Driven Brands (US:DRVN)2021-03-23 16:00Financial Obligations and Compliance - The company relies on cash dividends and distributions from its subsidiaries to meet obligations, with potential limitations due to legal and contractual restrictions [220]. - Future payments under the income tax receivable agreement are expected to aggregate between $145 million and $165 million, contingent on sufficient taxable income realization [225]. - The company is subject to significant legal and financial compliance costs due to public company requirements, which may divert management attention from operational matters [223]. - The income tax receivable agreement may require payments that exceed actual cash tax savings if certain conditions are met, impacting liquidity [227]. - Ineffective internal controls over financial reporting could lead to regulatory investigations and negatively affect stockholder confidence [230]. Corporate Governance and Control - Principal stockholders hold approximately 73% of the outstanding shares, allowing them substantial control over corporate actions requiring stockholder approval [232]. - The company qualifies as a "controlled company" under NASDAQ rules, allowing it to rely on exemptions from certain corporate governance requirements [234]. - The company may face challenges in attracting and retaining qualified board members due to increased costs associated with compliance and liability insurance [223]. - The company’s organizational documents may impede or discourage takeovers, potentially depriving investors of premium opportunities [238]. - The issuance of preferred stock could delay or prevent a change in control, as the board has the authority to issue shares without stockholder approval [240]. - The company has an exclusive forum provision in its certificate of incorporation, designating Delaware courts for certain disputes, which may limit stockholders' ability to choose a favorable judicial forum [243]. - The company is authorized to issue additional common stock and convertible securities, which could dilute existing stockholders' ownership percentage [247]. Financial Risks - The company is exposed to interest rate risk primarily due to financing activities, with movements in LIBOR being a significant factor [427]. - As of December 26, 2020, the company had variable interest rate exposure related to its Car Wash Senior Credit Facilities, which was fully repaid in January 2021 [428]. - The company faces commodity risk due to price volatility in products like motor oil and paint, which are affected by global commodity prices [432]. - Foreign exchange risk exists due to operations in Canada, Europe, and Australia, impacting net income and cash flows [433]. - The company has implemented cross-currency interest rate swap agreements to hedge against foreign currency exchange risk related to its debt [433]. - Inflation did not significantly impact the company's operations in 2020 or 2019, but severe inflation could adversely affect its financial condition [434].