Dorman Products, Inc. 10-Q

ITEM 1. Financial Statements DORMAN PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended Nine Months Ended (in thousands, except per share data) September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Net sales $ 413,470 $ 348,426 $ 1,232,468 $ 947,073 Cost of goods sold 281,559 231,572 825,792 615,574 Gross profit 131,911 116,854 406,676 331,499 Selling, general and administrative expenses 89,814 72,663 268,400 205,049 Income from operations 42,097 44,191 138,276 126,450 Interest expense, net 2,344 733 5,140 918 Other expense (income), net 65 ( 95 ) ( 130 ) ( 334 ) Income before income taxes 39,688 43,553 133,266 125,866 Provision for income taxes 9,087 10,449 29,553 28,414 Net income $ 30,601 $ 33,104 $ 103,713 $ 97,452 Other comprehensive income: Change in foreign currency translation adjustment $ ( 2,112 ) $ — $ ( 2,415 ) $ — Comprehensive Income $ 28,489 $ 33,104 $ 101,298 $ 97,452 Earnings per share: Basic $ 0.97 $ 1.04 $ 3.30 $ 3.06 Diluted $ 0.97 $ 1.04 $ 3.29 $ 3.04 Weighted average shares outstanding: Basic 31,411 31,692 31,444 31,895 Diluted 31,545 31,842 31,561 32,039 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 24, 2022 December 25, 2021 Assets Current assets: Cash and cash equivalents $ 35,435 $ 58,782 Accounts receivable, less allowance for doubtful accounts of $ 1,388 and $ 1,326 433,229 472,764 Inventories 677,898 531,988 Prepaids and other current assets 30,456 13,048 Total current assets 1,177,018 1,076,582 Property, plant and equipment, net 122,106 114,864 Operating lease right-of-use assets 92,440 59,029 Goodwill 195,725 197,332 Intangible assets, net 169,046 178,809 Other assets 44,873 46,503 Total assets $ 1,801,208 $ 1,673,119 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 199,180 $ 177,389 Accrued compensation 15,523 26,636 Accrued customer rebates and returns 199,779 188,080 Revolving credit facility 229,360 239,360 Other accrued liabilities 30,036 33,583 Total current liabilities 673,878 665,048 Long-term operating lease liabilities 83,983 52,443 Other long-term liabilities 5,159 4,916 Deferred tax liabilities, net 17,147 17,976 Commitments and contingencies (Note 8) Shareholders’ equity: Common stock, $ 0.01 par value; 50,000,000 shares authorized; 31,419,392 and 31,607,509 shares issued and outstanding in 2022 and 2021, respectively 314 316 Additional paid-in capital 85,374 77,451 Retained earnings 939,208 856,409 Accumulated other comprehensive loss ( 3,855 ) ( 1,440 ) Total shareholders’ equity 1,021,041 932,736 Total liabilities and shareholders' equity $ 1,801,208 $ 1,673,119 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 24, 2022 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance at June 25, 2022 31,425,224 $ 314 $ 82,192 $ 910,194 $ ( 1,743 ) $ 990,957 Exercise of stock options 169 — 14 — — 14 Compensation expense under Incentive Stock Plan — — 2,472 — — 2,472 Purchase and cancellation of common stock ( 14,700 ) — ( 26 ) ( 1,496 ) — ( 1,522 ) Issuance of non-vested stock, net of cancellations 9,626 — 812 — — 812 Other stock-related activity, net of tax ( 927 ) — ( 90 ) ( 91 ) — ( 181 ) Other comprehensive income — — — — ( 2,112 ) ( 2,112 ) Net income — — — 30,601 — 30,601 Balance at September 24, 2022 31,419,392 $ 314 $ 85,374 $ 939,208 $ ( 3,855 ) $ 1,021,041 Three Months Ended September 25, 2021 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) 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 ) Issuance of non-vested stock, net of cancellations ( 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 Nine Months Ended September 24, 2022 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance at December 25, 2021 31,607,509 $ 316 $ 77,451 $ 856,409 $ ( 1,440 ) $ 932,736 Exercise of stock options 17,455 — 971 — — 971 Compensation expense under Incentive Stock Plan — — 6,742 — — 6,742 Purchase and cancellation of common stock ( 201,135 ) ( 2 ) ( 362 ) ( 19,353 ) — ( 19,717 ) Issuance of non-vested stock, net of cancellations 13,847 — 1,189 — — 1,189 Other stock-related activity, net of tax ( 18,284 ) — ( 617 ) ( 1,561 ) — ( 2,178 ) Other comprehensive income — — — — ( 2,415 ) ( 2,415 ) Net income — — — 103,713 — 103,713 Balance at September 24, 2022 31,419,392 $ 314 $ 85,374 $ 939,208 $ ( 3,855 ) $ 1,021,041 Nine Months Ended September 25, 2021 Common Stock (in thousands, except share data) Shares Issued Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) 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 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 24, 2022 September 25, 2021 Cash Flows from Operating Activities: Net income $ 103,713 $ 97,452 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization and accretion 31,131 24,931 Provision for doubtful accounts 80 61 Benefit for deferred income taxes ( 546 ) ( 414 ) Provision for stock-based compensation 6,742 6,212 Payment of contingent consideration — ( 2,418 ) Changes in assets and liabilities: Accounts receivable 39,325 20,746 Inventories ( 146,278 ) ( 97,156 ) Prepaids and other current assets ( 7,228 ) ( 7,216 ) Other assets 157 ( 3,639 ) Accounts payable 17,887 20,456 Accrued customer rebates and returns 11,712 23,786 Accrued compensation and other liabilities ( 27,351 ) ( 5,200 ) Cash provided by operating activities 29,344 77,601 Cash Flows from Investing Activities: Acquisition, net of cash acquired 595 ( 345,483 ) Property, plant and equipment additions ( 23,780 ) ( 15,274 ) Cash used in investing activities ( 23,185 ) ( 360,757 ) Cash Flows from Financing Activities: Proceeds of revolving credit line — 252,360 Payments of revolving credit line ( 10,000 ) ( 3,000 ) Payment of contingent consideration — ( 7,982 ) Payment of debt issuance costs — ( 4,215 ) Proceeds from exercise of stock options 971 909 Purchase and cancellation of common stock ( 19,717 ) ( 54,272 ) Other stock-related activity ( 664 ) 1,055 Cash (used in) provided by financing activities ( 29,410 ) 184,855 Effect of exchange rate changes on Cash and Cash Equivalents ( 96 ) ( 12 ) Net Decrease in Cash and Cash Equivalents ( 23,347 ) ( 98,313 ) Cash and Cash Equivalents, Beginning of Period 58,782 155,576 Cash and Cash Equivalents, End of Period $ 35,435 $ 57,263 Supplemental Cash Flow Information Cash paid for interest expense $ 4,366 $ 567 Cash paid for income taxes $ 49,670 $ 37,500 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 24, 2022 AND SEPTEMBER 25, 2021 (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 24, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 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 and the introduction of new products and product lines to customers. 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 25, 2021. 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 $ 344.9 million in cash (net of $ 8.8 million of acquired cash) after certain customary post-acquisition purchase price adjustments. In the nine months ended September 24, 2022, we received $ 0.6 million in cash as proceeds from the closing net working capital adjustments. The acquisition was funded by cash on hand and borrowings under our revolving credit facility. The transaction was accounted for as a business combination under the acquisition method of accounting. We have allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. During the year ended December 25, 2021, we recorded measurement period adjustments of approximately $ 2.1 million to decrease goodwill, $ 0.6 million to decrease the purchase price due to customary net working capital adjustments, $ 0.1 million to increase other current liabilities, and $ 1.6 million to decrease deferred tax liabilities. Our measurement period adjustments for Dayton Parts were complete as of December 25, 2021. The table below details the fair values of the assets acquired and the liabilities assumed at the acquisition date, including applicable measurement period adjustments: (in thousands) Accounts receivable $ 23,216 Inventories 79,625 Prepaids and other current assets 2,302 Property, plant and equipment 29,900 Goodwill 106,816 Identifiable intangible assets 160,400 Operating lease right-of-use assets 21,248 Other assets 848 Accounts payable ( 11,970 ) Accrued compensation ( 2,784 ) Other current liabilities ( 7,604 ) Long-term operating lease liabilities ( 18,444 ) Deferred tax liabilities ( 38,665 ) Net cash consideration $ 344,888 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 multi-period 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 aftermarket businesses, the assembled workforce of Dayton Parts and other factors. The goodwill is not expected to be deductible for tax purposes. 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 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 25, 2021 Net sales $ 371,408 $ 1,070,238 Net income $ 37,089 $ 108,016 Diluted earnings per share $ 1.16 $ 3.37 The financial results of the acquisition have been included in the unaudited condensed consolidated financial statements since the date of acquisition. Super ATV, LLC (“SuperATV”) On October 4, 2022 (the “Closing Date”), Dorman acquired 100 % of the issued and outstanding equity interests of SuperATV (the “Transaction”), for aggregate consideration of $ 490 million, subject to certain customary adjustments based on, among other things, the amount of cash, debt and working capital in the business of SuperATV as of the closing of the Transaction, plus a potential earn-out payment to the sellers of SuperATV not to exceed $ 100 million in the aggregate, which remains subject to the achievement by SuperATV of certain revenue and gross margin targets in fiscal years 2023 and 2024. SuperATV is a leading independent supplier to the powersports aftermarket with a family of highly respected brands spanning functional accessories and upgrades, as well as replacement parts for specialty vehicles. We have not completed the detailed valuation work necessary to determine the estimates of the fair value of the acquired assets and assumed liabilities. As a result, we have not determined the preliminary allocation of the purchase price. We also have not completed the detailed analysis to present the pro forma financial information for the combined businesses. As such, both the preliminary allocation of the purchase price as well as the pro forma financial information will be included in our future filings. In connection with the closing of the Transaction, Dorman entered into Amendment No. 1 to Credit Agreement (the “Amendment”) which amended Dorman’s Credit Agreement, dated as of August 10, 2021 (as amended by the Amendment, the “Amended Credit Agreement”) by and among Dorman, the lenders from time to time party thereto, and an administrative agent. The Amendment provides for a $ 500.0 million term loan facility, which matures on October 4, 2027 and is guaranteed by Dorman’s material domestic subsidiaries (together with Dorman, 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. Proceeds of the loans borrowed under the Amended Credit Agreement on the Closing Date were used to fund the transactions contemplated by the Purchase Agreement. The Amendment also extended the maturity date of the revolving credit facility to October 4, 2027. 8 Borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to, at Dorman’s option, either a term Secured Overnight Financing Rate (“Term SOFR”) (subject to a 0.00 % floor) or a base rate (as defined in the Amended Credit Agreement), in each case plus an applicable margin of, initially (i) in the case of Term SOFR loans, 1.50 % or (ii) in the case of base rate loans, 0.50 %. The applicable margin for (i) base rate loans ranges from 0.000 % to 1.000 % per annum and (ii) for Term SOFR loans ranges from 1.000 % to 2.000 % per annum, in each case, based on the Total Net Leverage Ratio (as defined in the Amended Credit Agreement). The commitment fee under the Amended Credit Agreement is initially equal to 0.20 % and thereafter ranges from 0.125 % to 0.250 % based on the Total Net Leverage Ratio (as defined in the Amended Credit Agreement). 3. Sales of Accounts Receivable We have entered several customer-sponsored programs administered by unrelated financial institutions that permit us to sell (factor) 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 Sheets at the times of the sales transactions. Under these agreements, we sold $ 240.0 million and $ 256.3 million of accounts receivable during the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 778.1 million and $ 690.0 million of accounts receivable during the nine months ended September 24, 2022 and September 25, 2021 respectively. Selling, general and administrative expenses include factoring costs associated with these accounts receivable sales programs of $ 9.8 million and $ 3.1 million during the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 23.0 million and $ 8.6 million during the nine months ended September 24, 2022 and September 25, 2021, respectively. The increase in factoring costs for the three and nine months ended September 24, 2022 compared to the prior year periods was primarily driven by higher LIBOR and other reference rates, and higher accounts receivable sold under these programs during the nine months ended September 24, 2022. 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 24, 2022 December 25, 2021 Raw materials $ 16,407 $ 12,746 Bulk product 251,778 225,879 Finished product 400,456 287,415 Packaging materials 9,257 5,948 Total $ 677,898 $ 531,988 9 5. Leases During the nine months ended September 24, 2022, we entered into a warehouse and distribution services agreement with a third-party that requires us to reimburse the service provider for substantially all of its facility costs applicable to the warehouse where services are provided. This agreement resulted in a deemed new lease for the company for accounting purposes. The lease commenced on March 1, 2022 and runs through February 28, 2034 . The lease includes fixed rental payments as well as variable payments for operating expenses that will be billed based on actual costs. Upon the lease commencement date, we recorded an operating lease right of use asset of $ 35.1 million, a short-term operating lease liability (included in other accrued liabilities in the consolidated balance sheet) of $ 2.0 million, and a long-term operating lease liability of $ 33.1 million. The following table summarizes the maturities of the lease liability for our new deemed lease as of September 24, 2022: (in thousands) September 24, 2022 Remainder of 2022 $ 774 2023 3,160 2024 3,239 2025 3,320 2026 3,403 2027 and thereafter 27,001 Total remaining fixed lease payments $ 40,897 6 . Goodwill and Intangible Assets Goodwill Goodwill included the following: (in thousands) Balance at December 25, 2021 $ 197,332 Foreign currency translation ( 1,607 ) Balance at September 24, 2022 $ 195,725 Intangible Assets Intangible assets included the following: September 24, 2022 December 25, 2021 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 $ 148,188 $ 18,460 $ 129,728 $ 149,150 $ 12,139 $ 137,011 Trade names 17,760 3,873 13,887 17,760 2,592 15,168 Product Portfolio 25,300 1,409 23,891 25,300 460 24,840 Technology 2,167 757 1,410 2,167 571 1,596 Other 430 300 130 430 236 194 Total $ 193,845 $ 24,799 $ 169,046 $ 194,807 $ 15,998 $ 178,809 Amortization expense was $ 3.0 million and $ 1.2 million during the three months ended September 24, 2022 and September 25, 2021, respectively and $ 9.1 million and $ 2.9 million during the nine months ended September 24, 2022 and September 25, 2021, respectively. 7 . Revolving Credit Facility As of September 24, 2022 and December 25, 2021, the interest rate on the outstanding borrowings under our revolving credit facility was 4.73 % and 1.35 %, respectively. 10 8 . Commitments and Contingencies Acquisitions We have contingent consideration related to a prior acquisition due to the uncertainty of the ultimate amount of any payments that will become due as earnout payments if performance targets are achieved. If the remaining performance targets for the prior acquisition are fully achieved, the maximum additional contingent payments to be made under the related acquisition agreement would be $ 3.6 million in the aggregate. As of September 24, 2022, we accrued $ 1.6 million, representing the fair value of the estimated payments that we expect could become due in connection with the prior acquisition based on discussions with the applicable counterparty. For the three and nine months ended September 24, 2022, we increased this accrual by $ 1.6 million, with the charge included in Selling, General and Administration expenses. Other Contingencies We are a party to or otherwise involved in legal proceedings that arise in the ordinary course of business, such as various claims and legal actions involving contracts, employment claims, competitive practices, intellectual property infringement, product liability claims and other matters arising out of the conduct of our business. In the opinion of management, none of the actions, individually or in the aggregate, taking into account relevant insurance coverage, would likely have a material financial impact on the Company and we believe the range of reasonably possible losses from current matters, taking into account relevant insurance coverage, is immaterial. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of any of these matters could have a material adverse impact on the Company’s cash flows, financial position and results of operations in the period in which any such effects are recorded. 9 . Revenue Recognition Our primary source of revenue is from contracts with and purchase orders from customers. In most instances, our contract with a customer is the customer’s purchase order. Upon acceptance of the purchase order, a contract exists with a customer as a sales agreement indicates approval and commitment of the parties, identifies the rights of both parties, identifies the payment terms, and has commercial substance. At this point, we believe it is probable that we will collect the consideration to which we will be entitled in exchange for the goods transferred to the customer. 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 24, 2022 and September 25, 2021. Also, we do not have significant financing arrangements with our customers. Our credit terms are all less than one year . Lastly, we do not receive noncash consideration (such as materials or equipment) from our customers to facilitate the fulfillment of our contracts. Disaggregated Revenue The following tables present our disaggregated revenue by type of major good / product line, and geography. Three Months Ended Nine Months Ended (in thousands) September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Powertrain $ 153,773 $ 136,770 $ 462,556 $ 386,732 Chassis 174,707 118,273 513,301 302,219 Automotive body 72,717 78,477 215,764 214,180 Hardware 12,273 14,906 40,847 43,942 Total $ 413,470 $ 348,426 $ 1,232,468 $ 947,073 11 Three Months Ended Nine Months Ended (in thousands) September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Net sales to U.S. customers $ 380,842 $ 328,315 $ 1,138,683 $ 896,545 Net sales to non-U.S. customers 32,628 20,111 93,785 50,528 Total $ 413,470 $ 348,426 $ 1,232,468 $ 947,073 10 . Stock-Based Compensation Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) We issue RSAs and RSUs to participants in our equity plans in the form of time-based RSA’s and RSU’s and performance-based RSA’s and RSU’s. Compensation cost related to RSA and RSU grants was $ 1.8 million and $ 1.4 million for the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 5.1 million and $ 4.5 million for the nine months ended September 24, 2022 and September 25, 2021, respectively, and was 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 24, 2022: Shares Weighted Average Fair Value Balance at December 25, 2021 206,677 $ 85.97 Granted 100,517 $ 100.66 Vested ( 53,569 ) $ 83.49 Canceled ( 40,002 ) $ 83.51 Balance at September 24, 2022 213,623 $ 93.97 For the nine months ended September 24, 2022, we granted 23,995 performance-based RSUs with a grant date fair value of $ 111.31 per share. 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. As of September 24, 2022, there was $ 13.2 million of unrecognized compensation cost related to unvested RSA and RSU grants that is expected to be recognized over a weighted average period of 2.2 years. Stock Options We grant stock options to participants in our equity plans. T he compensation cost charged against income was $ 0.5 million and $ 0.3 million for the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 1.3 million and $ 0.9 million for the nine months ended September 24, 2022 and September 25, 2021, respectively, and was included as selling, general and administrative expense in the Condensed Consolidated Statements of Operations. The following table summarizes our stock option activity for the nine months ended September 24, 2022 : Shares Weighted Average Exercise Price Weighted Average Remaining Term (In years) Aggregate Intrinsic Value Balance at December 25, 2021 233,396 $ 77.85 Granted 78,574 $ 97.16 Canceled ( 11,236 ) $ 77.45 Expired ( 663 ) $ 101.45 Exercised ( 31,141 ) $ 71.78 Balance at September 24, 2022 268,930 $ 84.16 5.6 $ 1,793,436 Exercisable at September 24, 2022 95,927 $ 76.08 4.2 $ 929,436 As of September 24, 2022, there was $ 3.4 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. 12 Employee Stock Purchase Plan (“ESPP”) During the nine months ended September 24, 2022 and September 25, 2021, we purchased 13,327 shares and 31,462 shares, respectively, under the ESPP. Compensation cost related to the ESPP was $ 0.2 million and $ 0.0 million for the three months ended September 24, 2022 and September 25, 2021, respectively, and $ 0.3 million and $ 0.7 million for the nine months ended September 24, 2022 and September 25, 2021, respectively. 1 1 . Earnings Per Share Basic earnings per share was calculated by dividing our net income by the weighted average number of common shares outstanding during the period, excluding unvested RSAs which are considered to be contingently issuable. To calculate diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding. Common share equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards. Stock-based awards that were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive totaled approximately 31,000 shares and 19,000 shares for the three months ended September 24, 2022 and September 25, 2021, respectively, and 32,000 shares and 16,000 shares for the nine months ended September 24, 2022 and September 25, 2021, respectively. The following table sets forth the computation of basic earnings per share and diluted earnings per share: Three Months Ended Nine Months Ended (in thousands, except per share data) September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Net income $ 30,601 $ 33,104 $ 103,713 $ 97,452 Denominator: Weighted average basic shares outstanding 31,411 31,692 31,444 31,895 Effect of stock-based compensation awards 134 150 117 144 Weighted average diluted shares outstanding 31,545 31,842 31,561 32,039 Earnings Per Share: Basic $ 0.97 $ 1.04 $ 3.30 $ 3.06 Diluted $ 0.97 $ 1.04 $ 3.29 $ 3.04 1 2 . 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”). 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 by the Company 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 by the Company for the periods indicated: Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Shares repurchased and canceled — 1,426 20,385 4,568 Total cost of shares repurchased and canceled (in thousands) $ — $ 146 $ 2,140 $ 462 Average price per share $ — $ 102.62 $ 104.99 $ 101.16 Separately, our Board of Directors has authorized the repurchase of up to $ 600 million of our common stock through December 31, 2024 under a previously announced share repurchase program and subsequent authorizations, including a $ 100 million increase and two-year extension in July 2022. 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 24, 2022, $ 228.0 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 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Shares repurchased and canceled 14,700 232,618 180,750 534,507 Total cost of shares repurchased and canceled (in thousands) $ 1,523 $ 23,218 $ 17,577 $ 54,152 Average price per share $ 103.57 $ 99.81 $ 97.24 $ 101.31 13 1 3 . Income Taxes At September 24, 2022, we had $ 1.4 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 24, 2022, 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. The statute of limitations for tax years before 2017 is closed for U.S. federal income tax purposes. The statute of limitations for tax years before 2017 is closed for the states in which we file. The statute of limitations for tax years before 2019 is closed for income tax purposes in Canada, China, and India. The statute of limitations for tax years before 2017 is closed for income tax purposes in Mexico. 1 4 . 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 $ 2.4 million in fiscal 2022 and were $ 2.3 million in fiscal 2021. 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 Company is currently in discussions with the landlord of the Colmar facility for an extension of the lease term. The lease for our Lewisberry, PA operating facility was signed in September 2020 and will expire on December 31, 2027 . We are a partner in a joint venture with one of our suppliers and own minority interest investments in two other suppliers. One of these investments is accounted for under the equity method and one is accounted for under the cost method. 1 5 . 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. 14