Driven Brands (DRVN)2023-02-28 16:00Tax Receivable Agreement - The company expects future payments under the Tax Receivable Agreement to aggregate between 180 million, assuming no material changes in tax law and sufficient taxable income [199]. - The majority of the obligation under the Tax Receivable Agreement is expected to be repaid by the end of the 2025 fiscal year [199]. - Payments under the Tax Receivable Agreement could be substantial and may exceed actual cash tax savings if tax benefits are disallowed [198]. - The ability to make payments under the Tax Receivable Agreement is dependent on the subsidiaries' ability to make distributions, which may be restricted by existing debt agreements [202]. - The company has variable interest rate exposure in the Tax Receivable Agreement, with deferred payments accruing interest at LIBOR plus 1.00% or 5.00% per annum depending on the reason for non-payment [331]. Corporate Governance and Control - As of February 27, 2023, Principal Stockholders hold approximately 61% of the outstanding shares, significantly influencing corporate decisions [205]. - The company is classified as a "controlled company" under NASDAQ rules, allowing it to rely on exemptions from certain corporate governance requirements [206]. - The company’s organizational documents may impede or discourage a takeover, potentially depriving investors of premium share opportunities [207]. - The company’s certificate of incorporation restricts business combinations with interested stockholders for three years following their designation as such [209]. - The issuance of preferred stock could delay or prevent a change in control, as the board has the authority to issue shares without further stockholder approval [210]. - The exclusive forum provision in the certificate of incorporation limits stockholders' ability to obtain a favorable judicial forum for disputes [212]. - The company’s certificate of incorporation includes provisions that may limit stockholder actions and empower the board to fill vacancies, which could affect governance [215]. - The company has a board of directors consisting of eight members, three of whom are directors from Principal Stockholders, potentially leading to conflicts of interest [215]. - Future sales of common stock by Principal Stockholders could reduce stock prices, impacting market perception and trading conditions [216]. Financial Risks - The company is exposed to interest rate risk, with a hypothetical 1% increase or decrease in variable debt resulting in a $5 million change in interest expense as of December 31, 2022 [329]. - The company faces commodity risk due to fluctuating global prices for products like motor oil and paint, with attempts to mitigate this through contract renegotiations [332]. - Foreign exchange risk exists from operations in Canada, Europe, and Australia, impacting net income and cash flows, with hedging strategies in place using cross-currency interest rate swaps [333][334]. - Inflation did not significantly affect the company's annual results during 2022, 2021, or 2020, but severe inflation could adversely impact business operations [335]. Market Operations - The company’s common stock began trading on The Nasdaq Global Select Market on January 15, 2021, with outstanding shares including restricted securities eligible for sale under Rule 144 [216]. - The company does not engage in speculative transactions and aims to manage market risks as part of its ongoing business operations [328].