Dorman Products, Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data. Our financial statement schedule that is filed with this Annual Report on Form 10-K is listed in PART IV –ITEM 15, “Exhibits, Financial Statement Schedules.” 40 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Dorman Products, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Dorman Products, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 41 sales and accruals for customer credits are a portion of accrued customer rebates and returns. At December 31, 2024, accrued customer rebates and returns were $204.4 million. We identified the evaluation of the accrual for customer credits for defective product returns as a critical audit matter. Subjective auditor judgment was required to evaluate the Company’s determination of the impact of market conditions on the length of time between when a sale occurs and a credit is issued for defective product returns. 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 process to record the accrual for customer credits for defective product returns. This included a control related to the determination of the impact of market conditions on the length of time between when a sale occurs and a credit is issued for defective product returns. We assessed the Company’s accrual for customer credits for defective product returns by evaluating (1) the historical relationship between sales and customer credits for defective product returns, (2) the Company’s internal data, (3) certain external market data, and (4) a sample of executed third-party contracts. We inquired of personnel within the Company’s quality control department regarding the impact of current market conditions on the length of time between when a sale occurs and a credit is issued for defective product returns. We analyzed a sample of customer credits issued after year-end and evaluated their effect on the accrual. /s/ KPMG LLP We have served as the Company’s auditor since 2002. Philadelphia, Pennsylvania February 27, 2025 42 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME For the Year Ended December 31, (in thousands, except per share data) 2024 2023 2022 Net sales $ 2,009,197 $ 1,929,788 $ 1,733,749 Cost of goods sold 1,202,838 1,244,365 1,169,299 Gross profit 806,359 685,423 564,450 Selling, general and administrative expenses 513,450 470,663 393,402 Income from operations 292,909 214,760 171,048 Interest expense, net 39,727 48,061 15,582 Other income, net 3,070 1,804 735 Income before income taxes 256,252 168,503 156,201 Provision for income taxes 66,248 39,244 34,652 Net income $ 190,004 $ 129,259 $ 121,549 Other comprehensive income: Change in foreign currency translation adjustment $ ( 4,185 ) $ 713 $ ( 1,863 ) Comprehensive Income $ 185,819 $ 129,972 $ 119,686 Earnings per share: Basic $ 6.17 $ 4.11 $ 3.87 Diluted $ 6.14 $ 4.10 $ 3.85 Weighted average shares outstanding: Basic 30,797 31,455 31,434 Diluted 30,956 31,533 31,543 See accompanying Notes to Consolidated Financial Statements. 43 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (in thousands, except share data) 2024 2023 Assets Current assets: Cash and cash equivalents $ 57,137 $ 36,814 Accounts receivable, less allowance for doubtful accounts of $ 1,619 and $ 3,518 573,787 526,867 Inventories 707,977 637,375 Prepaids and other current assets 30,859 32,653 Total current assets 1,369,760 1,233,709 Property, plant and equipment, net 164,499 160,113 Operating lease right-of-use assets 118,499 103,476 Goodwill 442,886 443,889 Intangible assets, net 278,213 301,556 Deferred tax assets 5,786 — Other assets 44,878 49,664 Total assets $ 2,424,521 $ 2,292,407 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 231,814 $ 176,664 Accrued compensation 44,002 23,971 Accrued customer rebates and returns 204,355 204,495 Revolving credit facility 13,960 92,760 Current portion of long-term debt 28,125 15,625 Other accrued liabilities 41,546 33,636 Total current liabilities 563,802 547,151 Long-term debt 439,513 467,239 Long-term operating lease liabilities 105,142 91,262 Deferred tax liabilities 3,700 8,925 Other long-term liabilities 18,894 9,627 Commitments and contingencies (Note 11) Shareholders' equity: Common stock, par value $ 0.01 ; authorized 50,000,000 shares; issued and outstanding 30,565,855 and 31,299,770 shares in 2024 and 2023, respectively 306 313 Additional paid-in capital 119,077 101,045 Retained earnings 1,180,862 1,069,435 Accumulated other comprehensive loss ( 6,775 ) ( 2,590 ) Total shareholders' equity 1,293,470 1,168,203 Total liabilities and shareholders' equity $ 2,424,521 $ 2,292,407 See accompanying Notes to Consolidated Financial Statements. 44 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at December 25, 2021 31,607,509 $ 316 $ 77,451 $ 856,409 $ ( 1,440 ) $ 932,736 Exercise of stock options 18,515 — 1,046 — — 1,046 Compensation expense under incentive stock plan — — 9,370 — — 9,370 Purchase and cancellation of common stock ( 203,765 ) ( 2 ) ( 367 ) ( 19,565 ) — ( 19,934 ) Issuance of non-vested stock, net of cancellations 27,224 — 2,032 — — 2,032 Other stock-related activity, net of tax ( 18,851 ) — ( 782 ) ( 1,523 ) — ( 2,305 ) Other comprehensive loss — — — — ( 1,863 ) ( 1,863 ) Net income — — — 121,549 — 121,549 Balance at December 31, 2022 31,430,632 314 88,750 956,870 ( 3,303 ) 1,042,631 Exercise of stock options 17,489 — 1,167 — — 1,167 Compensation expense under incentive stock plan — — 11,484 — — 11,484 Purchase and cancellation of common stock ( 215,410 ) ( 2 ) ( 387 ) ( 16,104 ) — ( 16,493 ) Issuance of non-vested stock, net of cancellations 93,437 1 1,985 — — 1,986 Other stock-related activity, net of tax ( 26,378 ) — ( 1,954 ) ( 590 ) — ( 2,544 ) Other comprehensive loss — — — — 713 713 Net income — — — 129,259 — 129,259 Balance at December 31, 2023 31,299,770 313 101,045 1,069,435 ( 2,590 ) 1,168,203 Exercise of stock options 63,605 1 4,711 — — 4,712 Compensation expense under incentive stock plan — — 15,012 — — 15,012 Purchase and cancellation of common stock ( 874,428 ) ( 9 ) ( 1,574 ) ( 78,444 ) — ( 80,027 ) Issuance of non-vested stock, net of cancellations 100,778 1 2,120 — — 2,121 Other stock-related activity, net of tax ( 23,870 ) — ( 2,237 ) ( 133 ) — ( 2,370 ) Other comprehensive loss — — — — ( 4,185 ) ( 4,185 ) Net income — — — 190,004 — 190,004 Balance at December 31, 2024 30,565,855 $ 306 $ 119,077 $ 1,180,862 $ ( 6,775 ) $ 1,293,470 See accompanying Notes to Consolidated Financial Statements. 45 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, (in thousands) 2024 2023 2022 Cash Flows from Operating Activities: Net income $ 190,004 $ 129,259 $ 121,549 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization, and accretion 56,700 54,729 44,677 Provision for doubtful accounts 90 4,592 86 Benefit from deferred income taxes ( 10,838 ) ( 2,960 ) ( 5,880 ) Provision for stock-based compensation 15,012 11,484 9,370 Fair value adjustment to contingent consideration — ( 20,468 ) — Payment of contingent consideration — — ( 120 ) Changes in assets and liabilities: Accounts receivable ( 47,232 ) ( 104,020 ) 48,479 Inventories ( 72,087 ) 118,606 ( 133,790 ) Prepaids and other current assets ( 4,866 ) 15,324 ( 11,150 ) Other assets 796 ( 4,931 ) ( 28 ) Accounts payable 55,713 ( 3,138 ) ( 5,542 ) Accrued customer rebates and returns ( 120 ) 12,372 2,433 Accrued compensation and other liabilities 47,875 ( 2,091 ) ( 28,396 ) Cash provided by operating activities 231,047 208,758 41,688 Cash Flows from Investing Activities: Acquisitions, net of divestitures 100 67 ( 488,956 ) Property, plant and equipment additions ( 39,421 ) ( 43,968 ) ( 37,883 ) Cash used in investing activities ( 39,321 ) ( 43,901 ) ( 526,839 ) Cash Flows from Financing Activities: Proceeds of revolving credit line — — 10,000 Payments of revolving credit line ( 78,800 ) ( 146,600 ) ( 10,000 ) Proceeds of long-term debt — — 500,000 Payments of long-term debt ( 15,625 ) ( 12,500 ) ( 3,125 ) Payment of deferred acquisition consideration ( 200 ) — — Payment of contingent consideration — — ( 1,705 ) Payment of debt issuance costs — — ( 3,918 ) Proceeds from exercise of stock options 4,711 1,167 1,046 Purchase and cancellation of common stock ( 80,811 ) ( 15,709 ) ( 19,934 ) Other stock-related activity ( 254 ) ( 467 ) 132 Cash (used in) provided by financing activities ( 170,979 ) ( 174,109 ) 472,496 Effect of exchange rate changes on Cash and Cash Equivalents ( 424 ) 32 ( 93 ) Net Increase (Decrease) in Cash and Cash Equivalents 20,323 ( 9,220 ) ( 12,748 ) Cash and Cash Equivalents, Beginning of Period 36,814 46,034 58,782 Cash and Cash Equivalents, End of Period $ 57,137 $ 36,814 $ 46,034 Supplemental Cash Flow Information Cash paid for interest expense $ 38,713 $ 49,507 $ 11,647 Cash paid for income taxes $ 56,705 $ 35,465 $ 62,861 See accompanying Notes to Consolidated Financial Statements. 46 DORMAN PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 1. Summary of Significant Accounting Policies Dorman Products, Inc. ("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). 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. Principles of Consolidation . The Consolidated Financial Statements include our accounts and the accounts of our wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements . The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents . We consider all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. Sales of Accounts Receivable . We have entered into several customer-sponsored programs administered by unrelated financial institutions that permit us to sell certain accounts receivable at discounted rates to the financial institutions. 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. Sales of accounts receivable under these agreements, and related factoring costs, which were included in selling, general and administrative expenses, were as follows: For the Year Ended December 31, (in thousands) 2024 2023 2022 Sales of accounts receivable $ 1,106,400 $ 949,517 $ 1,048,671 Factoring costs $ 51,252 $ 50,231 $ 37,188 Inventories . Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Inventories include the cost of material, freight, direct labor, and overhead utilized in the processing of our products. We provide reserves for discontinued and excess inventory based upon historical demand, forecasted usage, estimated customer requirements, and product line updates. Property, Plant and Equipment . Property, plant and equipment are recorded at cost and depreciated over the estimated useful lives, which range from 1 to 39 years, using the straight-line method for financial statement reporting purposes and accelerated methods for income tax purposes. The costs of maintenance and repairs are expensed as incurred. Renewals and betterments are capitalized. Gains and losses on disposals are included in operating results. Estimated useful lives by major asset category are as follows: Buildings and building improvements 10 to 39 years Machinery, equipment, and tooling 3 to 10 years Software and computer equipment 3 to 10 years Furniture, fixtures, and leasehold improvements 1 to 39 years Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets . Long-lived assets, including property, plant, and equipment and amortizable identifiable intangibles, are reviewed for impairment 47 whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The impairment review is a two-step process. First, recoverability is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds the estimated undiscounted future cash flows, the second step of the impairment test is performed, and an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value. The assets and liabilities of a disposal group classified as held for sale would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. Goodwill is reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of the goodwill may be impaired. 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 (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 2023 and 2024, we elected to perform a Step 1 test of our goodwill for the purpose of assessing goodwill for impairment. For both the years ended December 31, 2024 and 2023, we determined that goodwill was not impaired. Purchase Accounting . The purchase price of an acquired business is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with the excess recorded as goodwill. Such fair market value assessments require judgments and estimates which may change over time and may cause the final amounts to differ materially from their original estimates. These adjustments to fair value assessments are recorded to goodwill over the purchase price allocation period which cannot exceed 12 months from the date of acquisition. Other Assets . Other assets include primarily core inventory, deposits, and equity method investments. Certain products we sell contain parts that can be recycled, or as more commonly referred to in our industry, remanufactured. We refer to these parts as cores. A used core is remanufactured and sold to a customer. Customers and end-users will generally return used cores to us, which we then use in the remanufacturing process to make another finished good. Core inventory was $ 15.4 million and $ 20.0 million as of December 31, 2024 and 2023, respectively, and is classified as long-term 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 $ 11.2 million and $ 10.8 million at December 31, 2024 and 2023, respectively. These investments provided $ 5.3 million, $ 5.7 million, and $ 5.5 million of income during the year ended December 31, 2024, 2023, and 2022, respectively. Additionally, we have an investment that we account for according to the cost method of accounting. The carrying book value of this investment was $ 5.0 million as of both December 31, 2024 and 2023. Other Accrued Liabilities. Other accrued liabilities include primarily accrued commissions, accrued income taxes, insurance liabilities, and other current liabilities. Revenue Recognition and Accrued Customer Rebates and Returns . Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, in an amount representing the consideration the Company expects to receive in exchange for selling products to its customers. We record estimates for cash discounts, defective and slow-moving product returns, promotional rebates, core return deposits, and other discounts in the period of the sale ("Customer Credits"). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are shown as an increase of accrued customer rebates and returns, which is included in current liabilities. The provision for Customer Credits is estimated based on contractual provisions, historical experience, and our assessment of current market conditions and includes various assumptions including, but not limited to, the length of time between when a sale occurs and a credit is issued. Actual Customer Credits have not differed materially from estimated amounts. 48 Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. As noted above, Customer Credits include core return deposits which are an estimate of the amount we believe we will refund to our customers when used cores are returned to us. The price we invoice to customers for remanufactured cores contains both the amount we charge to remanufacture the part and a deposit for the core. We charge a core deposit to encourage the customer to return the used core to us so that it can be used in our remanufacturing process. We allow our customers up to twenty-four months to return the used core to us. Core return deposits are reserved based on the expected deposits to be issued to customers based on historical returns. Research and Development . Research and development costs are expensed as incurred. Research and development costs totaling $ 32.1 million, $ 32.3 million, and $ 24.8 million have been recorded in selling, general and administrative expenses in the Consolidated Statements of Operations for the years ended December 31, 2024, 2023, and 2022, respectively. Stock-Based Compensation . At December 31, 2024, 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 time-based restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) issued was based on the fair value of our common stock on the grant date. The fair value of performance-based RSUs, for which the performance measure is total shareholder return relative to a defined peer group, is determined using a Monte Carlo simulation model. The fair value of performance-based RSUs for which the performance measure is return on invested capital over the performance period was based on the fair value of our common stock on the grant date. The fair value of stock options granted is determined using the Black-Scholes option valuation model on the grant date. Income Taxes . We follow the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the enacted tax rate expected to be in effect when taxes are paid or recovered. Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. 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. Additionally, we accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties are classified as income tax expense in the Consolidated Statements of Operations. Concentrations of Risk . Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. All cash equivalents are managed within established guidelines 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. Our 4 largest customers accounted for 78 % and 74 % of net accounts receivable as of December 31, 2024 and 2023, respectively. We continually monitor the credit terms and credit limits for these and other customers. For the years ended December 31, 2024 and 2023, approximately 72 % and 70 %, 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 . The carrying value of financial instruments such as cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. The carrying value of our long-term debt approximates its fair value because it bears interest at a rate indexed to a market rate (Term SOFR). Additionally, the fair value of assets acquired and liabilities assumed are determined at the date of acquisition. Contingent consideration 49 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 was effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. We adopted this guidance for our annual report on Form 10-K for the year ended December 31, 2024 and applied the amendments retrospectively to all prior periods presented. The disclosures for interim periods will be adopted in our fiscal year beginning on January 1, 2025. The adoption of this standard did not have a material impact on our results of operations or financial condition. See Note 8, "Segment Information," for further details on segment information. 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. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses. The ASU requires additional disclosures about categories of expenses, including, among other things, quantitative disclosures for employee compensation, depreciation, intangible asset amortization, selling expenses, and purchases of inventory. The updated guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. 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. 2. Business Acquisitions and Investments Super ATV, LLC (“SuperATV”) 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, "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. Our purchase price allocation for SuperATV assets acquired and liabilities assumed was complete as of September 30, 2023. 50 The table below details the fair values of the assets acquired and the liabilities assumed at the acquisition date: (in thousands) Accounts receivable $ 3,317 Inventories 90,428 Prepaids and other current assets 5,293 Property, plant and equipment 23,776 Goodwill 247,474 Identifiable intangible assets 157,500 Operating lease right-of-use assets 11,661 Other Assets 3,001 Accounts payable ( 7,436 ) Accrued compensation ( 2,086 ) Accrued customer rebates and returns ( 1,609 ) Other current liabilities ( 8,726 ) Long-term operating lease liabilities ( 9,508 ) Other long-term liabilities ( 3,307 ) Net cash consideration 509,778 The financial results of the Transaction have been included in the consolidated financial statements from the date of acquisition. The net sales and net income of SuperATV included in the consolidated financial statements for the year ended December 31, 2022 were $ 49.6 million and $ 2.3 million, respectively. The unaudited pro forma information for the periods set forth below gives effect to the Transaction as if it had occurred as of December 26, 2021 the beginning of the fiscal 2022 period. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time. For the Year Ended (in thousands, except per share data, unaudited) December 31, 2022 Net sales $ 1,888,379 Net income $ 130,375 Diluted earnings per share $ 4.13 The fiscal 2022 unaudited pro forma net income set forth above was adjusted to exclude the impact of acquisition date fair value adjustments to inventory and to remove acquisition-related transaction costs. 3. Inventories Inventories were as follows : December 31, (in thousands) 2024 2023 Raw materials $ 29,233 $ 29,750 Bulk product 246,604 211,805 Finished product 421,734 387,668 Packaging materials 10,406 8,152 Total $ 707,977 $ 637,375 51 4. Property, Plant and Equipment Property, plant and equipment include the following: December 31, (in thousands) 2024 2023 Buildings $ 67,040 $ 62,434 Machinery, equipment, and tooling 223,807 208,086 Furniture, fixtures, and leasehold improvements 18,390 17,083 Software and computer equipment 127,578 113,148 Total 436,815 400,751 Less-accumulated depreciation and amortization ( 272,316 ) ( 240,638 ) Property, plant and equipment, net $ 164,499 $ 160,113 Depreciation and amortization expenses associated with property, plant, and equipment were $ 34.0 million, $ 31.9 million, and $ 28.6 million in the years ended December 31, 2024, 2023, and 2022, respectively. Net property, plant and equipment outside the United States was $ 4.6 million and $ 4.3 million as of December 31, 2024 and 2023, respectively. 5. Leases We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of the asset and to obtain substantially all of the economic benefit from its use. 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 9 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. Substantially all of our equipment leases and some of our real estate leases have terms of less than one year. Some of our operating lease agreements include variable lease costs, primarily taxes, insurance, common area maintenance, or increases in rental costs related to inflation. Operating leases are included in the right-of-use lease assets, other current liabilities, and long-term lease liabilities on the Consolidated Balance Sheet. Right-of-use assets and lease liabilities are recognized at each lease’s commencement date based on the present values of its lease payments over its respective lease term. When a borrowing rate is not explicitly available for a lease, our incremental borrowing rate is used based on information available at the lease’s commencement date to determine the present value of its lease payments. The incremental borrowing rate is not commonly quoted and is derived through a combination of inputs including our credit rating and the impact of full collateralization. The incremental borrowing rate is based on our collateralized borrowing capabilities over a similar term to the lease payments. We utilized the consolidated group borrowing rate for all leases as we operate a centralized treasury operation. Operating lease payments are recognized on a straight-line basis over the lease term. We had no material finance leases as of December 31, 2024 or 2023. Practical Expedients and Accounting Policy Elections We have made certain accounting policy elections and are using certain practical expedients permitted under GAAP, as follows: • Include both lease and non-lease components as a single lease component, as non-lease components of contracts have not historically been material. • Account for leases with terms of one year or less as short-term leases and, as such, are not included in the right-of-use assets or lease liabilities. 52 As of December 31, 2024 and 2023, there were no material variable lease costs or sublease income. Cash paid for operating leases was $ 22.8 million, $ 21.2 million, and $ 16.8 million during the years ended December 31, 2024, 2023, and 2022, respectively, which is classified in operating activities on the Consolidated Statements of Cash Flows. The following table summarizes the lease expense: For the Year Ended December 31, (in thousands) 2024 2023 2022 Operating lease expense $ 23,926 $ 21,747 $ 17,340 Short-term lease expense 4,159 7,169 5,838 Total lease expense $ 28,085 $ 28,916 $ 23,178 Supplemental balance sheet information related to our operating leases is as follows: December 31, (in thousands) 2024 2023 Operating lease right-of-use assets $ 118,499 $ 103,476 Other accrued liabilities $ 19,717 $ 16,917 Long-term operating lease liabilities 105,142 91,262 Total operating lease liabilities $ 124,859 $ 108,179 Weighted average remaining lease term (years) 6.33 6.85 Weighted average discount rate 5.09 % 4.20 % The following table summarizes the maturities of our lease liabilities for all operating leases as of December 31, 2024: (in thousands) 2025 $ 25,090 2026 25,820 2027 24,095 2028 17,864 2029 15,915 Thereafter 37,215 Total lease payments 145,999 Less: Imputed interest ( 21,140 ) Present value of lease liabilities $ 124,859 53 6. Goodwill and Intangible Assets Goodwill Goodwill included the following: (in thousands) Light Duty Heavy Duty Specialty Vehicle Consolidated Balance at December 31, 2022 $ — $ — $ — $ 443,035 Measurement period adjustments — — — 233 Foreign currency translation — — — 621 Reporting unit reorganization 313,704 57,876 72,309 — Balance at December 31, 2023 313,704 57,876 72,309 443,889 Goodwill acquired — — 1,167 1,167 Foreign currency translation — ( 2,170 ) — ( 2,170 ) Balance at December 31, 2024 $ 313,704 $ 55,706 $ 73,476 $ 442,886 Intangible Assets Intangible assets, subject to amortization, included the following: December 31, 2024 2023 Intangible assets subject to amortization Weighted Average Amortization Period (years) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value (dollars in thousands) Customer relationships 15.4 $ 173,430 $ 41,358 $ 132,072 $ 175,430 $ 31,678 $ 143,752 Trade names 14.1 67,690 14,999 52,691 67,690 10,676 57,014 Product Portfolio 13.7 107,800 16,522 91,278 107,800 9,720 98,080 Technology 3.8 2,167 1,318 849 2,167 1,069 1,098 Patents and Other 7.3 2,350 1,027 1,323 2,230 618 1,612 Total $ 353,437 $ 75,224 $ 278,213 $ 355,317 $ 53,761 $ 301,556 Amortization expense associated with intangible assets was $ 22.8 million, $ 22.1 million, and $ 14.2 million in the years ended December 31, 2024, 2023, and 2022, respectively. The estimated future amortization expense for intangible assets as of December 31, 2024 is summarized as follows: (in thousands) 2025 $ 21,649 2026 20,492 2027 20,081 2028 19,856 2029 19,770 Thereafter 176,365 Total $ 278,213 7. Long-Term Debt We have a credit agreement which consists of a $ 600.0 million revolving credit facility and a $ 500.0 million term loan. The credit agreement matures on October 4, 2027, is guaranteed by the Company’s material domestic subsidiaries , and is supported by a security interest in substantially all of the Company’s material domestic subsidiaries’ personal property and assets, subject to certain exceptions . Borrowings under the credit agreement bear interest at a rate per annum equal to, at our option, either a term Secured Overnight Financing Rate (“Term SOFR”) or a base rate (as defined in the credit agreement), in each case plus an applicable margin, based on the Total Net Leverage Ratio (as defined in the credit agreement). 54 Unutilized revolving credit facility capacity incurs a commitment fee based on the Total Net Leverage Ratio (as defined in the credit agreement). As of December 31, 2024, the interest rate on the outstanding borrowings under the credit agreement was 5.71 % and the commitment fee was 0.15 %. The term loan portion of the credit agreement contains mandatory repayment provisions that require quarterly principal amortization payments. The following table presents the principal amortization payments and maturities on the term loan for each of the years noted, as of December 31, 2024: (in thousands) December 31, 2024 2025 $ 28,125 2026 37,500 2027 403,125 Total $ 468,750 Long-term debt on the consolidated balance sheets is presented net of unamortized debt issuance costs, which totaled $ 1.1 million and $ 1.5 million as of December 31, 2024 and 2023, respectively. The credit agreement 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 credit agreement. As of December 31, 2024, we were not in default of the covenants contained in the credit agreement. 8. Segment Information We operate and report our results in three business segments, Light Duty, Heavy Duty, and Specialty Vehicle, consistent with the three sectors of the motor vehicle aftermarket industry in which we participate. The Light Duty segment designs and markets replacement parts and fasteners primarily for passenger cars and light trucks with sales to retailers and wholesale distributors who primarily serve passenger car and light truck customers. The Heavy Duty segment designs and markets replacement parts primarily for medium and heavy trucks with sales to independent distributors, independent component specialists and rebuilders, and auto parts stores that 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. The Company's chief operating decision maker ("CODM") is the chief executive officer. The CODM uses income from operations to assess segment performance. The CODM utilizes this measure for each segment in the annual budget and forecasting cycles and considers performance against established targets for purposes of allocating Company resources to each segment and in the determination of compensation for certain Contributors. We measure segment income from operations based on income from operations excluding acquisition-related intangible assets amortization, acquisition-related transaction and other costs, and other special charges. Corporate expenses are allocated to the segments based on segment net sales as a percentage of consolidated net sales. Segment assets consist of inventories, accounts receivable, and property, plant and equipment, net. Intersegment sales are not material. 55 Segment results are as follows: For the Year Ended December 31, 2024 (in thousands) Light Duty Heavy Duty Specialty Vehicle Total Net sales $ 1,565,601 $ 231,515 $ 212,081 $ 2,009,197 Cost of goods sold 925,319 171,732 104,994 1,202,045 Factoring expense 51,252 — — 51,252 Other segment expenses 304,866 53,303 74,752 432,921 Segment income from operations $ 284,164 $ 6,480 $ 32,335 $ 322,979 Segment assets $ 1,203,165 $ 157,493 $ 85,606 $ 1,446,264 Depreciation $ 26,485 $ 3,725 $ 3,750 $ 33,960 Capital expenditures $ 34,164 $ 2,421 $ 2,836 $ 39,421 For the Year Ended December 31, 2023 (in thousands) Light Duty Heavy Duty Specialty Vehicle Total Net sales $ 1,462,474 $ 256,913 $ 210,401 $ 1,929,788 Cost of goods sold 928,983 192,729 110,840 1,232,552 Factoring expense 50,231 — — 50,231 Other segment expenses 296,101 49,679 67,943 413,723 Segment income from operations $ 187,159 $ 14,505 $ 31,618 $ 233,282 Segment assets $ 1,083,347 $ 162,583 $ 78,424 $ 1,324,354 Depreciation $ 25,239 $ 3,239 $ 3,420 $ 31,898 Capital expenditures $ 33,445 $ 3,581 $ 6,942 $ 43,968 For the Year Ended December 31, 2022 (in thousands) Light Duty Heavy Duty Specialty Vehicle Total Net sales $ 1,425,892 $ 258,215 $ 49,642 $ 1,733,749 Cost of goods sold 949,918 183,233 25,078 1,158,229 Factoring expense 37,188 — — 37,188 Other segment expenses 269,207 45,244 16,027 330,478 Segment income from operations $ 169,579 $ 29,738 $ 8,537 $ 207,854 Segment assets $ 1,047,987 $ 177,557 $ 106,219 $ 1,331,763 Depreciation $ 25,062 $ 2,772 $ 798 $ 28,632 Capital expenditures $ 31,682 $ 4,769 $ 1,432 $ 37,883 In the preceding segment tables, Other segment expenses consist of selling, general and administrative expenses including salaries and benefits for product development, research, sales, marketing and administrative functions, facility costs, information technology costs, and other general expenses. 56 A reconciliation of segment income from operations to consolidated income before income taxes is as follows: For the Year Ended December 31, (in thousands) 2024 2023 2022 Segment income from operations $ 322,979 $ 233,282 $ 207,854 Acquisition-related intangible assets amortization ( 22,476 ) ( 21,817 ) ( 14,070 ) Acquisition-related transaction and other costs ( 2,621 ) ( 15,373 ) ( 22,736 ) Fair value adjustment to contingent consideration — 20,469 — Executive transition services expenses — ( 1,801 ) — Pretax reduction in workforce costs ( 4,973 ) — — Interest expense, net ( 39,727 ) ( 48,061 ) ( 15,582 ) Other income, net 3,070 1,804 735 Consolidated income before income taxes $ 256,252 $ 168,503 $ 156,201 A reconciliation of segment assets to consolidated assets is as follows: December 31, (in thousands) 2024 2023 2022 Segment assets $ 1,446,264 $ 1,324,354 $ 1,331,763 Other current assets 87,968 69,468 85,834 Other non-current assets 890,289 898,585 924,189 Consolidated assets $ 2,424,521 $ 2,292,407 $ 2,341,786 9. Related Party Transactions Prior to December 1, 2023, we leased our Colmar, PA facility from an entity in which Steven 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. The Colmar lease was, and the Lewisberry lease is, a non-cancelable operating lease. The Lewisberry lease expires December 31, 2027. We also lease our facilities in Madison, IN, and Shreveport, LA, from entities in which Lindsay Hunt, our President, Specialty Vehicle, and certain of her family members are owners. Each lease is a non-cancelable operating lease, was renewed in October 2022 in connection with the acquisition of Super ATV, LLC, a leading supplier to the powersports aftermarket ("SuperATV"), and will expire on October 31, 2027. We have service agreements with counterparties that are majority-owned by a family member of Ms. Hunt. These agreements provide for various warehouse and facility-related services at agreed-upon rates. The following table represents the total payments for the years ended December 31, 2024, 2023, and 2022, under the related party agreements described above: For the Year Ended December 31, (in thousands) 2024 2023 2022 Facility leases with Steven Berman-related entities $ 715 $ 2,918 $ 2,458 Facility leases with Lindsay Hunt-related entities $ 2,757 $ 2,603 $ 519 Service agreements with Lindsay Hunt-related entities $ 54 $ 200 $ 67 We are a partner in a joint venture with one of our suppliers and own a minority interest in two other suppliers. Aggregate purchases from both of these companies were $ 18.4 million, $ 22.7 million, and $ 24.9 million in the years ended December 31, 2024, 2023, and 2022, respectively. 57 10. Income Taxes The components of the provision for income taxes are as follows: For the Year Ended December 31, (in thousands) 2024 2023 2022 Current: Federal $ 56,879 $ 34,600 $ 31,683 State 17,907 5,602 7,141 Foreign 2,300 2,002 1,708 77,086 42,204 40,532 Deferred: Federal ( 7,407 ) ( 1,936 ) ( 4,003 ) State ( 2,618 ) ( 338 ) ( 1,022 ) Foreign ( 813 ) ( 686 ) ( 855 ) ( 10,838 ) ( 2,960 ) ( 5,880 ) Provision for income taxes $ 66,248 $ 39,244 $ 34,652 The following is a reconciliation of income taxes at the statutory tax rate to the Company's effective tax rate: For the Year Ended December 31, 2024 2023 2022 Federal taxes at statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal tax benefit 2.4 2.1 2.5 Uncertain tax positions 2.9 0.2 0.3 Research and development tax credit ( 0.5 ) ( 0.7 ) ( 0.7 ) Federal permanent items — 0.3 ( 0.2 ) Effect of foreign operations 0.1 0.3 — Other — 0.1 ( 0.7 ) Effective tax rate 25.9 % 23.3 % 22.2 % At December 31, 2024, we had $ 10.3 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. The following table summarizes the change in unrecognized tax benefits for the three years ended December 31: For the Year Ended December 31, (in thousands) 2024 2023 2022 Balance at beginning of year $ 4,539 $ 3,856 $ 1,204 Reductions due to lapses in statutes of limitations ( 174 ) ( 716 ) ( 139 ) Reductions due to tax positions settled ( 180 ) — — Additions related to positions taken during a prior period — — 2,136 Reductions due to reversals of prior year positions ( 1,125 ) — — Additions based on tax positions taken during the current period 7,253 1,399 655 Balance at end of year 10,313 4,539 3,856 We recognize interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of interest and penalties related to unrecognized tax benefits recorded within tax expense was $ 3.1 million for the year ended December 31, 2024, and was immaterial for the year ended December 31, 2023. As of December 31, 2024, accrued interest and penalties related to unrecognized tax benefits were $ 3.5 million. 58 The Company does not anticipate material changes in the amount of unrecognized income tax benefits over the next year. Deferred income taxes result from timing differences in the recognition of revenue and expense between tax and financial statement purposes. The sources of temporary differences are as follows: December 31, (in thousands) 2024 2023 Assets: Inventories $ 15,111 $ 17,829 Accounts receivable 24,723 20,472 Operating lease liability 31,850 26,261 Accrued expenses 10,932 7,002 Capitalized research and development expenses 16,840 12,263 Net operating losses 295 289 Foreign tax credits 469 469 State tax credits 427 379 Capital loss carryforward 474 478 Total deferred tax assets 101,121 85,442 Valuation allowance ( 1,429 ) ( 1,354 ) Net deferred tax assets 99,692 84,088 Liabilities: Depreciation 12,938 16,481 Goodwill and intangible assets 52,564 49,798 Operating lease right of use asset 30,146 25,142 Other 1,958 1,592 Gross deferred tax liabilities 97,606 93,013 Net deferred tax assets (liabilities) $ 2,086 $ ( 8,925 ) A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carryback and carryforward periods, and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of the deferred tax asset. Management has determined it was necessary to establish a valuation allowance against the foreign tax credits, various state tax credits, and a capital loss carryforward. 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 2024, we increased the valuation allowance against the deferred tax assets noted above by an immaterial amount. As of December 31, 2024, the Company has tax-effected net operating loss carryforwards of $ 0.2 million and $ 0.1 million for U.S. federal and state jurisdictions, respectively. Tax-effected federal net operating losses of $ 0.1 million begin to expire in 2036 . The remaining federal net operating losses do not expire. The state net operating loss carryforwards expire in various years starting in 2037 . We file income tax returns in the United States, Canada, China, India, and Mexico. The statute of limitations for tax years before 2021 is closed for U.S. federal income tax purposes. The statute of limitations for tax years before 2017 is closed for the states in which we file. The statute of limitations for tax years before 2021 is closed for income tax purposes in Canada, China, and India. The statute of limitations for tax years before 2019 is closed for income tax purposes in Mexico. 59 11. Commitments and Contingencies Shareholders’ Agreement . 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. 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. The expenses of any such registration will be borne by the estate of the deceased shareholder. 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. Acquisitions. We have contingent consideration related to prior acquisitions due to the uncertainty of the ultimate amount of any payments that will become due as earnout payments if performance targets are achieved. If the remaining performance targets for the acquisitions are fully achieved, the maximum additional contingent payments to be made under the transaction documents would be $ 102.0 million in the aggregate. As of December 31, 2024 and December 31, 2023, we estimated that zero payments are expected to become due in connection with the acquisitions, and therefore accrued no liability. For the year ended December 31, 2023, we recorded a net decrease of $ 20.0 million to the contingent consideration liability for a prior acquisition, 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 administrative expenses in the Condensed Consolidated Statements of Operations. During the year ended December 31, 2022, we paid $ 1.8 million to fully settle this earnout provision associated with the prior acquisition. Other Contingencies . We are a party to or otherwise involved in legal proceedings that arise in the ordinary course of business, such as various claims and legal actions involving contracts, employment claims, competitive practices, intellectual property infringement, product liability claims, and other matters arising out of the conduct of our business. In the opinion of management, none of the actions, individually or in the aggregate, taking into account relevant insurance coverage, would likely have a material financial impact on the Company and we believe the range of reasonably possible losses from current matters, taking into account relevant insurance coverage, is immaterial. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of any of these matters could have a material adverse impact on the Company’s cash flows, financial position, and results of operations in the period in which any such effects are recorded. 12. Revenue Recognition Our primary source of revenue is from contracts with and purchase orders from customers. In most instances, our contract with a customer is the customer’s purchase order. Upon acceptance of the purchase order, a contract exists with a customer, as a sales agreement indicates the approval and commitment of the parties, identifies the rights of both parties, identifies the payment terms, and has commercial substance. At this point, we believe it is probable that we will collect the consideration to which we will be entitled in exchange for the goods transferred to the customer. For certain customers, we may also enter into a sales agreement that outlines pricing considerations as well as the framework of terms and conditions that apply to future purchase orders for that customer. In these situations, our contract with the customer is both the sales agreement as well as the specific customer purchase 60 order. As our contract with a customer is typically for a single transaction or customer purchase order, the duration of the contract is typically one year or less. As a result, we have elected to apply certain practical expedients and omit certain disclosures of remaining performance obligations for contracts that have an initial term of one year or less as permitted by GAAP. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, in an amount representing the consideration the Company expects to receive in exchange for selling products to its customers. We estimate the transaction price at the inception of a contract or upon fulfilling a purchase order, including any variable consideration, and will update the estimate for changes in circumstances. We record estimates for cash discounts, defective and slow-moving product returns, promotional rebates, core return deposits, and other discounts in the period the related product revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are shown as an increase in accrued customer rebates and returns. Customer Credits are estimated based on contractual provisions, historical experience, and our assessment of current market conditions. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are included in cost of goods sold. We have concluded that our estimates of variable consideration are not constrained according to the definition in the standard. All of our revenue was recognized under the point-of-time approach during the years ended December 31, 2024, 2023, and 2022. Also, we do not have significant financing arrangements with our customers. Our credit terms are all less than one year . Lastly, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts. Practical Expedients and Accounting Policy Elections We have made certain accounting policy elections and are using certain practical expedients permitted under GAAP, as follows: • 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. • Exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity for a customer, including sales, use, value-added, excise, and various other taxes. • Account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity rather than a separate performance obligation. Disaggregated Revenue 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 December 31, (in thousands) 2024 2023 2022 Net Sales to U.S. Customers $ 1,848,420 $ 1,772,092 $ 1,606,472 Net Sales to Non-U.S. Customers 160,777 157,696 127,277 Net Sales $ 2,009,197 $ 1,929,788 $ 1,733,749 61 During the year ended December 31, 2024, two customers each accounted for more than 10% of net sales, and for the years ended December 31, 2023 and 2022, three customers each accounted for more than 10% of net sales. In the aggregate, these customers accounted for 39 %, 44 %, and 49 % of net sales in the years ended December 31, 2024, 2023, and 2022, respectively. Sales to these customers are included in the Light Duty segment. 13. Capital Stock Controlling Interest by Officers, Directors and Family Members . As of December 31, 2024 and 2023, Steven Berman, the Non-Executive Chairman of the Company, and members of his family beneficially owned approximately 15 % and 16 %, respectively, 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 . We have 50,000,000 shares authorized of undesignated capital stock for future issuance. The designation, rights, and preferences of such shares will be determined by our Board of Directors. Incentive Stock Plan . Prior to May 16, 2018, we issued stock compensation grants under our 2008 Stock Option and Stock Incentive Plan. On May 16, 2018 , our shareholders approved our 2018 Stock Option and Stock Incentive Plan (the “2018 Plan” or the “Plan”), which supersedes our 2008 Stock Option and Stock Incentive Plan. All future stock compensation grants will be issued under the 2018 Plan. Under the terms of the Plan, our Board of Directors may grant up to 1,200,000 shares of common stock in the form of shares of restricted stock, restricted stock units, stock appreciation rights, and stock options, or combinations thereof, to officers, directors, employees, consultants, and advisors. Grants under the Plan must be made on or before the tenth anniversary of the date the Plan was approved. Stock options are exercisable upon the terms set forth in each grant agreement approved by the Board of Directors, but in no event more than ten years from the date of grant. Restricted stock and restricted stock units vest in accordance with the terms set forth in each applicable award agreement approved by our Board of Directors. At December 31, 2024, 329,263 shares were available for grant under the Plan. Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) Prior to March 2020, we issued RSAs to certain employees and members of our Board of Directors. Grants were made in the form of time-based RSAs and performance-based RSAs. For all RSAs, we retain the restricted stock, and any dividends paid thereon, until the vesting restrictions have been met. 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. Compensation cost related to those performance-based RSAs 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. In 2019, we introduced performance-based RSAs 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 (market condition). For those awards containing a market condition, 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. This valuation technique includes estimating the movement of stock prices and the effects of volatility, interest rates, and dividends. 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. Performance-based RSUs granted starting in the year ended December 31, 2024 included certain grants that vest based on our total shareholder return ranking relative to the Nasdaq US Benchmark Auto Parts Index over a three-year performance period (market condition), and other grants that vest based upon achievement of return on invested capital targets over a three-year performance period (performance condition). For performance-based RSUs with a market condition, 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 62 stock based on the application of a Monte Carlo simulation model as discussed in the paragraph above. For performance-based RSUs with a performance condition, compensation cost 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 following table summarizes the weighted average valuation assumptions used to calculate the fair value of total shareholder return performance-based RSUs containing a market condition granted: For the Year Ended December 31, 2024 2023 2022 Share price $ 90.47 $ 91.28 $ 96.36 Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock price volatility 33.4 % 32.8 % 38.3 % Risk-free interest rate 4.4 % 4.6 % 1.6 % Expected life 2.8 years 2.8 years 2.8 years The share price is the Company’s closing share price as of the valuation date. 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 the RSUs containing a market condition granted during the years ended December 31, 2024, 2023, and 2022, were $ 138.58 , $ 113.15 , and $ 111.31 , respectively. Compensation cost related to performance-based and time-based RSAs and RSUs was $ 12.3 million, $ 9.1 million, and $ 7.2 million in the years ended December 31, 2024, 2023, and 2022, respectively, and was included in selling, general and administrative expenses in the Consolidated Statements of Operations. No cost was capitalized during the years ended December 31, 2024, 2023, and 2022. The following table summarizes our RSA and RSU activity for the three years ended December 31, 2024: Shares Weighted Average Fair Value Balance at December 25, 2021 206,677 $ 85.97 Granted 130,131 $ 96.32 Vested ( 55,255 ) $ 83.70 Canceled ( 42,631 ) $ 85.89 Balance at December 31, 2022 238,922 $ 92.07 Granted 112,893 $ 95.34 Vested ( 73,169 ) $ 80.63 Canceled ( 21,092 ) $ 85.00 Balance at December 31, 2023 257,554 $ 97.33 Granted 188,620 $ 99.08 Vested ( 75,305 ) $ 89.84 Canceled ( 30,291 ) $ 111.29 Balance at December 31, 2024 340,578 $ 97.84 As of December 31, 2024, there was approximately $ 18.4 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 1.9 years. Cash flows resulting from tax deductions in excess of the tax effect of compensation cost recognized in the financial statements are classified as operating cash flows. The excess tax benefit generated from RSAs and RSUs was immaterial for all periods presented. 63 Stock Options We grant stock options to certain employees. 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 $ 1.6 million, $ 2.0 million, and $ 1.7 million in the years ended December 31, 2024, 2023, and 2022, respectively, and was included in selling, general and administrative expense in the Consolidated Statements of Operations. No cost was capitalized during the years ended December 31, 2024, 2023, and 2022. We used the Black-Scholes option valuation model to estimate the fair value of stock options granted. Expected volatility and expected dividend yield are based on the actual historical experience of our common stock. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using historical option exercise data. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. There were no stock options granted in 2024. The following table summarizes the weighted-average valuation assumptions used to calculate the fair value of options granted and the associated weighted-average grant-date fair values: For the Year Ended December 31, 2023 2022 Expected dividend yield 0 % 0 % Expected stock price volatility 35 % 34 % Risk-free interest rate 4.3 % 1.8 % Expected life of options 5.3 years 5.3 years Weighted-average grant-date fair value $ 35.93 $ 32.55 The following table summarizes our stock option activity for the three years ended December 31, 2024: Shares Option Price per Share Weighted Average Price Weighted Average Remaining Terms (years) Aggregate Intrinsic Value (in thousands) Balance at December 25, 2021 233,396 $ 61.68 – $ 103.61 $ 77.85 Granted 79,749 $ 83.81 – $ 111.53 $ 96.96 Exercised ( 32,201 ) $ 61.68 – $ 83.06 $ 71.74 Canceled ( 12,162 ) $ 61.68 – $ 101.45 $ 82.19 Balance at December 31, 2022 268,119 $ 61.68 –$ 111.53 $ 84.03 Granted 79,404 $ 86.63 – $ 91.28 $ 91.13 Exercised ( 24,297 ) $ 61.68 – $ 82.94 $ 72.33 Expired ( 7,488 ) $ 81.91 – $ 101.45 $ 91.24 Canceled ( 4,521 ) $ 82.94 – $ 101.45 $ 88.52 Balance at December 31, 2023 311,217 $ 61.68 – $ 111.53 $ 86.52 Exercised ( 65,180 ) $ 61.68 – $ 111.53 $ 74.34 Expired ( 7,228 ) $ 91.28 – $ 101.45 $ 94.71 Canceled ( 4,520 ) $ 91.28 – $ 101.45 $ 97.64 Balance at December 31, 2024 234,289 $ 61.68 – $ 111.53 $ 89.44 4.6 $ 9,398 Exercisable at 135,471 $ 61.68 – $ 103.61 $ 85.73 3.9 $ 5,936 As of December 31, 2024, there was approximately $ 2.1 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 1.9 years. 64 Cash received from option exercises was $ 4.7 million, $ 1.2 million, and $ 1.0 million in the years ended December 31, 2024, 2023, and 2022, respectively. The tax benefit generated from option exercises was immaterial for all periods presented. Employee Stock Purchase Plan. 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. 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. The two purchase windows are January to June and July to December. There were 28,674 shares, 29,650 shares, and 25,600 shares purchased under this plan during the years ended December 31, 2024, 2023, and 2022, respectively. Compensation cost under the ESPP plan was $ 1.1 million, $ 0.4 million, and $ 0.4 million in the years ended December 31, 2024, 2023, and 2022, respectively. The tax benefit generated from ESPP purchases was immaterial in the years ended December 31, 2024, 2023, and 2022, respectively. Common Stock Repurchases. We periodically repurchase, at the then current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) Plan and Trust (the “401(k) Plan”). 401(k) Plan participants can no longer purchase shares of Dorman common stock as an investment option under the 401(k) Plan. Shares are generally purchased 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: For the Year Ended December 31, 2024 2023 2022 Shares repurchased and canceled 18,457 13,778 23,015 Total cost of shares repurchased and canceled (in thousands) $ 1,935 $ 1,160 $ 2,357 Average price per share $ 104.86 $ 84.22 $ 102.40 At December 31, 2024, the 401(k) Plan held 128,666 shares of our common stock. Share Repurchase Program . Our Board of Directors previously authorized a share repurchase program. Under that program, and subsequent authorizations (the “Existing Program”), the Board authorized the repurchase of up to $ 600 million of our outstanding common stock through December 31, 2024. At December 31, 2024, $ 134.6 million was available for repurchase under this program. The Existing Program expired on December 31, 2024, along with all amounts that remained available for use under the Existing Program as of that date. In October 2024, the Company’s Board of Directors authorized the purchase of up to $ 500 million of our common stock under a new share repurchase program effective as of January 1, 2025 through December 31, 2027 (the “New Program”). The New Program will operate just as the Existing Program had operated in that share repurchases may be made from time to time depending on market conditions, share price, share availability, and other factors at the Company’s discretion. The New Program, similar to the Existing Program, will not obligate the Company to acquire any specific number of shares. The following table summarizes the repurchase and cancellation of common stock : For the Year Ended December 31, 2024 2023 2022 Shares repurchased and canceled 855,971 201,632 180,750 Total cost of shares repurchased and canceled (in thousands) $ 78,091 $ 15,333 $ 17,577 Average price per share $ 91.23 $ 76.05 $ 97.24 401(k) Retirement Plans . We have a 401(k) plan that cover substantially all of our employees as of December 31, 2024. Annual company contributions are discretionary in nature, in accordance with the 65 respective plan documents. Total expense related to the plans was $ 13.1 million, $ 9.1 million, and $ 8.2 million in the years ended December 31, 2024, 2023, and 2022, respectively. 14. Earnings Per Share Basic earnings per share was calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding unvested RSAs which are considered to be contingently issuable. To calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding. Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards. Stock-based awards of approximately 190,000 shares, 297,500 shares, and 63,500 shares were excluded from the calculation of diluted earnings per share for the years ended December 31, 2024, 2023, and 2022, 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: For the Year Ended December 31, (in thousands, except per share data) 2024 2023 2022 Numerator: Net income $ 190,004 $ 129,259 $ 121,549 Denominator: Weighted average basic shares outstanding 30,797 31,455 31,434 Effect of compensation awards 159 78 109 Weighted average diluted shares outstanding 30,956 31,533 31,543 Earnings Per Share: Basic $ 6.17 $ 4.11 $ 3.87 Diluted $ 6.14 $ 4.10 $ 3.85 66 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None