What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-10-29 compared with 2020-07-30 · 144 added, 240 removed, 231 unchanged (62% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Twenty-Six Weeks Ended

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Cost of goods sold

1 unchanged sentence

Income from operations

Other income, net

Other (expense) income, net

Income before income taxes

2 unchanged sentences

Weighted average shares outstanding:

See accompanying Notes to Consolidated Financial Statements

See accompanying Notes to Condensed Consolidated Financial Statements

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data)

June 27, 2020

September 26, 2020

December 28, 2019

13 unchanged sentences

Accrued customer rebates and returns

Revolving credit line

Other accrued liabilities

11 unchanged sentences

Total shareholders’ equity

See accompanying Notes to Consolidated Financial Statements

Total liabilities and shareholders' equity

See accompanying Notes to Condensed Consolidated Financial Statements

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Thirteen Weeks Ended June 27, 2020

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended September 26, 2020

(in thousands, except share data)

Balance at March 28, 2020

Balance at June 27, 2020

Exercise of stock options

3 unchanged sentences

Other stock related activity, net of tax

Balance at June 27, 2020

Thirteen Weeks Ended June 29, 2019

Balance at September 26, 2020

Three Months Ended September 28, 2019

(in thousands, except share data)

Balance at March 30, 2019

Balance at June 29, 2019

Exercise of stock options

3 unchanged sentences

Other stock related activity, net of tax

Balance at June 29, 2019

Twenty-Six Weeks Ended June 27, 2020

Balance at September 28, 2019

Nine Months Ended September 26, 2020

(in thousands, except share data)

5 unchanged sentences

Other stock related activity, net of tax

Balance at June 27, 2020

Twenty-Six Weeks Ended June 29, 2019

Balance at September 26, 2020

Nine Months Ended September 28, 2019

(in thousands, except share data)

5 unchanged sentences

Other stock related activity, net of tax

Balance at June 29, 2019

See accompanying Notes to Consolidated Financial Statements

Balance at September 28, 2019

See accompanying Notes to Condensed Consolidated Financial Statements

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-Six Weeks Ended

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(in thousands)

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

Cash Flows from Operating Activities:

17 unchanged sentences

Cash Flows from Financing Activities:

Net proceeds of revolving credit line

Proceeds of revolving credit line

Payments of revolving credit line

Other stock related activity

Purchase and cancellation of common stock

Cash provided by (used in) financing activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash used in financing activities

Net Increase in Cash and Cash Equivalents

Cash and Cash Equivalents, Beginning of Period

3 unchanged sentences

Cash paid for income taxes

See accompanying Notes to Consolidated Financial Statements

See accompanying Notes to Condensed Consolidated Financial Statements

DORMAN PRODUCTS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JUNE 27, 2020 AND JUNE 29, 2019

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2020 AND SEPTEMBER 28, 2019

Basis of Presentation

As used herein, unless the context otherwise requires, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc.

As used herein, unless the context requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc.

and its subsidiaries.

Our ticker symbol on the NASDAQ Global Select Market is “DORM.”

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S.

for interim financial information and in accordance with the rules and regulations of the U.S.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

However, they do not include all the information and footnotes required by U.S.

generally accepted accounting principles for complete financial statements.

However, they do not include all the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included.

Operating results for the thirteen and twenty-six weeks ended June 27, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending 2020 or any future period.

Operating results for the three and nine months ended September 26, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending 2020 or any future period.

We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers.

3 unchanged sentences

Business Acquisitions and Investments

Power Train Industries, Inc.

On January 2, 2020, we acquired the remaining 60 % of the outstanding stock of Power Train Industries, Inc.

1 unchanged sentence

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

As a result of the acquisition, we recorded a gain of approximately $ 2.5 million in Other Income in the twenty-six weeks ended June 27, 2020 as a result of the increase in fair value of the previously owned 40% interest in PTI.

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

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

1 unchanged sentence

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

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

The estimated fair value of the PTI assets acquired and liabilities assumed are provisional as of June 27, 2020 and are based on information that is currently available.

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

The estimated fair value of the PTI assets acquired and liabilities assumed are provisional as of September 26, 2020 and are based on information that is currently available.

Additional information about conditions that existed as of the date of acquisition are being gathered to finalize these provisional measurements, particularly with respect to net working capital and income taxes payable.

4 unchanged sentences

Customer relationships

The fair values of the Customer relationships and Tradenames were estimated using a discounted present value income approach.

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

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

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

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

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

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 agreements were accounted for as sales of accounts receivable and the related accounts receivable were removed from our Consolidated Balance Sheet at the time of the sales transactions.

Pursuant to these agreements, we sold $ 496.4 million and $ 355.1 million of accounts receivable during the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively.

All of our credit terms with our customers are 365 days or less.

If receivables had not been sold over the previous twelve months, $ 571.7 million and $ 437.9 million of additional accounts receivable would have been outstanding at June 27, 2020 and December 28, 2019, respectively, based on standard payment terms.

Financing costs associated with these accounts receivable sales programs were $ 6.8 million and $ 4.7 million in the thirteen weeks ended June 27, 2020 and June 29, 2019, respectively.

Financing costs associated with these accounts receivable sales programs were $ 9.6 million and $ 9.3 million in the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively.

The financing costs associated with our accounts receivable sales programs were classified as selling, general and administrative expense in the Consolidated Statements of Operations.

We have entered 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 agreements were accounted for as sales of accounts receivable and the related accounts receivable were removed from our Condensed Consolidated Balance Sheet at the times of the sales transactions.

Pursuant to these agreements, we sold $ 568.3 million and $ 530.7 million of accounts receivable during the nine months ended September 26, 2020 and September 28, 2019, respectively.

All credit terms with our customers are 365 days or less.

If receivables had not been sold over the previous twelve months, $ 489.5 million and $ 437.9 million of additional accounts receivable would have been outstanding at September 26, 2020 and December 28, 2019, respectively, based on our standard payment terms.

Financing costs associated with these accounts receivable sales programs were $ 1.3 million and $ 4.3 million during the three months ended September 26, 2020 and September 28, 2019, respectively.

Financing costs associated with these accounts receivable sales programs were $ 10.9 million and $ 13.6 million during the nine months ended September 26, 2020 and September 28, 2019, respectively.

These costs were classified as selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of our products and are stated at the lower of cost or net realizable value.

1 unchanged sentence

(in thousands)

September 26, 2020

December 28, 2019

Finished product

Packaging materials

We adopted ASU No.

2016-02, Leases , on December 30, 2018, the beginning of our fiscal 2019, using the modified retrospective approach.

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 and to obtain substantially all of the economic benefit from the use of the underlying asset.

Some of our leases include both lease and non-lease components which are accounted for as a single lease component as we have elected the practical expedient.

Some of our operating lease agreements include variable lease costs, primarily taxes, insurance, common area maintenance or increases in rental costs related to inflation.

Substantially all of our equipment leases and some of our real estate leases have terms of less than one year and, as such, are accounted for as short-term leases as we have elected the practical expedient.

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.

Operating lease payments are recognized on a straight-line basis over the lease term.

We had no financing leases as of June 27, 2020.

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

Our leases have remaining lease terms of 1 to 11 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.

As of June 27, 2020, there were no material variable lease costs or sublease income.

Cash paid for operating leases was $ 4.0 million and $ 2.5 million in the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively, which is classified in operating activities.

The following table summarizes the lease expense for the twenty-six weeks ended June 27, 2020 and June 29, 2019 :

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(in thousands)

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Operating lease expense

Short-term lease expense

Total lease expense

Supplemental balance sheet information related to our operating leases is as follows:

(in thousands)

June 27, 2020

Operating lease right-of-use assets

Other accrued liabilities

Long-term operating lease liabilities

Total operating lease liabilities

Weighted average remaining lease term (years)

Weighted average discount rate

During the twenty-six weeks ended June 27, 2020, we added $ 6.4 million of right of use asset and lease liability related to the expansion of our Portland, Tennessee distribution facility.

The following table summarizes the maturities of our lease liabilities for all operating leases as of June 27, 2020:

(in thousands)

June 27, 2020

2020 (Remainder of 2020)

2025 and thereafter

Total lease payments

Imputed interest

Present value of lease liabilities

Goodwill and Intangible Assets

1 unchanged sentence

(in thousands)

September 26, 2020

December 28, 2019

5 unchanged sentences

Intangible assets included the following:

June 27, 2020

September 26, 2020

December 28, 2019

(in thousands)

Intangible assets subject to amortization

Weighted Average Amortization Period

5 unchanged sentences

Net Carrying Value

Intangible assets subject to amortization

(in thousands)

Customer relationships

Amortization expense was $ 0.9 million and $ 0.6 million for the thirteen weeks ended June 27, 2020 and June 29, 2019, respectively, and $ 1.7 million and $ 1.3 million for the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively .

In December 2017, we entered into a credit agreement which will expire in December 2022 .

This agreement provides for an initial revolving credit facility of $ 100.0 million and, subject to certain requirements, gives us the ability to request increases in revolving credit commitments of up to an additional $ 100.0 million.

Borrowings under the credit agreement are on an unsecured basis.

At the Company’s election, the interest rate applicable to borrowings under the credit agreement will be either (1) the Prime Rate as announced by Wells Fargo from time to

time, (2) an Adjusted LIBOR Market Index Rate as measured by the LIBOR Market Index Rate plus the Applicable Margin which fluctuates between 65 basis points and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated EBITDA, or (3) an Adjusted LIBOR Rate as measured by the LIBOR Rate plus the Applicable Margin which fluctuates between 65 basis points and 125 basis points based on the ratio of the Company’s Consolidated Funded Debt to Consolidated EBITDA.

The interest rate at June 27, 2020 was LIBOR plus 65 basis points ( 0.83 %).

During the occurrence and continuance of an event of default, all outstanding revolving credit loans will bear interest at a rate per annum equal to 2.00 % in excess of the greater of (1) the Prime Rate or (2) the Adjusted LIBOR Market Index Rate then applicable.

The credit agreement also contains covenants, including those related to the ratio of certain consolidated fixed charges to consolidated EBITDA, capital expenditures, and share repurchases, each as defined by the credit agreement.

The credit agreement also requires us to pay a fee of 0.10 % on the average daily unused portion of the facility, provided the fee will not be charged on the first $ 30 million of the revolving credit facility.

In March 2020, Dorman took proactive steps to increase its cash position and preserve financial flexibility in light of uncertainties from the COVID-19 pandemic by drawing down $ 99.0 million from the revolving credit facility.

As of June 27, 2020, we had $ 99.0 million in borrowings under the credit agreement, which amount does not include two outstanding letters of credit for approximately $ 0.8 million in the aggregate which were issued to secure ordinary course of business transactions.

Net of these borrowings and letters of credit, we had approximately $ 0.2 million available under the credit agreement at June 27, 2020.

See Note 17 for additional information on the repayment of this loan.

As of June 27, 2020, we were no t in default in respect to the credit agreement and have paid $ 0.2 million in interest in both the thirteen and twenty-six weeks ended June 27, 2020.

Amortization expense was $ 0.8 million and $ 0.7 million for the three months ended September 26, 2020 and September 28, 2019, respectively, and $ 2.5 million and $ 2.0 million for the nine months ended September 26, 2020 and September 28, 2019, respectively .

On June 29, 2020, the first day of our fiscal third quarter, the Company repaid the $ 99.0 million of outstanding borrowings under this revolving credit facility.

T he average interest rate while the debt was outstanding was 1.41 %.

As of September 26, 2020, there were no borrowings under the credit agreement and two outstanding letters of credit for approximately $ 0.8 million in the aggregate which were issued to secure ordinary course of business transactions.

Net of these letters of credit, there was approximately $ 99.2 million available under the credit agreement at September 26, 2020.

As of September 26, 2020, we were no t in default in respect to the credit agreement and paid $ 0.2 million and $ 0.4 million in interest during the three and nine months ended September 26, 2020, respectively.

Commitments and Contingencies

During 2019, we informed United States Customs & Border Protection (“CBP”) that we were commencing a voluntary disclosure process with CBP where we would voluntarily disclose to CBP certain product misclassifications and reimburse CBP for any resulting underpayment of duties that were identified as part of a voluntary internal review conducted by the Company.

During 2019, we commenced a voluntary disclosure process in which we committed to disclosing to United States Customs & Border Protection (“CBP”) certain product misclassifications and reimbursing CBP for any resulting underpayment of duties that were identified as part of a voluntary internal review conducted by the Company.

The Company recorded an estimated liability of $ 2.8 million in its Statement of Operations for the year ended December 28, 2019, which represents the Company’s estimated underpayment of duties, after deducting its estimated overpayment of duties, to CBP due to misclassifications over the prior five-year period, which is the applicable statute of limitations, plus applicable interest.

In June 2020, we completed our internal review and made our initial prior disclosure submission to CBP, including a payment to CBP of $ 2.8 million.

The process of finalizing our prior disclosure with CBP may be iterative, and we intend to work cooperatively with CBP in connection with finalizing the prior disclosure.

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

CBP has acknowledged receipt of our prior disclosure submission but has not yet communicated that our prior disclosure submission is closed.

We intend to work cooperatively with CBP in connection with its review of our prior disclosure submission.

Other Contingencies

3 unchanged sentences

Revenue Recognition

The FASB issued ASU No.

2014-09, Revenue from Contracts with Customers , in May 2014 regarding the accounting for and disclosure of revenue.

Specifically, the update outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

Our primary source of revenue is from contracts with and purchase orders from customers.

Revenue is recognized from product sales when goods are shipped, title and risk of loss and control have been transferred to the customer, and collection is reasonably assured.

Revenue is recognized from product sales when goods are shipped, title and risk of loss and control have been transferred to the customer, and collection is probable.

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, product returns, promotional rebates, core (i.e.

remanufactured parts) return deposits and other discounts in the period the related product revenue is recognized (“customer rebates and returns”).

We record estimates for cash discounts, product returns, promotional rebates, core (i.e., remanufactured parts) return deposits and other discounts (“customer rebates and returns”) in the period the related product revenue is recognized.

The provision for customer rebates and returns is recorded as a reduction of gross sales.

Our obligation associated with customer rebates and returns is classified as a current liability on our consolidated balance sheets (“accrued customer rebates and returns”).

Our obligation associated with customer rebates and returns is classified as a current liability on our condensed consolidated balance sheets (“accrued customer rebates and returns”).

Actual customer rebates and returns have not differed materially from estimated amounts for each period presented.

1 unchanged sentence

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 of the new standard.

All of our revenue was recognized under the point of time approach in accordance with the revenue standard during the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively.

Also, we do not have significant financing arrangements with our customers, as our credit terms are all 365 days or less.

Lastly, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts.

Five-step model

We apply the FASB’s guidance on revenue recognition, which requires us to recognize the amount of revenue and consideration which we expect to receive in exchange for goods or services transferred to our customers.

To do this, we apply the five-step model prescribed by the FASB, which requires us to:

(i) identify the contract with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when, or as, we satisfy a performance obligation.

Contract Assets and Liabilities

We recognize a receivable or contract asset when we perform a service or transfer a good in advance of receiving consideration.

- A receivable is recorded when our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due.

- A contract asset is recorded when our right to consideration in exchange for goods or services that we have transferred to a customer is conditional on something other than the passage of time.

We did no t have any contract assets recorded as of June 27, 2020 or December 28, 2019.

We recognize a contract liability when we receive consideration, or if we have the unconditional right to receive consideration, in advance of satisfying the performance obligation.

A contract liability is our obligation to transfer goods or services to a customer for which we have received consideration, or an amount of consideration is due from the customer.

We did no t have any contract liabilities recorded as of June 27, 2020 or December 28, 2019.

We have concluded that our estimates of variable consideration are not constrained under revenue recognition requirements in accordance with GAAP.

All our revenue was recognized under the point of time approach during the nine months ended September 26, 2020 and September 28, 2019, respectively.

We do not have significant financing arrangements with our customers, as our credit terms are all 365 days or less.

Also, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts.

Disaggregated Revenue

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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Three Months Ended

Nine Months Ended

(in thousands)

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Automotive body

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Three Months Ended

Nine Months Ended

(in thousands)

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Net sales to U.S.

1 unchanged sentence

Stock-Based Compensation

On May 16, 2018 , our shareholders approved our 2018 Stock Option and Stock Incentive Plan (the “2018 Plan”), which supersedes our 2008 Stock Option and Stock Incentive Plan (the “2008 Plan”).

Under the terms of the 2018 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, stock options, or combinations thereof, to officers, directors, employees, consultants and advisors.

Grants under the 2018 Plan must be made within ten years of the date the Plan was approved.

Stock options are exercisable upon the terms set forth in each grant agreement, 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.

At June 27, 2020, 856,921 shares were available for grant under the 2018 Plan.

Restricted Stock and Restricted Stock Units (“RSUs”)

3 unchanged sentences

For performance-based restricted stock and RSU awards tied to growth in adjusted pre-tax income, compensation cost related to the award 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 at each reporting date.

Since 2019, we have granted performance-based restricted stock and RSU awards 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.

Since 2019, we have granted performance-based restricted stock and RSU awards that vest based on our total shareholder return ranking relative to the total shareholder return of the companies comprising the S&P Mid-Cap 400 Growth Index over a three-year performance period.

For performance-based restricted stock and RSU awards tied to total shareholder return, compensation cost related to the award 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.

Compensation cost related to restricted stock and RSU awards was $ 1.1 million and $ 0.8 million for the thirteen weeks ended June 27, 2020 and June 29, 2019, respectively, and $ 2.0 million and $ 1.5 million for the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively.

The compensation costs were classified as selling, general and administrative expense in the Consolidated Statements of Operations.

The following table summarizes our restricted stock and RSU award activity for the twenty-six weeks ended June 27, 2020:

Compensation cost related to restricted stock and RSU awards was $ 1.0 million and $ 0.8 million for the three months ended September 26, 2020 and September 28, 2019, respectively, and $ 3.0 million and $ 2.3 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.

The compensation costs were classified as selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

The following table summarizes our restricted stock and RSU award activity for the nine months ended September 26, 2020:

Balance at December 28, 2019

Balance at June 27, 2020

As of June 27, 2020, there was $ 9.6 million of unrecognized compensation cost related to unvested restricted stock and RSU awards that is expected to be recognized over a weighted-average period of approximately 2.7 years.

Balance at September 26, 2020

As of September 26, 2020, there was $ 7.9 million of unrecognized compensation cost related to unvested restricted stock and RSU awards that is expected to be recognized over a weighted-average period of approximately 2.5 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 restricted stock and RSU awards that vested was less than $ 0.1 million and $ 0.2 million in the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively, and was credited to income tax expense.

The excess tax benefit generated from restricted stock and RSU awards that vested was not significant during the nine months ended September 26, 2020 and September 28, 2019, respectively.

Stock Options

We expense the grant-date fair value of stock options.

Compensation cost is recognized on a straight-line basis over the vesting period for which related services are performed.

The compensation cost charged against income was $ 0.3 million and $ 0.2 million for the thirteen weeks ended June 27, 2020 and June 29, 2019, respectively, and $ 0.5 million and $ 0.3 million for the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively.

The compensation costs were classified as selling, general and administrative expense in the Consolidated Statements of Operations.

No cost was capitalized during the twenty-six weeks ended June 27, 2020 or June 29, 2019.

We expense the grant-date fair value of stock options as compensation on a straight-line basis over the vesting period for which related services are performed.

The compensation cost charged against income was $ 0.3 million and $ 0.2 million for the three months ended September 26, 2020 and September 28, 2019, respectively, and $ 0.8 million and $ 0.5 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.

The compensation costs were classified as Selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

No cost was capitalized during the nine months ended September 26, 2020 or September 28, 2019.

We use the Black-Scholes option valuation model to estimate the fair value of stock options granted.

3 unchanged sentences

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

During the twenty-six weeks ended June 27, 2020 and June 29, 2019, we granted 102,584 and 36,235 stock options, respectively.

The following table summarizes our stock option activity for the twenty-six weeks ended June 27, 2020:

During the nine months ended September 26, 2020 and September 28, 2019, we granted 109,352 and 38,670 stock options, respectively.

The following table summarizes our stock option activity for the nine months ended September 26, 2020:

Balance at December 28, 2019

Balance at June 27, 2020

Options exercisable at June 27, 2020

There were options to purchase 419 and 34,301 shares of common stock exercised during the twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively.

As of June 27, 2020, there was $ 3.6 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted-average period of 3.1 years.

There was no cash received from stock option exercises in the twenty-six weeks ended June 27, 2020.

Cash received from stock option exercises was less than $ 0.1 million in the twenty-six weeks ended June 29, 2019.

There was no excess tax benefit generated from stock options exercised in the twenty-six weeks ended June 27, 2020 or June 29, 2019.

Balance at September 26, 2020

Options exercisable at September 26, 2020

O ptions to purchase 6,630 and 35,401 shares of common stock were exercised during the nine months ended September 26, 2020 and September 28, 2019, respectively.

As of September 26, 2020, there was $ 2.7 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted-average period of 2.9 years.

Cash received from stock option exercises was not significant during the nine months ended September 26, 2020 and September 28, 2019.

There was no excess tax benefit generated from stock options exercised in the nine months ended September 26, 2020 or September 28, 2019.

Employee Stock Purchase Plan

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

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

Employee Stock Purchase Plan (the “ESPP”), which provides up to 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.

There were 10,735 shares purchased under the ESPP plan in both the thirteen and twenty-six weeks ended June 27, 2020, and 13,669 shares purchased in both the thirteen and twenty-six weeks ended June 29, 2019.

During both the thirteen weeks ended June 27, 2020 and June 29, 2019, compensation cost under the ESPP was $ 0.1 million.

During both the twenty-six weeks ended June 27, 2020 and June 29, 2019, compensation cost under the ESPP was $ 0.2 million.

There were no shares purchased under the ESPP plan during the three months ended September 26, 2020 and September 28, 2019 as a result of the timing of the end of the purchase windows.

There were 10,735 shares and 13,669 shares purchased under the ESPP plan during the nine months ended September 26, 2020, and nine months ended September 28, 2019, respectively.

During both the three months ended September 26, 2020 and September 28, 2019, compensation cost under the ESPP was $ 0.1 million .

During both the nine months ended September 26, 2020 and September 28, 2019, compensation cost under the ESPP was $ 0.3 million and $ 0.2 million, respectively.

Earnings Per Share

Basic earnings per share is calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding unvested restricted stock and shares of our common stock underlying RSUs and stock options that are considered to be contingently issuable.

Basic earnings per share is calculated by dividing our net income by the weighted average number of common shares outstanding during the period, which exclude unvested restricted stock and shares of our common stock underlying RSUs and stock options that 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 123,000 shares and 54,000 shares were excluded from the calculation of diluted earnings per share as of June 27, 2020 and June 29, 2019, 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:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Stock-based awards of 141,000 shares and 96,000 shares were excluded from the calculation of diluted earnings per share as of September 26, 2020 and September 28, 2019, respectively, as their effect would have been anti-dilutive.

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

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Weighted average basic shares outstanding

5 unchanged sentences

401(k) Retirement 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.

For the twenty-six weeks ended June 27, 2020, we repurchased and cancelled 6,350 shares of common stock held in the 401(k) Plan for $ 0.4 million at an average price of $ 63.00 per share.

During the fifty-two weeks ended December 28, 2019, we repurchased and cancelled 22,380 shares of common stock held in the 401(k) Plan for $ 1.9 million at an average price of $ 87.26 per share.

401(k) Plan participants can no longer purchase shares of Dorman common stock as an

investment option under the 401(k) Plan.

Shares are 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.

For the nine months ended September 26, 2020 , we repurchased and cancelled 15,280 shares of common stock held in the 401(k) Plan for $ 1.1 million at an average price of $ 73.49 per share.

During the year ended December 28, 2019 , we repurchased and cancelled 22,380 shares of common stock held in the 401(k) Plan for $ 1.9 million at an average price of $ 87.26 per share.

Our Board of Directors authorized a share repurchase program of up to $ 400 million through December 31, 2020 .

1 unchanged sentence

The share repurchase program does not obligate us to acquire any specific number of shares.

For the twenty-six weeks ended June 27, 2020, we repurchased and cancelled 91,979 shares of common stock for $ 5.5 million at an average price of $ 59.41 per share under this program.

However, in light of COVID-19, during March 2020, we temporarily suspended repurchases under the share repurchase program and disclosed that we may resume the repurchase program at any time when we believe it is prudent to do so and without further notice.

At June 27, 2020 $ 138.5 million was available for repurchase under this share repurchase program.

For the fifty-two weeks ended December 28, 2019, we repurchased and cancelled 499,564 shares of common stock for $ 39.4 million at an average price of $ 78.84 per share under this program.

For the nine months ended September 26, 2020, we repurchased and cancelled 218,836 shares of common stock for $ 16.2 million at an average price of $ 73.99 per share under this program.

For the year ended December 28, 2019, we repurchased and cancelled 499,564 shares of common stock for $ 39.4 million at an average price of $ 78.84 per share under this program.

At September 26, 2020, $ 127.7 million was available for repurchase under this share repurchase program.

On October 27, 2020, the Company’s Board of Directors approved a resolution to increase and extend its share repurchase program by an additional $ 100 million, raising the aggregate authorization under the program to $ 500 million and extending it through December 31, 2022 .

Related-Party Transactions

We have a non-cancelable operating lease for our primary operating facility with a partnership in which Steven L.

We have a non-cancelable operating lease for a facility housing our corporate headquarters and a distribution center with a partnership in which Steven L.

Berman, our Executive Chairman, and other members of the Berman family, are partners.

1 unchanged sentence

This lease will expire on December 31, 2022 .

The right-of-use asset and total lease liabilities related to this lease were both $ 3.8 million as of June 27, 2020.

The right-of-use asset and total lease liabilities related to this lease were both $ 3.5 million as of September 26, 2020.

In the opinion of our Audit Committee, the terms and rates of this lease are no less favorable than those which could have been obtained from an unaffiliated party when the lease was renewed in November 2016.

As of September 30, 2020, the beginning of our fourth quarter, another company in which Steven L.

Berman, our Executive Chairman, and other members of the Berman family, are owners (the “Berman Real Estate Company”), acquired from an unaffiliated third-party owner the real estate and building which we were leasing from such third-party owner.

In connection with the Berman Real Estate Company’s acquisition, we entered into a new non-cancelable operating lease agreement with the Berman Real Estate Company to continue leasing the facility.

We also have non-cancelable operating leases with a limited liability company in which certain of the former owners of PTI are members.

1 unchanged sentence

Based upon the terms of the leases, aggregate payments thereunder will be $ 0.3 million in fiscal 2020.

Additionally, we had a non-cancelable operating lease for our Canadian operating facility from a corporation of which an employee, who is also the former owner of an acquired entity, and his family members are owners.

Based upon the terms of the lease, payments were $ 0.2 million in fiscal 2019.

This lease expired on April 30, 2019 .

We are a partner in a joint venture with one of our suppliers and own minority interests in two other suppliers.

Each of these investments is accounted for according to the equity method.

At June 27, 2020, we had $ 1.1 million of net unrecognized tax benefits, $ 1.0 million of which would lower our effective tax rate if recognized.

At September 26, 2020, we had $ 1.1 million of net unrecognized tax benefits, $ 1.0 million of which would lower our effective tax rate if recognized.

We recognize interest and penalties related to uncertain tax positions in income tax expense.

As of June 27, 2020, we had approximately $ 0.1 million of accrued interest and penalties related to uncertain tax positions.

As of September 26, 2020, we had approximately $ 0.1 million of accrued interest and penalties related to uncertain tax positions.

We file income tax returns in the United States, Canada, China, India, and Mexico.

3 unchanged sentences

Tax years before 2016 are closed for tax purposes in China.

All tax years remain open for Mexico and India.

Tax years before 2015 are closed for tax purposes in Mexico.

All tax years remain open for India.

Fair Value Disclosures

4 unchanged sentences

We adopted this ASU effective December 29, 2019 , the beginning of our 2020 fiscal year.

Adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

Adoption of this ASU did not have a material impact on our condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13 , Financial Instruments – Credit Losses , which was subsequently amended in November 2018 through ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments Credit Losses.

3 unchanged sentences

We adopted this ASU effective December 29, 2019 , the beginning of our 2020 fiscal year.

Adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic740):

Simplifying the Accounting for Income Taxes .

This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

ASU 2019-12 is effective for companies beginning with fiscal years beginning after December 15, 2020.

The Company is currently evaluating the new guidance to determine the impact the adoption of this guidance will have on the Company’s results of operations, cash flows, and financial condition.

However, at this time we do not believe this new guidance will have a material impact on our consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323 and Topic 815 , which clarifies the interactions between ASC 321, ASC 323 and ASC 815.

The new guidance addresses accounting for the transition into and out of the equity method and also provides guidance on whether equity method accounting would be applied to certain purchased options and forward

contracts upon settlement.

ASU 2020-01 is effective for annual and interim periods in fiscal years beginning after December 15, 2020.

The Company is currently evaluating the new guidance to determine the impact the adoption of this guidance will have on the Company’s results of operations, cash flows, and financial condition.

However, at this time we do not believe this new guidance will have a material impact on our consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates such as LIBOR.

The expedients and exceptions provided by ASU 2020-04 will not be available until after December 31, 2022, other than for certain hedging relationships entered into before December 31, 2022.

ASU 2020-04 may be applied as of the beginning of the interim period that includes March 12, 2020 through December 31, 2022.

The Company is currently evaluating the new guidance to determine the impact the adoption of this guidance will have on the Company’s results of operations, cash flows, and financial condition.

However, at this time we do not believe this new guidance will have a material impact on our consolidated financial statements and related disclosures.

Subsequent Events

On June 29, 2020 the Company repaid the $ 99.0 million of outstanding borrowings under its revolving credit facility.

Following such repayment, as of June 29, 2020, we had $ 99.2 million of availability under our revolving credit facility, after taking into account issued but undrawn letters of credit in the amount of $ 0.8 million.

Adoption of this ASU did not have a material impact on our condensed consolidated financial statements and related disclosures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements