Dorman Products, Inc. 10-Q

ITEM 1. Financial Statements DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended (in thousands, except per share data) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Net sales $ 348,426 $ 300,620 $ 947,073 $ 791,532 Cost of goods sold 231,572 192,819 615,574 519,786 Gross profit 116,854 107,801 331,499 271,746 Selling, general and administrative expenses 72,663 63,028 205,049 184,288 Income from operations 44,191 44,773 126,450 87,458 Interest expense, net 733 63 918 545 Other income, net ( 95 ) ( 46 ) ( 334 ) ( 2,862 ) Income before income taxes 43,553 44,756 125,866 89,775 Provision for income taxes 10,449 10,497 28,414 18,856 Net income $ 33,104 $ 34,259 $ 97,452 $ 70,919 Earnings per share: Basic $ 1.04 $ 1.06 $ 3.06 $ 2.19 Diluted $ 1.04 $ 1.06 $ 3.04 $ 2.19 Weighted average shares outstanding: Basic 31,692 32,281 31,895 32,317 Diluted 31,842 32,371 32,039 32,394 See accompanying Notes to Condensed Consolidated Financial Statements 3 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED ) (in thousands, except for share data) September 25, 2021 December 26, 2020 Assets Current assets: Cash and cash equivalents $ 57,263 $ 155,576 Accounts receivable, less allowance for doubtful accounts of $ 1,248 and $ 1,260 463,113 460,878 Inventories 475,462 298,719 Prepaids and other current assets 17,297 7,758 Total current assets 1,013,135 922,931 Property, plant and equipment, net 116,309 91,009 Operating lease right-of-use assets 57,698 39,002 Goodwill 200,026 91,080 Intangible assets, net 182,827 25,207 Deferred tax asset, net — 12,450 Other assets 45,853 38,982 Total assets $ 1,615,848 $ 1,220,661 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 149,925 $ 117,878 Accrued compensation 21,081 19,711 Accrued customer rebates and returns 180,594 155,751 Revolving credit facility 249,360 — Other accrued liabilities 21,800 29,305 Total current liabilities 622,760 322,645 Long-term operating lease liabilities 52,530 37,083 Other long-term liabilities 4,706 3,555 Deferred tax liabilities, net 31,328 3,819 Commitments and contingencies (Note 7) Shareholders’ equity: Common stock, $ 0.01 par value; 50,000,000 shares authorized; 31,658,703 and 32,168,740 shares issued and outstanding in 2021 and 2020, respectively 317 322 Additional paid-in capital 73,325 64,085 Retained earnings 830,882 789,152 Total shareholders’ equity 904,524 853,559 Total liabilities and shareholders' equity $ 1,615,848 $ 1,220,661 See accompanying Notes to Condensed Consolidated Financial Statements 4 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED ) Three Months Ended September 25, 2021 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Total Balance at June 26, 2021 31,891,890 $ 319 $ 71,947 $ 820,719 $ 892,985 Exercise of stock options 2,260 — 173 — 173 Compensation expense under Incentive Stock Plan — — 1,721 — 1,721 Purchase and cancellation of common stock ( 234,044 ) ( 2 ) ( 421 ) ( 22,941 ) ( 23,364 ) Cancellation of non-vested stock, net of issuances ( 537 ) — — — — Other stock-related activity, net of tax ( 866 ) — ( 95 ) — ( 95 ) Net income — — — 33,104 33,104 Balance at September 25, 2021 31,658,703 $ 317 $ 73,325 $ 830,882 $ 904,524 Three Months Ended September 26, 2020 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Total Balance at June 27, 2020 32,440,413 $ 326 $ 55,406 $ 751,400 $ 807,132 Exercise of stock options 2,886 — — — — Compensation expense under Incentive Stock Plan — — 1,248 — 1,248 Purchase and cancellation of common stock ( 135,787 ) ( 1 ) ( 244 ) ( 11,203 ) ( 11,448 ) Cancellation of non-vested stock, net of issuances ( 2,937 ) ( 1 ) — — ( 1 ) Other stock-related activity, net of tax 111 — 483 ( 308 ) 175 Net income — — — 34,259 34,259 Balance at September 26, 2020 32,304,686 $ 324 $ 56,893 $ 774,148 $ 831,365 Nine Months Ended September 25, 2021 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Total Balance at December 26, 2020 32,168,740 $ 322 $ 64,085 $ 789,152 $ 853,559 Exercise of stock options 19,606 — 909 — 909 Compensation expense under Incentive Stock Plan — — 6,212 — 6,212 Purchase and cancellation of common stock ( 539,075 ) ( 5 ) ( 970 ) ( 53,638 ) ( 54,613 ) Issuance of non-vested stock, net of cancellations 19,984 — 2,493 — 2,493 Other stock related activity, net of tax ( 10,552 ) — 596 ( 2,084 ) ( 1,488 ) Net income — — — 97,452 97,452 Balance at September 25, 2021 31,658,703 $ 317 $ 73,325 $ 830,882 $ 904,524 Nine Months Ended September 26, 2020 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Total Balance at December 28, 2019 32,556,263 $ 326 $ 52,605 $ 720,653 $ 773,584 Exercise of stock options 2,896 — — — — Compensation expense under Incentive Stock Plan — — 3,966 — 3,966 Purchase and cancellation of common stock ( 234,116 ) ( 2 ) ( 421 ) ( 16,890 ) ( 17,313 ) Cancellation of non-vested stock, net of issuances ( 14,782 ) — 504 — 504 Other stock related activity, net of tax ( 5,575 ) — 239 ( 534 ) ( 295 ) Net income — — — 70,919 70,919 Balance at September 26, 2020 32,304,686 $ 324 $ 56,893 $ 774,148 $ 831,365 See accompanying Notes to Condensed Consolidated Financial Statements 5 DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended (in thousands) September 25, 2021 September 26, 2020 Cash Flows from Operating Activities: Net income $ 97,452 $ 70,919 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization and accretion 24,931 22,544 Gain on equity method investment — ( 2,498 ) Provision for doubtful accounts 61 197 Benefit for deferred income taxes ( 414 ) ( 1,154 ) Provision for stock-based compensation 6,212 4,069 Payment of contingent consideration ( 2,418 ) — Changes in assets and liabilities: Accounts receivable 20,746 ( 11,685 ) Inventories ( 97,156 ) 3,093 Prepaids and other current assets ( 7,216 ) 1,360 Other assets ( 3,639 ) ( 1,923 ) Accounts payable 20,456 20,334 Accrued customer rebates and returns 23,786 24,690 Accrued compensation and other liabilities ( 5,200 ) 15,773 Cash provided by operating activities 77,601 145,719 Cash Flows from Investing Activities: Acquisition, net of cash acquired ( 345,483 ) ( 14,308 ) Property, plant and equipment additions ( 15,274 ) ( 12,061 ) Cash used in investing activities ( 360,757 ) ( 26,369 ) Cash Flows from Financing Activities: Proceeds of revolving credit line 252,360 99,000 Payments of revolving credit line ( 3,000 ) ( 99,000 ) Payment of contingent consideration ( 7,982 ) — Payment of debt issuance costs ( 4,215 ) — Proceeds from exercise of stock options 909 — Other stock-related activity 1,055 112 Purchase and cancellation of common stock ( 54,272 ) ( 17,313 ) Cash provided by (used in) financing activities 184,855 ( 17,201 ) Effect of exchange rate changes on Cash and Cash Equivalents ( 12 ) - Net (Decrease) Increase in Cash and Cash Equivalents ( 98,313 ) 102,149 Cash and Cash Equivalents, Beginning of Period 155,576 68,353 Cash and Cash Equivalents, End of Period $ 57,263 $ 170,502 Supplemental Cash Flow Information Cash paid for interest expense $ 567 $ 680 Cash paid for income taxes $ 37,500 $ 19,575 See accompanying Notes to Condensed Consolidated Financial Statements 6 DORMAN PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 25, 2021 AND SEPTEMBER 26, 2020 (UNAUDITED) 1. Basis of Presentation 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 condensed consolidated financial statements have been prepared under U.S. generally accepted accounting principles (“GAAP”) for interim financial information and under the rules and regulations of the U.S. Securities and Exchange Commission. 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 three and nine months ended September 25, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2021 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. The introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020. 2. Business Acquisitions and Investments DPL Holding Corporation (“Dayton Parts”) On August 10, 2021, we acquired 100 % of the equity interests of Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket for a purchase price of $ 345.5 million in cash (net of $ 8.8 million of acquired cash), subject to certain customary post-acquisition purchase price adjustments. The acquisition was funded by cash on hand as well as through the refinancing of our revolving credit facility discussed further in Note 6. The transaction was accounted for as a business combination under the acquisition method of accounting. We have preliminarily allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We are in the process of completing the valuation of identifiable intangible assets, current and deferred taxes, fixed assets, and pre-acquisition contingencies and, therefore, the fair values set forth below are subject to adjustment upon finalizing the valuations. We expect to complete the purchase price allocation during the fourth quarter of fiscal 2021. The table below details the estimated fair values of the assets acquired and the liabilities assumed at the acquisition date: (in thousands) Accounts receivable $ 23,061 Inventories 79,625 Prepaids and other current assets 2,403 Property, plant and equipment 29,861 Goodwill 108,946 Identifiable intangible assets 160,400 Operating lease right-of-use assets 21,248 Other assets 877 Accounts payable ( 11,968 ) Accrued compensation ( 2,784 ) Other current liabilities ( 7,409 ) Long-term operating lease liabilities ( 18,444 ) Deferred tax liabilities ( 40,333 ) Net cash consideration $ 345,483 7 The estimated valuation of the intangible assets acquired, and related amortization periods are as follows: (in thousands) Fair Value Amortization Period (in years) Customer relationships $ 124,100 20 Product portfolio 25,300 20 Trade names 11,000 10 Total $ 160,400 The fair values assigned to intangible assets were estimated by discounting expected cash flows based on the relief from royalty and multiperiod excess earnings valuation methodologies. These valuation methods rely on management judgment, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, royalty rates and other factors. The goodwill recognized is attributable primarily to strategic and synergistic opportunities related to the Company’s and Dayton Parts’ existing automotive aftermarket businesses, the assembled workforce of Dayton Parts 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 unaudited condensed consolidated financial statements since the date of acquisition. The net sales and net income of Dayton Parts included in the unaudited condensed consolidated financial statements for both the three and nine months ended September 25, 2021 were $ 27.4 million and $ 0.3 million, respectively. The unaudited pro forma information for the periods set forth below gives effect to the Dayton Parts acquisition as if it had occurred as of December 29, 2019, the beginning of the earliest period presented in these financial statements. 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. Three Months Ended Nine Months Ended (in thousands) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Net sales $ 371,408 $ 345,525 $ 1,070,238 $ 918,874 Net income $ 37,089 $ 36,085 $ 108,016 $ 62,832 Diluted earnings per share $ 1.16 $ 1.11 $ 3.37 $ 1.94 Power Train Industries, Inc. (“PTI”) On January 2, 2020, we acquired the remaining outstanding stock of PTI not already owned by the Company. The total purchase price for PTI was approximately $ 30.7 million, which included $ 18.4 million paid for the remaining 60 % of the outstanding stock, subject to customary purchase price adjustments, and $ 12.3 million which represents the fair value of the previously held 40 % equity interest in PTI that was acquired by the Company in 2016. As a result of the acquisition, we recorded a gain of $ 2.5 million in other (expense) income, net during the quarter ended March 28, 2020 from the increase in fair value of our original 40% interest in PTI. We previously accounted for our 40% interest as an equity-method investment. 3. Sales of Accounts Receivable 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. Under these agreements, we sold $ 690.0 million and $ 568.3 million of accounts receivable during the nine months ended September 25, 2021 and September 26, 2020, respectively. All credit terms with our customers are 365 days or less. Selling, general and administrative expenses include financing costs associated with these accounts receivable sales programs of $ 3.1 million and $ 1.3 million during the three months ended September 25, 2021 and September 26, 2020, respectively, and $ 8.6 million and $ 10.9 million during the nine months ended September 25, 2021 and September 26, 2020, respectively. 8 4. Inventories 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. Inventories were as follows: (in thousands) September 25, 2021 December 26, 2020 Raw materials $ 10,467 $ — Bulk product 198,205 136,726 Finished product 257,141 157,484 Packaging materials 9,649 4,509 Total $ 475,462 $ 298,719 5. Goodwill and Intangible Assets Goodwill Goodwill included the following: (in thousands) September 25, 2021 December 26, 2020 Balance at beginning of period $ 91,080 $ 74,458 Goodwill acquired 108,946 16,622 Balance at end of period $ 200,026 $ 91,080 Intangible Assets Intangible assets included the following: September 25, 2021 December 26, 2020 Intangible assets subject to amortization Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value (in thousands) Customer relationships $ 149,150 $ 9,140 $ 140,010 $ 25,050 $ 7,141 $ 17,909 Trade names 17,760 2,075 15,685 6,760 1,585 5,175 Product Portfolio 25,300 42 25,258 — — — Technology 2,167 508 1,659 2,167 323 1,844 Other 430 215 215 430 151 279 Total $ 194,807 $ 11,980 $ 182,827 $ 34,407 $ 9,200 $ 25,207 Amortization expense was $ 1.2 million and $ 0.8 million during the three months ended September 25, 2021 and September 26, 2020, respectively, and $ 2.9 million and $ 2.5 million during the nine months ended September 25, 2021 and September 26, 2020, respectively. 6. Debt On August 10, 2021, in connection with the acquisition of Dayton Parts, we entered into a new credit agreement that provides for a $ 600 million revolving credit facility, including a letter of credit sub-facility of up to $ 60 million (the “New Facility”). The New Facility replaced our previous $ 100 million revolving credit facility. The New Facility matures on August 10, 2026 and is guaranteed by the Company’s material domestic subsidiaries (together with the Company, the “Credit Parties”) and is supported by a security interest in substantially all of the Credit Parties’ personal property and assets, subject to certain exceptions. Borrowings under the New Facility bear interest at a rate per annum equal to, at the Company’s option, either a LIBOR rate (subject to a 0.00 % floor) or a base rate, in each case plus an applicable margin of, initially (i) in the case of LIBOR rate, 1.250 % or (ii) in the case of base rate loans, 0.250 %. The applicable margin for (i) base rate loans ranges from 0.000 % to 1.000 % per annum and (ii) for LIBOR loans ranges from 1.000 % to 2.000 % per annum, in each case, based on the Total Net Leverage Ratio (as defined in the New Facility). The commitment fee is initially equal to 0.150 % and thereafter ranges from 0.125 % to 0.250 % based on the Total Net Leverage Ratio. As of September 25, 2021, the interest rate on the outstanding borrowings under the New Facility was 1.33 % and the commitment fee was 0.15 %. The New Facility contains affirmative and negative covenants, including, but not limited to, covenants regarding capital expenditures, share repurchases, and financial covenants related to the ratio of consolidated interest expense to 9 consolidated EBITDA and the ratio of total net indebtedness to consolidated EBITDA, each as defined by the New Facility. As of September 25, 2021, we were not in default with respect to the New Facility . 7. Commitments and Contingencies Acquisitions We have contingent consideration related to certain of our prior acquisitions due to the uncertainty of the ultimate amount of payment which will become due as earnout payments if performance targets are achieved. During the nine months ended September 25, 2021, we paid $ 10.4 million in contingent consideration in connection with prior acquisitions based upon performance targets. If the performance targets associated with prior acquisitions are fully achieved, the maximum additional contingent payments to be made under the related acquisition agreements would be $ 3.6 million. 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 the possibility exists 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. 8 . Revenue Recognition Our primary source of revenue is from contracts with and purchase orders from customers. In many 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 it indicates approval and commitment of the parties, identifies the rights of both parties, identifies the payment terms, has commercial substance, and makes it probable that we will collect the consideration to which we will be entitled in exchange for the goods transferred to the customer. 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 of 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. All our revenue was recognized under the point of time approach during the nine months ended September 25, 2021 and September 26, 2020. 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. Three Months Ended Nine Months Ended (in thousands) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Powertrain $ 136,770 $ 120,565 $ 386,732 $ 323,396 Chassis 118,273 87,977 302,219 227,273 Automotive body 78,477 74,445 214,180 197,624 Hardware 14,906 17,633 43,942 43,239 Net sales $ 348,426 $ 300,620 $ 947,073 $ 791,532 10 Three Months Ended Nine Months Ended (in thousands) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Net sales to U.S. customers $ 328,315 $ 280,330 $ 896,545 $ 744,285 Net sales to non-U.S. customers 20,111 20,290 50,528 47,247 Net sales $ 348,426 $ 300,620 $ 947,073 $ 791,532 9 . Stock-Based Compensation Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) Vesting of RSA and RSU grants is conditional based on continued employment or service for a specified period and, in certain circumstances, the attainment of performance goals. We retain the shares underlying the grant, and any dividends paid thereon, until the vesting conditions have been met. For time-based RSA and RSU grants, compensation cost related to the stock 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. For performance-based RSA grants 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 March 2020, we have made performance-based RSU grants 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 these awards, 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. For the nine months ended September 25, 2021, we granted 17,714 performance-based RSUs with a grant date fair value of $ 131.02 per share. Compensation cost related to RSA and RSU grants was $ 1.4 million and $ 1.0 million for the three months ended September 25, 2021 and September 26, 2020, respectively, and $ 4.5 million and $ 3.0 million for the nine months ended September 25, 2021 and September 26, 2020, respectively, and were included in selling, general and administrative expense in the Condensed Consolidated Statements of Operations. The following table summarizes our RSA and RSU activity for the nine months ended September 25, 2021: Shares Weighted Average Fair Value Balance at December 26, 2020 217,735 $ 72.77 Granted 76,984 $ 106.23 Vested ( 36,042 ) $ 67.05 Canceled ( 45,451 ) $ 74.61 Balance at September 25, 2021 213,226 $ 85.42 As of September 25, 2021, there was $ 10.9 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.3 years. Stock Options We expense the grant-date fair value of stock options as compensation cost 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 for each of the three months ended September 25, 2021 and September 26, 2020, and $ 0.9 million and $ 0.8 million for the nine months ended September 25, 2021 and September 26, 2020, respectively. These costs are included as selling, general and administrative expense in the Condensed Consolidated Statements of Operations. We use 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 that options granted are expected to be outstanding and was calculated using historical option exercise data. The risk-free rate was based on a U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. 11 The following table summarizes our stock option activity for the nine months ended September 25, 2021 : Shares Weighted Average Exercise Price Weighted Average Remaining Term (In years) Aggregate Intrinsic Value Balance at December 26, 2020 250,779 $ 70.21 Granted 58,393 $ 101.47 Forfeited ( 9,457 ) $ 79.02 Exercised ( 39,794 ) $ 66.11 Balance at September 25, 2021 259,921 $ 77.54 5.3 $ 5,228,021 Options exercisable at September 25, 2021 94,762 $ 73.84 3.6 $ 2,159,758 As of September 25, 2021, there was $ 3.0 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted average period of 2.8 years. Employee Stock Purchase Plan There were 31,462 shares and 10,735 shares purchased during the nine months ended September 25, 2021 and September 26, 2020, respectively. During the nine months ended September 25, 2021 and September 26, 2020, compensation costs were $ 0.7 million and $ 0.3 million, respectively. 10 . 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 RSAs and RSUs 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 that were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive were 19,000 shares and 34,000 shares for the three months ended September 25, 2021 and September 26, 2020, respectively, and 16,000 shares and 141,000 shares for the nine months ended September 25, 2021 and September 26, 2020, respectively. 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) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Numerator Net income $ 33,104 $ 34,259 $ 97,452 $ 70,919 Denominator: Weighted average basic shares outstanding 31,692 32,281 31,895 32,317 Effect of stock-based compensation awards 150 90 144 77 Weighted average diluted shares outstanding 31,842 32,371 32,039 32,394 Earnings Per Share: Basic $ 1.04 $ 1.06 $ 3.06 $ 2.19 Diluted $ 1.04 $ 1.06 $ 3.04 $ 2.19 11 . Common Stock Repurchases We periodically repurchase, at the then-current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “401(k) Plan”). Under the 401(k) Plan, participants can no longer purchase shares of Dorman common stock as an investment option. 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 in the 401(k) Plan: Three Months Ended Nine Months Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Shares repurchased and canceled 1,426 8,930 4,568 15,280 Total cost of shares repurchased and canceled (in thousands) $ 146 $ 723 $ 462 $ 1,123 Average price per share $ 102.62 $ 80.95 $ 101.16 $ 73.49 12 Our Board of Directors has authorized the repurchase of up to $ 500 million of our common stock through December 31, 2022 under a previously announced share repurchase program. Under this program, share repurchases may be made from time to time depending on market conditions, share price, share availability and other factors at our discretion. The share repurchase program does not obligate us to acquire any specific number of shares. At September 25, 2021, $ 153.0 million was available for repurchase under this share repurchase program. The following table summarizes the repurchase and cancellation of common stock under the share repurchase program: Three Months Ended Nine Months Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Shares repurchased and canceled 232,618 126,857 534,507 218,836 Total cost of shares repurchased and canceled (in thousands) $ 23,218 $ 10,726 $ 54,152 $ 16,191 Average price per share $ 99.81 $ 84.55 $ 101.31 $ 73.99 1 2 . Income Taxes At September 25, 2021, we had $ 1.2 million of net unrecognized tax benefits, all 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 September 25, 2021, accrued interest and penalties related to uncertain tax positions were not material. We file income tax returns in the United States, Canada, China, India, and Mexico. All years before 2017 are closed for U.S. federal tax purposes. Tax years before 2016 are closed for the states in which we file. Tax years before 2018 are closed for tax purposes in Canada. Tax years before 2018 are closed for tax purposes in China. Tax years before 2016 are closed for tax purposes in Mexico. All tax years remain open for India. 13 . Related-Party Transactions We lease our Colmar, PA facility and a portion of our Lewisberry, PA facility from entities in which Steven L. Berman, our Executive Chairman, and certain of his family members are owners. Each lease is a non-cancelable operating lease. Total rental payments to those entities under these lease arrangements will be $ 2.3 million in fiscal 2021 and were $ 1.8 million in fiscal 2020. The lease for our corporate headquarters in Colmar, PA was renewed during November 2016, effective as of January 1, 2018 , and will expire on December 31, 2022 . The lease for our Lewisberry, PA operating facility was signed in September 2020 and will expire on December 31, 2027 . In the opinion of our Audit Committee, the terms and rates of these leases were no less favorable than those which could have been obtained from an unaffiliated party when the lease for our corporate headquarters in Colmar, PA was renewed during November 2016 and when the lease for our Lewisberry, PA operating facility was signed in September 2020. 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 under the equity method. 1 4 . Fair Value Disclosures The carrying value of financial instruments such as cash, accounts receivable, accounts payable, debt under our revolving credit facility, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. 13