Polaris Inc. (PII) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion pertains to the results of operations and financial position of the Company and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this report. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Overview

2022 was a record year for sales which totaled $8.6 billion, a 15 percent increase from 2021. The Company achieved growth across all segments and regions driven primarily by favorable product mix and higher pricing compared to 2021.

The impact of the novel coronavirus (“COVID-19”) pandemic as well as other disruptive events have impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The impact of these factors has affected our business segments, employees, dealers, suppliers, and customers in a variety of ways.

In 2021 and the first half of 2022 we saw strong retail demand for our products. Consistent with macroeconomic trends, as we progressed through 2022, we have seen indicators of demand moderating. Due to the dynamics of the COVID-19 pandemic, heightened demand, natural disasters, and geopolitical events, including the conflict between Russia and Ukraine and related sanctions, our supply chain and manufacturing operations have experienced inefficiencies caused by production-limiting disruptions, including supplier labor shortages. Although these disruptions are moderating, we have made pricing changes to address the resulting increase in production costs.

The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Item 1A. Risk Factors of this Annual Report.

Full year net income from continuing operations attributable to Polaris Inc. of $602.9 million increased 22 percent from 2021, with diluted earnings per share from continuing operations increasing from $7.92 to $10.04 per share. These increases were primarily driven by higher pricing and favorable product mix.

On February 2, 2023, we announced that our Board of Directors approved a two percent increase in the quarterly cash dividend to $0.65 per share for the first quarter of 2023, representing the 28th consecutive year of increased dividends to shareholders.

24

Table of Contents

Consolidated Results of Operations

The consolidated results of operations were as follows:

25

Table of Contents

Sales:

Sales were $8,589.0 million in 2022, a 15 percent increase from $7,439.2 million in 2021. The components of the consolidated sales change were as follows:

Favorable product mix and higher pricing contributed a 16 percent increase to sales in 2022. Volume contributed a one percent increase in 2022 driven by increased motorcycle and snowmobile shipments, partially offset by lower off-road vehicle shipments. Currency rate movements drove a two percent decrease in sales for 2022.

Volume contributed a nine percent increase in 2021 driven by increased shipments in all segments, but most significantly ORV, as well as higher PG&A sales. Product mix and price contributed an eight percent increase in 2021, primarily due to lower promotional spending and increased product pricing. Currency rate movements contributed a one percent increase for 2021.

Sales by geographic region were as follows:

Sales in the United States for 2022 increased 19 percent during the year, primarily driven by favorable product mix, higher pricing, and increased motorcycle and snowmobile shipments. Sales in the United States represented 79 percent of total Company sales in 2022.

Sales in the United States for 2021 increased 13 percent, primarily driven by increased ORV and boat shipments, as well as higher PG&A sales.

Sales in Canada for 2022 increased six percent during the year, primarily driven by favorable product mix and higher pricing. Currency rate movements had an unfavorable impact of four percentage points on sales in 2022. Sales in Canada represented seven percent of total company sales in 2022.

Sales in Canada for 2021 increased 56 percent, primarily driven by increased ORV shipments. Currency rate movements had a favorable impact of eight percentage points on sales in 2021.

Sales in other countries, primarily in Europe, increased four percent during 2022, primarily driven by increased motorcycle shipments and higher pricing. Currency rate movements had an unfavorable impact of nine percentage points on sales in 2022. Sales in other countries represented 14 percent of total company sales in 2022.

Sales in other foreign countries increased 34 percent during 2021, primarily driven by increased ORV and motorcycle shipments. Currency rate movements had a favorable impact of five percentage points on sales in 2021.

26

Table of Contents

Cost of sales:

The following table reflects our cost of sales in dollars and as a percentage of sales:

Cost of sales increased 17 percent in 2022 primarily due to changes in product mix, as well as higher warranty, labor, raw materials, and logistics costs. Cost of sales increased 20 percent in 2021 primarily due to increased wholegood and PG&A shipments, as well as higher labor, raw materials, and logistics costs.

Gross profit:

Gross profit for 2022, as a percentage of sales, decreased primarily due to higher input costs including logistics, components, and commodity prices, plant inefficiencies related to supply chain constraints, and higher warranty costs, partially offset by higher pricing and favorable product mix.

Gross profit for 2021, as a percentage of sales, decreased primarily due to higher input costs including logistics, components, and commodity prices, as well as plant inefficiencies related to supply chain constraints. The decrease was partially offset by higher sales volume, lower promotional costs and favorable pricing.

Operating expenses:

Operating expenses for 2022, in absolute dollars, increased compared to 2021, primarily due to higher research and development and general and administrative expenses. Operating expenses for 2022, as a percent of sales, decreased compared to 2021, primarily due to higher pricing and favorable mix which drove increased sales.

Operating expenses for 2021, in absolute dollars and as a percent of sales, decreased primarily due to the prior year impairment of goodwill, partially offset by an increase in total operating expenses to levels commensurate with increases in demand.

Income from financial services:

The following table reflects our income from financial services:

Income from financial services decreased 10 percent for 2022, primarily due to lower retail credit income resulting from lower retail sales, partially offset by higher wholesale financing income from Polaris Acceptance due to higher dealer inventory levels.

27

Table of Contents

Interest expense:

Interest expense increased for 2022 due to higher debt levels and higher interest rates.

Other (income) expense, net:

Other (income) expense is the result of currency exchange rate movements and the corresponding effects on currency transactions related to our international subsidiaries. Also included in Other (income) expense, net in 2021 is a $7.7 million impairment charge related to an investment in a strategic partner that was associated with a divested business.

Loss on sale of businesses:

In the fourth quarter of 2021, we divested our GEM and Taylor-Dunn businesses which resulted in a $36.8 million loss.

Provision for income taxes:

The decrease in the effective income tax rate for 2022 was primarily due to an increased deduction for Foreign Derived Intangible Income (“FDII”) and incremental foreign tax credits, partially offset by a decrease in research and development credits, as well as the unfavorable impact of higher pretax income generated in the current period.

The increase in the effective income tax rate for 2021 was primarily due to the favorable impact of lower pretax income generated in 2020 and the release of certain income tax reserves due to favorable federal tax examination developments in 2020. The increase was partially offset by favorable income tax benefits in jurisdictions with lower tax rates, as well as favorable income tax benefits from research and development credits in 2021.

Weighted average shares outstanding:

Weighted average diluted shares outstanding decreased in 2022 primarily due to share repurchases.

Segment Results of Operations

On January 1, 2022, the Company began management of its portfolio of businesses under a new basis as a result of the divestiture of the GEM and Taylor-Dunn businesses. As a such, the Global Adjacent Markets segment was eliminated and the results of the Company’s remaining businesses historically included within the Global Adjacent Markets segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability, including the divested businesses which are included in Corporate.

On June 30, 2022, the Company again began management of its portfolio of businesses under a new basis as a result of the divestiture of TAP. As such, the Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.

The summary that follows provides a discussion of the results of operations of each of our three reportable segments, Off Road, On Road, and Marine. Each of these segments is comprised of various product offerings that serve multiple end markets. We evaluate performance based on sales and gross profit. The Corporate amounts include revenues and costs of businesses that were divested in 2021, as well as costs that are not allocated to segments, including certain unallocated manufacturing costs. Businesses that are presented as discontinued operations are excluded from the tables below.

28

Table of Contents

Our sales and gross profit by reporting segment, which includes the respective PG&A, were as follows:

Off Road:

Off Road sales, inclusive of PG&A sales, increased 15 percent in 2022 driven by favorable product mix and higher pricing. Sales to customers outside of North America increased five percent in 2022 driven by higher pricing and increased snowmobile shipments. The average per unit sales price for the Off Road segment increased approximately 18 percent, driven by higher pricing.

Additional information on our end markets for 2022:

•Polaris North America ATV unit retail sales down low-twenties percent

•Polaris North America side-by-side unit retail sales down mid-teens percent

•Total Polaris North America ORV unit retail sales down high-teens percent

•Estimated North America industry ORV unit retail sales down about 10 percent

•Total Polaris North America ORV dealer inventories up approximately 140 percent

•Polaris North America snowmobile unit retail sales for the 2022-2023 season-to-date period through December 31, 2022 down mid-single digits percent

•Estimated North America industry snowmobile unit retail sales for the 2022-2023 season-to-date period through December 31, 2022 up low-single digits percent

•Total Polaris North America snowmobile dealer inventories up approximately 45 percent

Gross profit, as a percentage of sales, decreased in 2022 primarily due to higher input costs including logistics, components, and commodity prices, plant inefficiencies related to supply chain constraints, and higher warranty costs, mostly offset by higher pricing.

Off Road sales increased 16 percent in 2021 driven by broad-based demand and shipments across ATV and side-by-side product lines, including PG&A, as well as increased pricing. Gross profit, as a percentage of sales, decreased in 2021 primarily due to higher input costs including logistics, components, and commodity prices, as well as plant inefficiencies related to supply chain constraints, partially offset by favorable mix, lower promotional costs, and higher pricing.

29

Table of Contents

On Road:

On Road sales, inclusive of PG&A sales, increased 13 percent in 2022 driven by higher pricing and increased shipments. On Road sales to customers outside of North America increased four percent in 2022 driven by higher pricing, partially offset by unfavorable foreign currency exchange rate movement. The average per unit sales price for the On Road segment increased two percent, driven by favorable product mix and higher pricing.

Additional information on our On Road end markets for 2022:

•Indian Motorcycle North America unit retail sales down low-twenties percent

•Estimated North America industry 900cc cruiser, touring, and standard motorcycle unit retail sales down low-double digits percent

•Polaris North America motorcycle dealer inventories up approximately 90 percent

Gross profit, as a percentage of sales, increased in 2022 primarily due to favorable product mix and lower promotional costs, partially offset by higher input costs, warranty costs, and unfavorable foreign currency exchange rate movement.

On Road sales increased 28 percent in 2021 driven by increased Indian motorcycle and Slingshot shipments as a result of strong retail sales, lower promotional costs, and higher PG&A sales. Gross profit, as a percentage of sales, increased in 2021 primarily due to lower promotional costs, partially offset by increased input costs related to supply chain constraints.

Marine:

Marine sales increased 30 percent, primarily due to favorable product mix and increased shipments. The average per unit sales price for the Marine segment increased 15 percent, driven by favorable product mix.

Additional information on our boat end markets for 2022:

•Polaris U.S pontoon unit retail sales down mid-twenties percent

•Estimated U.S. industry pontoon unit retail sales down high-single digits percent

Gross profit, as a percentage of sales, increased slightly primarily due to favorable product mix, mostly offset by higher input costs and higher floor plan interest expense.

Marine sales increased 26 percent in 2021, primarily due to increased production levels driven by retail and demand, as well as higher pricing and favorable mix. Gross profit, as a percentage of sales, increased in 2021, primarily due to favorable product mix, partially offset by higher input costs related to supply chain constraints.

Liquidity and Capital Resources

Our primary sources of funds have been cash provided by operating and financing activities. Our primary uses of funds have been for acquisitions, repurchases and retirement of common stock, capital investments, new product development, and cash dividends to shareholders. The seasonality of production and shipments cause working capital requirements to fluctuate during the year and year to year.

We believe that existing cash balances, cash flow to be generated from operating activities and borrowing capacity under the credit facility arrangement will be sufficient to fund operations, new product development, cash dividends, share repurchases, and capital requirements for at least the next 12 months and for the foreseeable future thereafter.

30

Table of Contents

Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities of continuing operations:

Operating Activities:

The increase in net cash provided by operating activities of continuing operations in 2022 was primarily the result of lower working capital additions and higher net income from continuing operations, partially offset by the impact of the Tax Cuts and Jobs Act (the "Act") which, beginning in 2022, eliminated the option to deduct research and development expenditures and instead capitalize and amortize such expenditures over future periods.

The decrease in net cash provided by operating activities of continuing operations in 2021 was primarily the result of higher working capital additions due to increases in inventory driven by strong end-market demand and supply chain inefficiencies, partially offset by higher net income.

Investing Activities:

The primary sources and uses of cash in 2022 and 2021 were for the purchase of property, equipment and tooling for continued capacity and capability at our manufacturing and distribution facilities and for product development, distributions from and contributions to Polaris Acceptance, as well as proceeds from the sale of businesses. Net cash used for investing activities of continuing operations increased in 2022 due to a net a decrease in distributions from Polaris Acceptance and an increase in property, equipment and tooling purchases, partially offset by proceeds from the sale of businesses. Net cash used for investing activities of continuing operations increased in 2021 due to an increase in property, equipment and tooling purchases.

Financing Activities:

The increase in net cash used for financing activities was primarily due to lower proceeds from stock issuances under employee plans and decreased net borrowings under debt arrangements, finance lease obligations and notes payable. Net borrowings totaled $257.7 million in 2022 compared $351.3 million in 2021. Higher share repurchases also contributed to the increase.

Financing Arrangements:

We are party to an unsecured Master Note Purchase Agreement, as amended and supplemented, under which we have issued senior notes. As of December 31, 2022, outstanding borrowings under the Master Note Purchase Agreement totaled $350.0 million.

We are also party to an unsecured credit agreement, which includes a $1.0 billion variable interest rate Revolving Loan Facility that matures in June 2026, under which we have unsecured borrowings. As of December 31, 2022, there were borrowings of $312.9 million outstanding under the Revolving Loan Facility. Our credit agreement also includes a Term Loan Facility, on which $828.0 million was outstanding as of December 31, 2022. Interest is charged at rates based on adjusted Term SOFR for the credit facility. As of December 31, 2022, we had $679.6 million of availability on the Revolving Loan Facility.

In December 2021, we amended the credit agreement to provide an unsecured incremental 364-day term loan (the “Incremental Term Loan”) in the amount of $500 million, which was fully drawn on closing. In December 2022, we further amended the unsecured credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million

31

Table of Contents

Incremental Term Loan, we are required to make principal payments under the Term Loan Facility totaling $45 million over the next 12 months.

The credit agreements governing the facility and the Master Note Purchase Agreement contain covenants that require us to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements require us to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four-quarter basis.

On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the we completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana which manufactures boats (“Boat Holdings”). As a component of the Boat Holdings merger agreement, we have committed to make a series of deferred payments to the former owners following the closing date of the mthrough July 2030. The original discounted payable was for $76.7 million, of which $55.3 million was outstanding as of December 31, 2022.

As of December 31, 2022 and 2021, we were in compliance with all debt covenants. Our debt to total capital ratio was 65 percent and 60 percent as of December 31, 2022 and 2021, respectively. Additionally, as of December 31, 2022, we had letters of credit outstanding of $38.5 million, primarily related to purchase obligations for raw materials.

Share Repurchases:

As of December 31, 2022, our Board of Directors has authorized us to repurchase up to an additional $349.1 million of our common stock. We repurchased a total of 4.4 million shares of our common stock for $505.0 million during 2022, which had a favorable impact on diluted net income from continuing operations per share of 33 cents.

Wholesale Customer Financing Arrangements:

We have arrangements with certain finance companies to provide secured floor plan financing for our dealers. These arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital. A majority of the worldwide sales of snowmobiles, ORVs, motorcycles, boats and related PG&A are financed under similar arrangements whereby we receive payment within a few days of shipment of the product. The amount financed by worldwide dealers under these arrangements related to snowmobiles, ORVs, motorcycles, boats and related PG&A as of December 31, 2022 and 2021, was approximately $1,893.9 million and $946.7 million, respectively. We participate in the cost of dealer financing up to certain limits.

Under these arrangements, we have agreed to repurchase products repossessed by these finance companies. As of December 31, 2022, the potential aggregate repurchase obligations were approximately $413.5 million. Our financial exposure under these repurchase agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented.

Retail Customer Financing Arrangements:

We have agreements with third-party financing companies to provide financing options to end consumers of our products. We have no material contingent liabilities for residual value or credit collection risk under these agreements. During 2022, consumers financed 23 percent of our vehicles sold in the United States through these arrangements. The volume of installment credit contracts written in calendar year 2022 with these institutions was $1,098.0 million, a one percent increase from 2021.

Critical Accounting Policies and Critical Accounting Estimates

We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur may have a material impact on our financial condition or results of operations. The significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following: revenue recognition, sales promotions and incentives, product warranties, product liability, and goodwill and indefinite-lived intangibles.

32

Table of Contents

Revenue recognition. With respect to wholegood vehicles, boats, and PG&A, revenue is recognized when we transfer control of the product to our customer (primarily dealers and distributors). With respect to services provided by us, revenue is recognized upon completion of the service or over the term of the service agreement in proportion to the costs expected to be incurred in satisfying the obligations over the term of the service period. Revenue is measured based on the amount of consideration that we expect to be entitled to in exchange for the goods or services transferred. Sales, value add, and other taxes collected from a customer concurrent with revenue-producing activities are excluded from revenue. When the right of return exists, we adjust the consideration for the estimated effect of returns. We estimate expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer, and a projection of this experience into the future. We have agreed to repurchase products repossessed by the finance companies up to certain limits. Our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product.

Sales promotions and incentives. We accrue for estimated sales promotion and incentive expenses, which are recognized as a component of sales in measuring the amount of consideration we expect to receive in exchange for transferring goods or providing services. Examples of sales promotion and incentive programs include dealer and consumer rebates, volume incentives, retail financing programs and sales associate incentives. Sales promotion and incentive expenses are estimated based on current programs, planned programs, and historical rates for each product line. We record these amounts as a liability in the consolidated balance sheet until they are ultimately paid. As of December 31, 2022 and 2021, accrued sales promotions and incentives were $127.0 million and $96.9 million, respectively. Actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the customer usage rate varies from historical trends. Adjustments to sales promotions and incentives accruals are made as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date.

Product warranties. We typically provide a limited warranty for our vehicles and boats for a period of six months to ten years, depending on the product. We provide longer warranties in certain geographical markets as determined by local regulations and customary practice and may also provide longer warranties related to certain promotional programs. Our standard warranties require us, generally through our dealer network, to repair or replace defective products during such warranty periods. The warranty reserve is established at the time of sale to the dealer or distributor based on management’s best estimate using historical rates and trends. We record these amounts as a liability in the consolidated balance sheet until they are ultimately paid. As of December 31, 2022 and 2021, the accrued warranty liability was $172.9 million and $132.9 million, respectively. Adjustments to the warranty reserve are made based on actual claims experience in order to properly estimate the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. The warranty reserve includes the estimated costs related to recalls, which are accrued when probable and estimable. Factors that could have an impact on the warranty accrual include the following: changes in manufacturing quality, shifts in product mix, changes in warranty coverage periods, impacts on product usage (including weather), product recalls and changes in sales volume. Amounts estimated to be due and payable could differ materially from what will ultimately transpire in the future and have a material adverse effect on our financial condition.

Product liability. We are subject to product liability claims in the normal course of business. In 2012, we began purchasing excess insurance coverage for product liability claims. We self-insure product liability claims before the policy date and up to the purchased insurance coverage after the policy date. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably estimable. There is significant judgment and estimation required in evaluating the possible outcomes and potential losses of product liability matters. We utilize claims experience, historical trends and actuarial analysis, along with an analysis of current claims, to assist in determining the appropriate loss reserve levels. As of December 31, 2022 and 2021, we had accruals of $107.5 million and $70.3 million, respectively, for the probable payment of pending claims related to product liability litigation associated with our products. Adverse determination of material product liability claims made against us could have a material adverse effect on our financial condition.

Goodwill. Goodwill is tested at least annually for impairment and is tested for impairment more frequently when events or changes in circumstances indicate that the asset might be impaired. We complete our annual goodwill impairment test as of the first day of the fourth quarter.

We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount. A qualitative assessment requires that we consider events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or

33

Table of Contents

carrying amount of a reporting unit’s net assets, and changes in our stock price. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we elect to bypass the qualitative test and proceed to a quantitative test, then the quantitative goodwill impairment test is performed. A quantitative test includes comparing the fair value of each reporting unit to the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, an impairment is recognized in an amount equal to the difference, limited to the total amount of goodwill allocated to that reporting unit.

Under the quantitative goodwill impairment test, the fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Determining the fair value of the reporting units requires the use of significant judgment, including discount rates, assumptions in our long-term business plan about future revenues and expenses, capital expenditures, and changes in working capital, which are dependent on internal forecasts, estimation of long-term growth for each reporting unit, and determination of the discount rate. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets in which we participate. These assumptions are determined over a five year long-term planning period. The five year growth rates for revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") vary for each reporting unit being evaluated. Revenues and EBITDA beyond five years are projected to grow at a terminal growth rate consistent with industry expectations. Actual results may significantly differ from those used in our valuations. The forecasted future cash flows are discounted using a discount rate developed for each reporting unit. The discount rates were developed using market observable inputs, as well as our assessment of risks inherent in the future cash flows of the respective reporting unit.

In estimating fair value using the market approach, we identify a group of comparable publicly traded companies for each reporting unit that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of EBITDA. We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods. Inputs used to estimate these fair values included significant unobservable inputs that reflect our assumptions about the inputs that market participants would use and, therefore, the fair value assessments are classified within Level 3 of the fair value hierarchy.

In the fourth quarter of 2022, we completed the annual impairment test. It was determined that goodwill was not impaired as each reporting unit’s fair value exceeded its carrying value. We completed a qualitative assessment for all reporting units.

Identifiable intangible assets. Our primary identifiable intangible assets include: dealer/customer relationships, brand/trade names, developed technology, and non-compete agreements. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets with indefinite lives are tested for impairment annually or more frequently when events or changes in circumstances indicate that the asset might be impaired. We complete our annual impairment test as of the first day of the fourth quarter each year for identifiable intangible assets with indefinite lives.

Our identifiable intangible assets with indefinite lives include brand/trade names. The impairment test consists of a comparison of the fair value of the brand/trade name with its carrying value. The fair value is determined using the relief-from-royalty method. This method assumes the trade name has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the discount rate. Forecasted revenues are derived from our annual budget and long-term business plan and royalty rates were based on brand profitability. The discount rates are developed using the market observable inputs used in the development of the reporting unit discount rates, as well as our assessment of risks inherent in the future cash flows of the respective trade name.

In the fourth quarter of 2022, we completed the annual impairment test. It was determined that our indefinite lived intangible assets were not impaired.

34

Table of Contents

New Accounting Pronouncements

See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—Organization and Significant Accounting Policies—New accounting pronouncements.”