a non-cancelable operating lease and expires December 31, 2027.

Total rental payments to those entities under these lease arrangements were $ 2.9 million, $ 2.5 million, and $ 2.3 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

The lease for our corporate headquarters in Colmar, PA was renewed during 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 .

During fiscal 2023 and for the period subsequent to our acquisition of Super ATV in 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 the period subsequent to our acquisition of SuperATV in 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 a minority interest in two other suppliers.

Purchases from these companies, and from PTI before our full acquisition on January 2, 2020 were $ 24.9 million, $ 18.9 million and $ 10.7 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

Purchases from these companies were $ 22.7 million, $ 24.9 million and $ 18.9 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

The components of the income tax provision (benefit) are as follows:

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Based on our history of taxable income and our projection of future earnings, we believe that it is more likely than not that sufficient taxable income will be generated in the foreseeable future to realize the remaining net deferred tax assets.

During 2022, we reduced the valuation allowance against the deferred tax assets noted above by $ 0.5 million.

During 2023, we reduced the valuation allowance against the deferred tax assets noted above by an immaterial amount.

As of December 31, 2023, the Company has tax-effected net operating loss carryforwards of $ 0.2 million and $ 0.1 million for U.S.

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A shareholders’ agreement was entered into in September 1990 and amended and restated on July 1, 2006.

Under the agreement, each of the late Richard Berman, Steven Berman, Jordan Berman, Marc Berman, Fred Berman, Deanna Berman and additional shareholders named in the agreement has, among other things, granted the others of them rights of first refusal, exercisable on a pro-rata basis or in such other proportions as the exercising shareholders may agree, to purchase shares of our common stock which any of them, or upon their deaths their respective estates, proposes to sell to third parties.

Under the agreement, each of the late Richard Berman, Steven Berman,

Jordan Berman, Marc Berman, Fred Berman, Deanna Berman and additional shareholders named in the agreement has, among other things, granted the others of them rights of first refusal, exercisable on a pro-rata basis or in such other proportions as the exercising shareholders may agree, to purchase shares of our common stock which any of them, or upon their deaths their respective estates, proposes to sell to third parties.

We have agreed with these shareholders that, upon their deaths, to the extent that any of their shares are not purchased by any of these surviving shareholders and may not be sold without registration under the Securities Act of 1933, as amended (the "1933 Act"), we will use our best efforts to cause those shares to be registered under the 1933 Act.

1 unchanged sentence

The additional shareholders that are a party to the agreement are trusts affiliated with the late Richard Berman, Steven Berman, Jordan Berman, Marc Berman or Fred Berman, or each person’s respective spouse or children.

During 2020, we commenced a voluntary disclosure process in which we committed to disclosing to U.S.

Customs & Border Protection (“CBP”) certain product misclassifications and reimbursing CBP for any resulting underpayment of duties that were identified as part of a voluntary internal review conducted by the Company.

The Company recorded an estimated liability of $ 2.8 million in its Statement of Operations for the year ended December 26, 2020, which represents the Company’s estimated underpayment of duties, after deducting its estimated overpayment of duties, to CBP due to misclassifications over the prior five-year period, which is the applicable statute of limitations, plus applicable interest.

In June 2020, we completed our internal review and submitted our prior disclosure statement to CBP, along with a payment of $ 2.8 million for underpaid duties and interest.

We have cooperated with CBP in connection with its review of our prior disclosure submission, including providing additional information as requested.

CBP has not yet communicated that its review of our prior disclosure submission is completed.

Acquisitions.

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If the remaining performance targets for the acquisition are fully achieved, the maximum additional contingent payments to be made under the transaction documents would be $ 102.0 million in the aggregate.

As of December 31, 2022, we accrued $ 20.0 million, representing the fair value of the estimated payments that we expect could become due in connection with the Transaction.

As of December 31, 2023 and December 31, 2022, we accrued $ 0.0 million and $ 20.0 million, respectively, representing the fair value of the estimated payments that we expect could become due in connection with the transaction.

For the year ended December 31, 2023, we recorded a net decrease of $ 20.0 million to the contingent consideration liability, comprising a $ 20.5 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 $ 0.5 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.

For the year ended December 31, 2022, we recorded a charge of $ 1.8 million in connection with earnout provisions under a prior acquisition, with the charge included in Selling, General and Administration expenses.

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We have made certain accounting policy elections and are using certain practical expedients permitted under GAAP, as follows:

• Not adjust the promised amount of consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when we transfer a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

• Do not adjust the promised amount of consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when we transfer a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

• Expense costs to obtain a contract as incurred when the expected period of benefit, and therefore the amortization period, is one year or less.

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Disaggregated Revenue

The following tables present our disaggregated net sales by type of major good / product line, and geography.

For the Year Ended

(in thousands) December 31, 2022 December 25, 2021 December 26, 2020

Powertrain $ 644,059 $ 539,235 $ 442,221

Chassis 715,005 458,986 324,399

Motor Vehicle Body 314,451 288,599 266,699

Hardware 60,234 58,429 59,429

Net Sales $ 1,733,749 $ 1,345,249 $ 1,092,748

For disaggregation of net sales by operating segments, refer to Note 8, "Segment Information", to the Consolidated Financial Statements.

The following table presents our disaggregated net sales by geography.

For the Year Ended

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During fiscal 2023, fiscal 2022, and fiscal 2021, three customers each accounted for more than 10% of net sales and in the aggregate accounted for 44 %, 49 % and 54 % of net sales in fiscal 2023, fiscal 2022, and fiscal 2021, respectively.

Sales to these three customers are included in the Light Duty segment operating income.

Capital Stock

Controlling Interest by Officers, Directors and Family Members .

As of December 31, 2022 and December 25, 2021, Steven Berman, the Executive Chairman of the Company, and members of his family beneficially owned approximately 17 % of the outstanding shares of our common stock, and could influence matters requiring approval of shareholders, including the election of the Board of Directors and the approval of significant transactions.

As of December 31, 2023 and December 31, 2022, Steven Berman, the Non-Executive Chairman of the Company, and members of his family beneficially owned approximately 16 % of the outstanding shares of our common stock, and could influence matters requiring approval of shareholders, including the election of the Board of Directors and the approval of significant transactions.

Undesignated Stock .

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For time-based RSAs, compensation cost is recognized on a straight-line basis over the vesting period and is calculated using the closing price per share of our common stock on the grant date.

Prior to 2019, we issued performance-based RSAs tied to growth in adjusted pre-tax income.

Compensation cost related to those awards was recognized over the performance period and was calculated using the closing price per share of our common stock on the grant date and an estimate of the probable outcome of the performance conditions as of the reporting date.

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This valuation technique includes estimating the movement of stock prices and the effects of volatility, interest rates and dividends.

Beginning in March 2020, we began issuing RSUs to certain employees and members of our Board of Directors.

We issue RSUs to certain employees and members of our Board of Directors.

For time-based RSUs, compensation cost is recognized on a straight-line basis over the vesting period and is calculated using the closing price per share of our common stock on the grant date.

Also, in March 2020, we began issuing performance-based RSUs that vest based on our total shareholder return ranking relative to the S&P Mid-Cap 400 Growth Index over a three-year performance period.

For performance-based RSUs tied to total shareholder return, compensation cost is recognized on a straight-line basis over the performance period and is calculated using the simulated fair value per share of our common stock based on the application of a Monte Carlo simulation model as discussed in the paragraph above.

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The share price is the Company’s closing share price as of the valuation date.

The risk-free rate is based on the U.S.

The risk-free interest rate is based on the U.S.

Treasury security with terms equal to the expected time of vesting as of the grant date.

The weighted-average grant-date fair value of total shareholder return RSUs granted during fiscal 2023, fiscal 2022, and fiscal 2021 were $ 113.15 , $ 111.31 , and $ 131.02 , respectively.

Compensation cost related to performance-based and time-based RSAs and RSUs was $ 7.2 million, $ 6.1 million and $ 3.2 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, and was included in selling, general and administrative expense in the Consolidated Statements of Operations.

Compensation cost related to performance-based and time-based RSAs and RSUs was $ 9.1 million, $ 7.2 million and $ 6.1 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, and was included in selling, general and administrative expenses in the Consolidated Statements of Operations.

No cost was capitalized during fiscal 2023, fiscal 2022 or fiscal 2021.

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We expense the grant-date fair value of stock options as compensation cost over the vesting or performance period.

Compensation cost charged against income for stock options was $ 1.7 million, $ 1.3 million and $ 1.0 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, and was included in selling, general and administrative expense in the Consolidated Statements of Operations.

Compensation cost charged against income for stock options was $ 2.0 million, $ 1.7 million and $ 1.3 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively,

and was included in selling, general and administrative expense in the Consolidated Statements of Operations.

No cost was capitalized during fiscal 2023, fiscal 2022 or fiscal 2021.

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Exercised ( 32,201 ) $ 61.68 – $ 83.06

Expired ( 663 ) $ 101.45 $ 101.45

Canceled ( 12,162 ) $ 61.68 – $ 101.45

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$ 86.52 5.4 $ 1,697

Exercisable at December 31, 2022 98,600 $ 61.68 – $ 103.61

Exercisable at 134,348 $ 61.68 – $ 111.53

$ 80.35 4.4 $ 1,243

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Employee Stock Purchase Plan.

In May 2017, our shareholders approved the Dorman Products, Inc.

Our shareholders approved the Dorman Products, Inc.

Employee Stock Purchase Plan (the “ESPP”), which makes available 1,000,000 shares of our common stock for sale to eligible employees.

The purpose of the ESPP, which is qualified under Section 423 of the Internal Revenue Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions and limited cash contributions by our employees.

The purpose of the ESPP, which is qualified under Section 423 of the Internal Revenue

Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions and limited cash contributions by our employees.

These contributions are used to purchase shares of the Company’s common stock at a 15 % discount from the lower of the market price at the beginning or end of the purchase window.

Beginning in March 2018, share purchases under the plan were made twice annually, with the purchase windows being April to September and October to March.

Prior to 2021, share purchases under the plan were made twice annually, with the purchase windows being April to September and October to March.

In 2021, the decision was made to modify the timing of those two purchase windows to align them with the calendar year.

As a result, beginning January 2022, the two purchase windows are January to June and July to December.

In order to effectuate that alignment, the purchase window beginning in October 2021 was shortened from six months to three months and ended December 2021.

Beginning January 2022, the two purchase windows are January to June and July to December.

There were 29,650 shares, 25,600 shares and 40,303 shares purchased under this plan during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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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 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.

Shares are generally purchased 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:

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Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards.

Stock-based awards of approximately 63,500 shares, 14,250 shares and 35,975 shares were excluded from the calculation of diluted earnings per share for fiscal 2022, fiscal 2021 and fiscal 2020, respectively, as their effect would have been anti-dilutive.

Stock-based awards of approximately 297,500 shares, 63,500 shares and 14,250 shares were excluded from the calculation of diluted

earnings per share for fiscal 2023, fiscal 2022 and fiscal 2021, respectively, as their effect would have been anti-dilutive.

The following table sets forth the computation of basic earnings per share and diluted earnings per share:

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Diluted $ 4.10 $ 3.85 $ 4.12

Business Segments

We have determined that our business comprises a single reportable operating segment, namely, the sale 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.

Net sales to countries outside the United States, primarily to Canada and Mexico, and to a lesser extent into Europe, the Middle East, and Australia, in fiscal 2022, fiscal 2021 and fiscal 2020 were $ 127.3 million, $ 76.2 million and $ 61.6 million, respectively.

Net long-lived assets outside the United States, consisting of net property, plant and equipment was $ 3.6 million and $ 1.0 million as of December 31, 2022 and December 25, 2021, respectively.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data