Capital Stock

12 Months Ended

Dec. 29, 2012

Capital Stock [Abstract]

Capital Stock

12. Capital Stock

Control by Officers, Directors and Family Members. As of February 22, 2013, the estate of the late Richard N. Berman, Sharyn Berman, Steven L. Berman, who is Chairman and Chief Executive Officer and director of the Company, his father and his brothers beneficially own approximately 31% of the outstanding shares of our Common Stock and are able to elect our Board of Directors, determine the outcome of most corporate actions requiring shareholder approval and control our policies.

Undesignated Stock. We have 50,000,000 shares authorized of undesignated capital stock for future issuance. The designation, rights and preferences of such shares will be determined by our Board of Directors.

Dividend. On December 5, 2012, we announced a special cash dividend of $1.50 per share payable on December 28, 2012 to shareholders of record at the close of business on December 17, 2012. This dividend resulted in cash payments of $54.7 million to our shareholders.

Incentive Stock Plan. Our 2008 Stock Option and Stock Incentive Plan (the “Plan”) was approved by our shareholders on May 20, 2009. Under the terms of the Plan, our Board of Directors may grant up to 2,000,000 shares of common stock in the form of incentive stock options, non-qualified stock options and shares of restricted stock or combinations thereof to officers, directors, employees, consultants and advisors. Grants under the Plan must be made within ten years of the date the Plan was approved and stock options are exercisable upon the terms set forth in the grant agreement approved by the Board of Directors, but in no event more than ten years from the date of grant. At December 29, 2012, 1,671,200 shares were available for grant under the Plan.

We expense the grant-date fair value of employee stock options. Compensation cost is recognized on a straight-line basis over the vesting period during which employees perform related services. The compensation cost charged against income for the year ended December 29, 2012, December 31, 2011 and December 25, 2010 was $204,000, $194,000 and $153,000 before taxes, respectively. The compensation cost recognized is classified as selling, general and administrative expense in the Consolidated Statement of Operations. No cost was capitalized during fiscal 2012, fiscal 2011 or fiscal 2010. We included a forfeiture assumption of 5.4% in the calculation of expense in fiscal 2012 and fiscal 2011 and 5.2% in fiscal 2010.

We used the Black-Scholes option valuation model to estimate the fair value of stock options granted in fiscal 2012 and fiscal 2010. There were no options granted in fiscal 2011. Expected volatility and expected dividend yield are based on the actual historical experience of our common stock. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using historical option exercise data. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. The weighted-average grant-date fair value of options granted during fiscal 2012 and fiscal 2010 was $11.05 and $9.30 per option, respectively.

The following table summarizes the valuation assumptions used to calculate the fair value of options granted:

	2012			2010
Expected dividend yield		0	%		0	%
Expected stock price volatility		59	%		55	%
Risk-free interest rate		0.9	%		2.3	%
Expected life of options		4.7 years			4.7 years

The following table summarizes our stock option activity for the three years ended December 29, 2012:

	Shares			Option Price per Share		Weighted Average Price		Weighted Average Remaining Terms (years)		Aggregate Intrinsic Value
Balance at December 26, 2009		1,462,800		$	0.47 – $7.74	$	3.36
Granted		30,000		$	19.37	$	19.37
Exercised		(489,900	)	$	0.75 – $6.90	$	1.87
Cancelled		(12,000	)	$	6.24	$	6.24
Balance at December 25, 2010		990,900		$	0.47 – $19.37	$	4.54
Exercised		(298,100	)	$	0.47 – $7.74	$	2.41
Balance at December 31, 2011		692,800		$	2.00 – $19.37	$	5.46
Granted		20,000		$	22.71	$	22.71
Exercised		(438,800	)	$	2.00 – $7.74	$	4.27
Balance at December 29, 2012		274,000		$	2.54 – $22.71	$	8.62		5.0	$	6,994,000
Options exercisable at December 29, 2012		200,000		$	2.54 – $19.37	$	6.57		4.0	$	5,516,000

The total intrinsic value of stock options exercised during fiscal 2012 was $9.6 million.

As of December 29, 2012, there was approximately $0.5 million of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 3.2 years.

Cash received from option exercises during fiscal 2012 and fiscal 2011 was $1.6 million and $0.6 million, respectively.

The following table summarizes information concerning currently outstanding and exercisable options at December 29, 2012:

	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Number Exercisable		Weighted- Average Exercise Price
$  2.54		34,000		0.4	$	2.54		34,000	$	2.54
$  5.05 – $5.67		53,000		5.9	$	5.66		37,000	$	5.65
$  6.24 – $7.74		137,000		4.5	$	6.87		117,000	$	6.72
$19.37		30,000		8.0	$	19.37		12,000	$	19.37
$22.71		20,000		9.2	$	22.71		—	$	—
Balance at December 29, 2012		274,000		5.0	$	8.62		200,000	$	6.57

We grant restricted stock to certain employees and members of our Board of Directors. The value of restricted stock issued is based on the fair value of our common stock on the grant date. Vesting of restricted stock is conditional based on continued employment or service for a specified period. Compensation cost related to the stock is recognized on a straight-line basis over the vesting period. We retain the restricted stock, and any dividends paid thereto, until the vesting provisions have been met. Compensation cost related to restricted stock was $803,000, $426,000 and $59,000 before taxes in fiscal 2012, fiscal 2011 and fiscal 2010, respectively. There were no restricted stock grants prior to fiscal 2010.

The following table summarizes our restricted stock activity for the three years ended December 29, 2012:

	Shares			Weighted Average Price
Balance at December 26, 2009		—		$	—
Granted		45,000		$	7.84
Balance at December 25, 2010		45,000		$	7.84
Granted		178,800		$	19.12
Vested		(9,000	)	$	7.84
Cancelled		(10,000	)	$	19.40
Balance at December 31, 2011		204,800		$	17.12
Granted		15,000		$	26.70
Vested		(45,646	)	$	16.84
Balance at December 29, 2012		174,154		$	18.02

As of December 29, 2012, there was approximately $2.7 million of unrecognized compensation cost related to nonvested restricted stock, which is expected to be recognized over a weighted-average period of approximately 3.4 years.

Cash flows resulting from tax deductions in excess of the tax effect of compensation cost recognized in the financial statements are classified as financing cash flows. The excess tax benefit generated during fiscal 2012 and fiscal 2011 was approximately $2.7 million and $1.0 million, respectively, and was credited to additional paid in capital.

Performance-Based Long Term Award Program. In December 2012, the Compensation Committee of our Board of Directors approved the Performance-Based Long Term Award Program which connects compensation for certain of our executives to our financial performance objectives over a three year period. At the discretion of the Compensation Committee, the Performance-Based Long Term Award will be paid in either cash or equity under the 2008 Stock Option and Stock Incentive Plan. This is a liability-classified award. The presumption is that the award will be paid in equity until the Compensation Committee decides otherwise, and therefore we consider these shares contingently issuable. At December 29, 2012, 4,400 shares of common stock were included in our calculation of diluted earnings per share in accordance with the program.

Employee Stock Purchase Plan. In March 1992, our Board of Directors adopted the Employee Stock Purchase Plan which was subsequently approved by the shareholders. The Employee Stock Purchase Plan permitted the grant of options to purchase up to 1,200,000 shares of common stock by our employees. In any given year, employees could purchase up to 4% of their annual compensation, with the option price set at 85% of the fair market value of the stock on the date of exercise. All options granted during any year expired on the last day of the fiscal year. During fiscal 2011, optionees exercised rights to purchase 1,984 shares at prices from $12.68 to $16.38 per share for total net proceeds of $28,600. During fiscal 2010, optionees exercised rights to purchase 1,428 shares at prices from $7.40 to $19.83 per share for total net proceeds of $16,700. Our Board of Directors cancelled this plan effective December 31, 2011.

401(k) Retirement Plan. The Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “401(k) Plan”) is a defined contribution profit sharing and 401(k) plan covering substantially all of our employees as of December 29, 2012. Annual contributions under the 401(k) Plan are determined by our Board of Directors. Total expense related to the 401(k) Plan was $2.0 million, $1.6 million and $1.6 million in fiscal 2012, fiscal 2011 and fiscal 2010 respectively. At December 29, 2012, the 401(k) Plan held 501,548 shares of our common stock.

Common Stock Repurchases. We periodically repurchase, at the then current market price, and cancel common stock issued to 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. During fiscal 2012, our Board of Directors approved the repurchase and cancellation of 70,208 shares of our common stock at an average price of $27.68 per share. During fiscal 2011, our Board of Directors approved the repurchase and cancellation of 90,268 shares of our common stock at an average price of $17.59 per share.

Share Repurchase Program. On February 22, 2008, we announced that our Board of Directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock. The program was terminated as of December 31, 2011. No shares were repurchased under the plan in fiscal 2011 or fiscal 2010.