Common Stock and Series B Convertible Preferred Stock

6 Months Ended

Jun. 27, 2021

Common Stock and Series B Convertible Preferred Stock

Common Stock and Series B Convertible Preferred Stock

6. Common Stock and Series B Convertible Preferred Stock

Shares Authorized and Outstanding

The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at June 27, 2021 and December 27, 2020, respectively) and 100.0 million shares of common stock as of June 27, 2021 and December 27, 2020, respectively.

On May 11, 2021, the Company entered into a Share Repurchase Agreement with certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), pursuant to which (i) the Company repurchased from Starboard 78,387 shares of the Series B Convertible Preferred Stock, par value $0.01 per share, of the Company (“Series B Preferred Stock”) and (ii) Starboard converted the remaining 171,613 shares of Series B Preferred Stock that it owned into 3,458,360 shares of the Company’s common stock pursuant to the terms of the Certificate of Designation of the Series B Preferred Stock.  On June 3, 2021, the Company entered into agreements with certain franchisee investors to repurchase 1,000 shares of the outstanding Series B Preferred Stock and convert the remaining 1,530 shares of Series B Preferred Stock into 30,769 shares of common stock.  The Company paid Starboard and the franchisee investors aggregate one-time cash payments of $188.6 million for the repurchase and conversion of all of the outstanding shares of Series B Preferred Stock.  The excess of the cash payment over the carrying value of the respective Series B Preferred Stock redeemed resulted in $109.9 million of dividends on redemption of Series B Convertible Preferred Stock in the Condensed Consolidated Statement of Operations, which reduced net income attributable to common stockholders and also reduced diluted earnings per share by $3.15 and $3.23 for the three and six months ended June 27, 2021, respectively.

As a result of the repurchase and conversion, there were no shares of Series B Preferred Stock authorized or outstanding at June 27, 2021 compared to 260,000 and 252,530 shares of Series B Preferred Stock authorized and outstanding, respectively, at December 27, 2020.  The Series B Preferred Stock was classified as temporary equity on the Condensed Consolidated Balance Sheets as of December 27, 2020.   Following the repurchase and conversion of the Series B Preferred Stock, there were 36.2 million shares of the Company’s common stock outstanding at June 27, 2021 compared to 32.5 million shares at December 27, 2020.  

Share Repurchase Program

Our Board of Directors has authorized the repurchase of up to $75.0 million of common stock under a share repurchase program that began on November 4, 2020 and is effective through December 31, 2021.  Through June 27, 2021, a total of 116,000 shares with an aggregate cost of $10.9 million and an average price of $94.24 per share were repurchased under this program.  Funding for the share repurchase program has been provided through our operating cash flows.  Subsequent to June 27, 2021, we acquired an additional 41,000 shares at an aggregate cost of $4.3 million.  Approximately $59.8 million remained available under the Company’s share repurchase program as of July 30, 2021.

The timing and volume of share repurchases may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the new program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase program may be commenced or suspended from time to time at the Company’s discretion without prior notice.  Funding for the share repurchase program will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.  

Dividends

The Company recorded dividends of approximately $20.4 million for the six months ended June 27, 2021 consisting of the following:

● $14.8 million paid to common stockholders ($0.45 per share);

● $3.0 million in preferred dividends on the Series B Preferred Stock (3.6% of the investment per annum);

● $1.5 million of common stock deemed dividend distributions in conjunction with the repurchase and conversion of the Series B Preferred Stock; and

● $1.1 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ($0.45 per share).

On August 3, 2021, our Board of Directors approved a 55.6% increase in the Company’s dividend rate per common share, from $0.90 on an annual basis to $1.40 on an annual basis, and subsequently declared a third quarter dividend of $0.35 per common share, of which approximately $12.8 million will be paid to common stockholders.  The common share dividend will be paid on August 27, 2021 to stockholders of record as of the close of business on August 16, 2021.  The declaration and payment of any future dividends will be at the discretion of our Board of Directors.