Capital Stock

12 Months Ended

Dec. 25, 2021

Equity [Abstract]

Capital Stock

12. Capital Stock

Controlling Interest by Officers, Directors and Family Members. As of December 25, 2021 and December 26, 2020, Steven Berman, the Executive Chairman of the Company, and members of his family

beneficially owned approximately 17% and 18% of the outstanding shares of our common stock, respectively and could influence matters requiring approval of shareholders, including the election of the Board of Directors and the approval of significant transactions.

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.

Incentive Stock Plan. Prior to May 16, 2018, we issued stock compensation grants under our 2008 Stock Option and Stock Incentive Plan. On May 16, 2018, our shareholders approved our 2018 Stock Option and Stock Incentive Plan (the “2018 Plan” or the “Plan”), which supersedes our 2008 Stock Option and Stock Incentive Plan. All future stock compensation grants will be issued under the 2018 Plan. Under the terms of the 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 and stock options, 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. Stock options are exercisable upon the terms set forth in each grant agreement approved by the Board of Directors, 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 approved by our Board of Directors. At December 25, 2021, 727,834 shares were available for grant under the Plan.

Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”)

Prior to March 2020, we issued RSAs to certain employees and members of our Board of Directors. Grants were made in the form of time-based RSAs and performance-based RSAs. For all RSAs, we retain the restricted stock, and any dividends paid thereon, until the vesting restrictions have been met. For time-based RSAs, compensation cost 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. Prior to 2019, we issued performance-based RSAs tied to growth in adjusted pre-tax income. Compensation costs related to those awards 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 as of the reporting date. In 2019, we introduced performance-based RSAs 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. For those awards, compensation cost 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. This valuation technique includes estimating the movement of stock prices and the effects of volatility, interest rates and dividends.

Beginning in March 2020, we began issuing RSUs to certain employees and members of our Board of Directors. For time-based RSUs, compensation cost 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. Also, in March 2020, we began issuing performance-based RSUs 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. For performance-based RSUs tied to total shareholder return, compensation cost 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 as discussed in the paragraph above.

The following table summarizes the weighted average valuation assumptions used to calculate the fair value of total shareholder return performance-based RSAs and performance-based RSUs granted:

	For the Year Ended
	December 25, 2021			December 26, 2020			December 28, 2019
Share price	$	101.45		$	61.68		$	82.03
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected stock price volatility		38.9	%		31.5	%		27.7	%
Risk-free interest rate		0.2	%		0.9	%		2.5	%
Expected life	2.8 years			2.8 years			2.8 years

The share price is the company’s closing share price as of the valuation date. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of vesting as of the grant date. The weighted-average grant-date fair value of total shareholder return performance-based RSAs and RSU’s granted during fiscal 2021, fiscal 2020, and fiscal 2019 were $131.02, $65.09, and $81.44, respectively.

Compensation cost related to performance-based and time-based RSAs and RSUs was $6.1 million, $3.2 million and $2.1 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively, and was included in selling, general and administrative expense in the Consolidated Statements of Operations. No cost was capitalized during fiscal 2021, fiscal 2020 or fiscal 2019.

The following table summarizes our RSA and RSU activity for the three years ended December 25, 2021: 

	Shares			Weighted Average Fair Value
Balance at December 29, 2018		170,737		$	63.94
Granted		92,396		$	81.92
Vested		(41,586	)	$	55.72
Canceled		(44,056	)	$	58.03
Balance at December 28, 2019		177,491		$	76.70
Granted		83,875		$	64.66
Vested		(27,477	)	$	71.25
Canceled		(16,154	)	$	76.44
Balance at December 26, 2020		217,735		$	72.77
Granted		81,694		$	106.23
Vested		(45,970	)	$	70.62
Canceled		(46,782	)	$	74.85
Balance at December 25, 2021		206,677		$	85.97

As of December 25, 2021, there was approximately $9.7 million of unrecognized compensation cost related to unvested RSAs and RSUs, which is expected to be recognized over a weighted-average period of approximately 2.3 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 RSAs and RSUs was immaterial for all periods presented.

Stock Options

We grant stock options to certain employees. We expense the grant-date fair value of stock options as compensation cost over the vesting or performance period. Compensation cost charged against income for stock options was $1.3 million, $1.0 million and $0.7 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively, and was included in selling, general and administrative expense in the Consolidated Statements of Operations. No cost was capitalized during fiscal 2021, fiscal 2020 or fiscal 2019.

We used 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 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 following table summarizes the weighted average valuation assumptions used to calculate the fair value of options granted and the associated weighted-average grant-date fair values:

	For the Year Ended
	December 25, 2021			December 26, 2020			December 28, 2019
Expected dividend yield		0	%		0	%		0	%
Expected stock price volatility		34	%		29	%		28	%
Risk-free interest rate		0.7	%		0.8	%		2.3	%
Expected life of options	5.3 years			5.3 years			5.4 years
Weighted-average grant-date fair value	$	31.68		$	17.84		$	24.32

The following table summarizes our stock option activity for the three years ended December 25, 2021:

	Shares			Option Price per Share	Weighted Average Price		Weighted Average Remaining Terms (years)		Aggregate Intrinsic Value (in thousands)
Balance at December 29, 2018		188,469		$7.74 – $82.94	$	66.14
Granted		44,025		$73.72 – $84.93	$	81.84
Exercised		(38,009	)	$7.74 – $78.76	$	58.96
Canceled		(12,773	)	$41.59 – $82.94	$	75.52
Balance at December 28, 2019		181,712		$41.59 – $82.94	$	70.78
Granted		109,352		$61.68 – $83.06	$	63.25
Exercised		(31,521	)	$41.59 – $82.94	$	50.77
Canceled		(8,764	)	$61.68 – $74.21	$	65.24
Balance at December 26, 2020		250,779		$41.59 – $84.93	$	70.21
Granted		59,578		$95.98 – $103.61	$	101.36
Exercised		(67,504	)	$41.59 – $82.94	$	70.04
Canceled		(9,457	)	$61.68 – $101.45	$	79.02
Balance at December 25, 2021		233,396		$61.68 – $103.61	$	77.85		5.5	$	6,664
Exercisable at December 25, 2021		70,488		$61.68 – $84.93	$	73.40		4.1	$	2,328

As of December 25, 2021, there was approximately $1.7 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 2.3 years.

Cash received from option exercises was $2.5 million, $1.2 million, and $0.1 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. The tax benefit generated from option exercises was immaterial for all periods presented.

Employee Stock Purchase Plan. In May 2017, our shareholders approved the Dorman Products, Inc. Employee Stock Purchase Plan (the “ESPP”), which makes available 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. Beginning in March 2018, share purchases under the plan were

made twice annually, with the purchase windows being April to September and October to March. In 2021, the decision was made to modify the timing of those two purchase windows to align them with the calendar year. As a result, beginning January 2022, the two purchase windows are January to June and July to December. In order to effectuate that alignment, the purchase window beginning in October 2021 was shortened from six months to three months and ended December 2021. There were 40,303 shares, 79,089 shares and 21,200 shares purchased under this plan during fiscal 2021, fiscal 2020 and fiscal 2019, respectively. Compensation cost under the ESPP plan was $0.9 million, $3.3 million and $0.3 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. The tax benefit generated from ESPP purchases was immaterial in fiscal 2021, fiscal 2020, and fiscal 2019, respectively.

Common Stock Repurchases. We periodically repurchase, at the then current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) 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. The following table summarizes the repurchase and cancellation of common stock:

	For the Year Ended
	December 25, 2021		December 26, 2020		December 28, 2019
Shares repurchased and canceled		11,452		23,360		22,380
Total cost of shares repurchased and canceled (in thousands)	$	1,172	$	1,895	$	1,953
Average price per share	$	102.38	$	81.12	$	87.26

At December 25, 2021, the 401(k) Plan held 183,916 shares of our common stock.

Share Repurchase Program. On December 12, 2013 we announced that our Board of Directors authorized a share repurchase program, authorizing the repurchase of up to $10 million of our outstanding common stock by the end of 2014. Through several expansions and extensions, our Board of Directors has expanded the program up to $500 million and extended the program through December 31, 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 December 25, 2021, $145.6 million was available for repurchase under this program.

The following table summarizes the repurchase and cancellation of common stock:

	For the Years Ended
	December 25, 2021		December 26, 2020		December 28, 2019
Shares repurchased and canceled		605,628		439,275		499,564
Total cost of shares repurchased and canceled (in thousands)	$	61,583	$	36,781	$	39,387
Average price per share	$	101.68	$	83.73	$	78.84

401(k) Retirement Plans. The 401(k) Plan and the Dayton Parts, LLC 401(k) Savings Plan (the “Dayton 401(k) Plan”) are both defined contribution profit sharing and 401(k) plans that together cover substantially all of our employees as of December 25, 2021. Annual company contributions under both the 401(k) Plan and Dayton 401(k) Plan are discretionary in nature, in accordance with the respective plan documents. Total expense related to the 401(k) Plan and Dayton 401(k) Plan were $6.3 million, $5.7 million and $4.5 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.