Common Stock and Series B Convertible Preferred Stock

9 Months Ended

Sep. 26, 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 September 26, 2021 and December 27, 2020, respectively) and 100.0 million shares of common stock as of September 26, 2021 and December 27, 2020, respectively.  There were 36.2 million shares of the Company’s common stock outstanding at September 26, 2021 compared to 32.5 million shares at December 27, 2020.

During the second quarter of 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.  Additionally, 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 during the second quarter of 2021.  Diluted earnings per share for the nine months ended September 26, 2021 was reduced by $3.14 as a result of this transaction.  

On August 3, 2021, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware to eliminate the Series B Preferred Stock. No shares of Series B Preferred Stock were issued or outstanding following the repurchase and conversion thereof in the second quarter of 2021. Effective upon filing, the Certificate of Elimination eliminated from the Company’s Amended and Restated Certificate of Incorporation all matters set forth in the Certificate of Designation with respect to the Series B Preferred Stock. The shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $0.01 per share, of the Company, without designation as to series.

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 26, 2021.  Through September 26, 2021, a total of approximately 219,000 shares with an aggregate cost of $23.3 million and an average price of $106.16 per share were repurchased under this program.  Funding for the share repurchase program has been provided through our operating cash flows.  Subsequent to September 26, 2021, we acquired an additional 158,000 shares at an aggregate cost of $19.8 million and an average price of $125.50 per share.  Approximately $31.9 million remained available under this share repurchase program as of October 29, 2021.

Subsequent to the end of the third quarter, on October 28, 2021, our Board of Directors approved a new share repurchase program for up to $425.0 million of the Company’s common stock, with an indefinite duration. This represents approximately 9.4% of the Company’s currently outstanding common stock based on the closing stock price as of October 29, 2021.  The new share repurchase program will initially operate alongside the Company’s existing $75.0 million share repurchase authorization, which expires on December 26, 2021.

The timing and volume of share repurchases under the Company’s share repurchase programs 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 programs 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 programs may be commenced or suspended from time to time at the Company’s discretion without prior notice.  Funding for the share repurchase programs 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 $33.2 million for the nine months ended September 26, 2021 consisting of the following:

● $27.6 million paid to common stockholders ($0.80 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 October 28, 2021, our Board of Directors declared a fourth 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 November 19, 2021 to stockholders of record as of the close of business on November 9, 2021.  The declaration and payment of any future dividends will be at the discretion of our Board of Directors.