UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 29, 2019
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number
Domino’s Pizza, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE | ||
(State or other jurisdiction of incorporation or organization) | 38-2511577 Identification No.) | |
30 Frank Lloyd Wright Drive Ann Arbor, Michigan | ||
(Address of principal executive offices) | 48105 |
Registrant’s telephone number, including area code (734)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Symbol | Name of Each Exchange on Which Registered | |
Domino’s Pizza, Inc. Common Stock, $0.01 par value | DPZ | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes ☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:
Yes ☐☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes ☒☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
Yes ☒☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ ]
Emerging growth company [ ]
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [ ]
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule☐☒
The aggregate market value of the voting and16, 201919, 2022 computed by reference to the closing price of Domino’s Pizza, Inc.’s common stock on the New York Stock Exchange on such date was $11,503,936,585.
As of February 13, 2020,16, 2023, Domino’s Pizza, Inc. had 38,667,03935,419,653 shares of common stock, par value $0.01 per share, outstanding.
Documents incorporated by reference:
Portions of the definitive proxy statement to be furnished to shareholders of Domino’s Pizza, Inc. in connection with the annual meeting of shareholders to be held on April 21, 202025, 2023 are incorporated by reference into Part III.
TABLE OF CONTENTS
Part I | Page No. | ||||||
4 | |||||||
15 | |||||||
30 | |||||||
30 | |||||||
30 | |||||||
30 | |||||||
. | 30 | ||||||
Part II | |||||||
31 | |||||||
32 | |||||||
33 | |||||||
49 | |||||||
50 | |||||||
80 | |||||||
80 | |||||||
80 | |||||||
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. | 80 | |||||
Part III | |||||||
Item 10. | 81 | ||||||
82 | |||||||
82 | |||||||
82 | |||||||
82 | |||||||
Part IV | |||||||
83 | |||||||
94 | |||||||
95 |
Throughout this document, Domino’s Pizza, Inc. (NYSE: DPZ) is referred to as the “Company,” “Domino’s,” “Domino’s Pizza” or in the first-person notations of “we,” “us” and “our.”
In this document, we rely on and refer to information regarding the U.S. quick service restaurant, or QSR, sector and the U.S. QSR pizza category from CRESTNovember)December) prepared by The NPD Group, as well as market research reports, analyst reports and other publicly-available information. Although we believe this information to be reliable, we have not independently verified it. U.S. sales information relating to the U.S. QSR sector and the U.S. QSR pizza category represent reported consumer spending obtained by The NPD Group’s CREST
Part I
Item 1. Business.
Overview
Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,00019,800 locations in over 90 markets around the world as of December 29, 2019.January 1, 2023, and operates two distinct service models within its stores with a significant business in both delivery and carryout. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Although we are a highly-recognizedhighly recognized global brand, and we focus on value while serving neighborhoods locally through our large globalworldwide network of franchise owners and U.S. Company-owned stores. The Company isstores through both the delivery and carryout service models. We are primarily a franchisor, with approximately 98%99% of Domino’s global stores currently owned and operated by our independent franchisees.franchisees as of January 1, 2023. Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strength of the Domino’s global brand and operating system and financial resources.
The Domino’s business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees.
Domino’s generates revenues and earnings by charging royalties and fees to our franchisees. Royalties are ongoingThe CompanyWe also generatesgenerate revenues and earnings by selling food, equipment and supplies to franchisees through our supply chain operations primarily in the U.S. and Canada and by operating a number of our own stores.Company-owned stores in the United States. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza
The Domino’s business model can yield strong returns for our franchise owners and our Company-owned stores. It can also yield significant cash flows to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases.
Our History
We pioneeredhave been selling quality, affordable food through both the pizzacarryout and delivery businessservice models to our customers since 1960. We became “Domino’s Pizza” in 1965 and opened our first franchised store in 1967. Over the last 60 years, we have built Domino’s into one of the most widely-recognized consumer brands in the world. We believe our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand.
Emphasis on technological innovation helped us achieve approximately two-thirds of all global retail sales in 2022 from digital channels. In the U.S., we have been delivering quality, affordable food to our customers since 1960, when brothers Thomasdeveloped several innovative ordering platforms, including those for Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and James Monaghan borrowed $900 to purchase a small pizza store in Ypsilanti, Michigan. Thomas purchased his brother’s share of the business shortly thereafter. Concentrating first on building stores near college campuses and military bases in the 1960s and 1970s, the brand grew quickly in the 1980s in urban markets and near residential communities. We became “Domino’s Pizza” in 1965 and opened our first franchised store in 1967. The first international stores opened in 1983, in Canada and Australia. Monaghan sold 93% of his economic stake in the Company in 1998 to Bain Capital, LLC, and then later sold and transferred his remaining stake in the Company in 2004, when we completed our initial public offering.
Since 1998, the Company has been structured with a leveraged balance sheet and has completed a number of recapitalization transactions. The Company’s most recent recapitalization transaction in 2019 (the “2019 Recapitalization”) primarily consisted of the issuance of $675.0 million of fixed rate notes. As of December 29, 2019,January 1, 2023, the Company had $4.11$5.02 billion in total debt, which includedincludes debt resulting from its 2019 Recapitalization and its previous recapitalization transactions completed in 2021, 2019, 2018, 2017 and 2015 (the “2021 Recapitalization,” “2019 Recapitalization,” “2018 Recapitalization,” “2017 Recapitalization” and the “2015 Recapitalization,” respectively, and together withcollectively, the “2021, 2019, Recapitalization, the “2019, 2018, 2017 and 2015 Recapitalizations”). Excess proceeds from our 2019, 2018, 2017 and 2015 Recapitalizations were used primarily to repurchase shares of our common stock.
4
Our Industry
The U.S. QSR pizza category is large and fragmented. From 20142017 through 2019,2022, the U.S. QSR pizza category has grown from $34.8$36.4 billion to $37.8$40.7 billion. It is the second-largest category within the $279$320.3 billion U.S. QSR sector. The U.S. QSR pizza category is primarily comprised of delivery,
In the U.S., we compete primarily in the delivery and carryout segments of the pizza industry, and we are the dollar market share leader for delivery and second-largest dollar market share leader for carryout.carryout among pizza QSRs. Delivery segment dollars of $11.0$17.3 billion in 20192022 (up from $10.2$13.6 billion in 2014)2017) account for approximately 29%43% of total U.S. QSR pizza.consumer spend at pizza QSRs. The four industry leaders, including Domino’s, account for over 61%approximately 60% of U.S. pizza delivery, based on reported consumer spending, with the remaining dollars going to regional chains and independent establishments. From 20142017 to 2019,2022, the carryout segment grew from $16.9$16.4 billion to $18.8$18.9 billion. The four industry leaders, including Domino’s, account for approximately 51%50% of the U.S. carryout segment. (Source: The NPD Group/CRESTNovember 2019)December 2022).
In contrast to the U.S., international pizza delivery is relatively underdeveloped, with only Domino’s and two other competitors having a significant global presence. We believe that demand for pizza delivery and pizza deliverycarryout is large and growing throughout the world, driven by international consumers’ increasing emphasis on convenience, and our proven success of more than 3540 years of conducting business abroad.
Our Competition
The global pizza delivery and carryout segments, as well as the broader QSR sector, are highly competitive. In the U.S., we compete against regional and local companies as well as national chains Pizza Hutcompanies.companies, which have continued to grow in size and scale in recent years. We compete not only for customers, but also for management and hourly employees, including store team members, drivers and qualified franchisees, as well as suitable real estate sites and qualified franchisees.
Our Customers
Our business is not dependent upon a single retail customer or small group of customers, including franchisees. No customer accounted for more than 10% of total consolidated revenues in 2019, 20182022, 2021 or 2017.2020. As of December 29, 2019,January 1, 2023, our largest franchisee based on store count, Domino’s Pizza Enterprises (DMP: ASX), operates 2,604operated 3,751 stores in nine13 international markets, and accountsaccounted for 15%19% of our total store count. Revenues from this master franchisee accounted for 1.4%1.7% of our consolidated revenues in 2019.2022. Our international business unitfranchise segment only requires a modest amount of general and administrative expenses to support its markets and does not have a cost of sales component. Therefore, the vast majority of these royalty revenues result in profits to us.
Our Menu
We offer a menu designed to present an attractive, quality offering to customers, while keeping it simple enough to minimize order errorsoperational complexity and expedite order-taking and food preparation. Our basic menu features pizza products with varying sizes and crust types. Our typical store also offers oven-baked sandwiches, pasta, boneless chicken and chicken wings, bread and dips side items, desserts and soft drink products. International markets vary toppings by country and culture, such as a squid topping in Japan or spicy cheesethe Paratha Pizza in India, Durian Pizza in China or the Octopus Bomb Shrimp in Korea, featuring shrimp, octopus, vegetables, feta cream and often feature regional specialty items, such as a banana and cinnamon dessert pizza in Brazil.
Store Image and Operations
We have been focused primarily ondelivered pizza delivery for nearlyover 60 years, and we also place focus onemphasize carryout as a significant component of our business. In 2012, we introduced our carryout-friendly Pizza Theater store design; theThe majority of our U.S. and international stores have converted to this design asare constructed in the carryout-friendly Pizza Theater design. Many of the end of 2019. Manythese stores offer casual seating and enable customers to watch the preparation of their orders, but do not offer a full-service
5
Our Business Segments
We operate, and report, three business segments: U.S. stores, international franchise and supply chain.
U.S. Stores
During 2022, our U.S. stores segment accounted for $1.49 billion, or 33%, of our consolidated revenues. Our U.S. stores segment consists primarily of our franchise operations, which consistconsisted of 5,7846,400 franchised stores located in the United States.States as of January 1, 2023. We also operateoperated a network of 342286 U.S. Company-owned stores.
Directly operating Domino’s stores contributes significantly to our ability to act as a credible franchisor. We also use our Company-owned stores as test sites for technological innovation and promotions as well as operational improvements. We also use them for training new store managers and operations team members, as well as developing prospective franchisees. While we are primarily a franchised business, we continuously evaluate our mix of U.S. Company-owned and franchisefranchised stores. As of December 29, 2019,January 1, 2023, franchised stores represented 94%approximately 96% of our total store count within our U.S. stores segment.
U.S. Franchise Profile
As of December 29, 2019,January 1, 2023, our network of 5,7846,400 U.S. franchise stores was owned and operated by 777725 independent U.S. franchisees. Our franchise formula enables franchisees to benefit from our brand recognition with a relatively low initial capital investment. As of December 29, 2019,January 1, 2023, the average U.S. franchisee owned and operated approximately sevennine stores and had been in our franchise system for over 1817 years. Additionally, 2022 of our U.S. franchisees operated more than 50 stores (including our largest U.S. franchisee who operated 176162 stores) and 240204 of our U.S. franchisees each operated one store.
We apply rigorous standards to prospective U.S. franchisees. We generally require them to manage a store for at least one year and graduate from our franchise management school program before being granted athe right to franchise. This enables us to observe the operational and financial performance of a potential franchisee prior to entering into a long-term agreement. Substantially all of our 777 independent U.S. franchise owners started their careers with us as delivery drivers or in other
U.S. Franchise Agreements
We enter into franchise agreements with U.S. franchisees under which the franchisee is generally granted the right to operate a store in a particular location for a term of ten years, with an ability to renew for an additional term of ten years. We havehad a franchise agreement renewal rate of approximately 99%. in 2022. Under the current standard franchise agreement, we assign an exclusive area of primary responsibility to each franchised store. Each franchisee is generally required to pay a 5.5% royalty fee on sales, as well as certain technology fees. In certain instances, we will collect lower rates based on certain incentives.
Our stores in the contiguous United States currently contribute 6% of their sales to fund national marketing and advertising campaigns (subject, in certain instances, to lower rates based on certain incentives and waivers). These funds are administered by Domino’s National Advertising Fund Inc. (“DNAF”), our consolidated
We have the contractual right, subject to state law, to terminate a franchise agreement for a variety of reasons, including, but not limited to, a franchisee’s failure to adhere to the Company’s franchise agreement, failure to make required payments or failure to adhere to specified Company policies and standards.
6
Our international franchisees employ our basic standard operating model and adapt it to satisfy the local eating habits and consumer preferences of various regions outside the U.S. Currently, the vast majority of our international stores operate under master franchise agreements.
We believe that Domino’s appeals to potential international franchisees because of our recognized brand name and technological leadership, the moderate capital expenditures required to open and operate ourthe stores and ourthe system’s desirable storestore-level profitability. Stores in eightseven of our top ten largest international markets in terms of store count are operated by master franchise companies that are publicly traded on stock exchanges as noted in the below table. The following table shows our store count as of December 29, 2019January 1, 2023 in our top ten largest international markets, which accounted for approximately 63% of our international stores as of that date.
Market | Number of stores | |||
India (JUBLFOOD: NS) | 1,758 | |||
United Kingdom (DOM: L) | 1,197 | |||
Japan (DMP: ASX) | 957 | |||
Mexico (ALSEA: MX) | 842 | |||
Australia (DMP: ASX) | 756 | |||
Turkey (DPEU: L) | 650 | |||
China | 589 | |||
Canada | 585 | |||
France (DMP: ASX) | 487 | |||
South Korea | 480 |
International Franchisee Profile
The vast majority of our markets outside of the U.S. are operated by master franchisees with franchise and distribution rights for entire regions or countries. In a few select markets, we franchise directly to individual store operators. Prospective master franchisees are required to possess local market knowledge to establish and develop Domino’s stores, with the ability to identify and access targeted real estate sites, as well as expertise in local laws, customs, culture and consumer behavior. We also seek candidates that have access to sufficient capital to meet growth and development plans. We consider our relationship with our international franchisees to be good.
International Master Franchise and Other Agreements
Our international master franchise agreements generally grant the franchisee exclusive rights to develop and2019.
Supply Chain
During 2022, our supply chain segment operates 19accounted for $2.75 billion, or 61%, of our consolidated revenues. In the U.S., we operate 22 regional dough manufacturing and food supply chain centers, in the U.S., onetwo thin crust manufacturing center,facilities, one vegetable processing center and one center providing equipment and supplies to our U.S. and certain international stores. We plan to continue investing in additional supply chain centers and capacity initiatives in the future, including two additional regional dough manufacturing and food supply chain centers that are expected to open in fiscal 2020. We also operate five dough manufacturing and food supply chain centers in Canada. We plan to continue investing in supply chain productivity initiatives in the future. Our supply chain segment leases a fleet of more than 8001,000 tractors and trailers. During 2019, our supply chain segment accounted for $2.10 billion, or 58% of our consolidated revenues.
7
We believe our franchisees voluntarily choose to obtain food, supplies and equipment from us because we offer the most efficient, convenient and cost-effective alternative, while also offering both quality and consistency. Our supply chain segment offers profit-sharing arrangements to U.S. and Canadian franchisees who purchase all of their food for their stores from our centers. These profit-sharing arrangements generally offer participating franchisees and Company-owned stores with 50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of their regionalthe pre-tax profit from our supply chain center’spre-taxprofits.center operations. We believe these arrangements strengthen our ties to and provide aligned benefits with franchisees.
Third-Party Suppliers
A significant amount of our annual food spend is with suppliers with whom we maintain long-standing partnerships. Our supply partners are required to meet strict quality standards to ensure food safety. We review and evaluate these partners’ quality assurance programs through (among other actions)
Cheese is our largest food cost. The price we charge to our U.S. franchisees for cheese is formula-based, with the Chicago Mercantile Exchange cheddar block price as the primary component, plus a supply chain markup. As cheese prices fluctuate, our revenues and margin percentages in our supply chain segment also fluctuate; however, actual supply chain dollar margins remain unchanged. We currently purchase our U.S. pizza cheese from a single supplier. Under our September 2017 agreement which expires in September 2024, our U.S. supplier agreed to provide the Company with an uninterrupted supply of cheese and the Company agreed to a seven-year pricing schedule to purchase all of its U.S. pizza cheese from this supplier. While we expect to meet the terms of this agreement, if we do not, we will be required to repay the certain negotiated cost savings as provided in the agreement. The majority of our meat toppings in the U.S. come from a single supplier under a contract that, as extended, expires in June 2022.at the end of February 2023. We are actively negotiating a new contract with this supplier and we do not anticipate any significant impacts to our supply following the expiration of our current extension. We have the right to terminate these arrangements for quality failures and for certain uncured breaches.
We believe alternative third-party suppliers are available for all of these referenced products. While we may incur additional costs if we are required to replace any of our supply partners, we do not believe such additional costs would have a material adverse effect on our business. We continually evaluate each supply category to determine the optimal sourcing strategy.
We have not experienced any significant shortages of supplies or delays in receiving our inventories or products. Prices charged to us by our supply partners are subject to fluctuation, and we have historically been able to pass increased costs and savings on to stores. We periodically enter into supplier contracts to manage the risk from changes in commodity prices. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.
Our Strengths
Strong Brand Equity
We are the largest pizza company in the world based on global retail sales. Weand we believe our Domino’s brand is one of the most widely-recognized consumer brands in the world. We are the recognized world leader in pizza delivery and, have a significant businessin the U.S., we are also the market share leader in carryout. We believe consumers associate our brand with the timely delivery of quality, affordable food and technological innovation.
We are the number one pizza delivery company in the U.S. with a 35%approximately 32% share of delivery dollars at pizza deliveryQSRs, based on consumer spending data for the year ending November 2019.December 2022. For the same period, we are also the number two pizzaleading in carryout company in the U.S. with a 16%approximately 19% share of carryoutcarryout/drive-thru QSR pizza consumer spending (Source: The NPD Group/CRESTNovember 2019)December 2022). With 6,1266,686 stores located in the U.S., our store delivery areas cover a majority of U.S. households. Our share position and scale allow us to leverage our purchasing power, supply chain strength and marketing investments. We believe our scale and market coverage allow us to effectively serve our customers’ demands for convenience and timely delivery. Outside the U.S., we have significant market share positions in many of the markets in which we compete.
8
Strong and Proven Business Model
Our business model generates U.S. and international franchise royalties and fees, supply chain revenue and retail sales at Company-owned stores. We have developed this model over our many years of operation, and it is anchored by strong store-level economics, which provide an entrepreneurial incentive for our franchisees and historically has generated strong demand for new stores. Over the past ten years, average U.S. store profitability in the Domino’s system has increased meaningfully, resulting in higher profitability for our franchise owners. Our franchise system, in turn, has produced strong and consistent earnings for us through royalty and fee payments and through supply chain revenues.
We developed a cost-efficient store model, characterized by a delivery- and carryout-oriented store design, with moderate capital requirements and a menu of quality, value-oriented and affordable items. At the store level, we believe the simplicity and efficiency of our operations give us significant advantages over our competitors, who, in many cases, also focus on
Our menu simplifies and streamlines production and delivery processes and maximizes economies of scale on purchases of our principal food items. In addition, our stores, including those in our Pizza Theater image, are generally smaller and less expensive to build, furnish and maintain as compared to many other restaurant concepts. New stores built in our Pizza Theater design are often slightly larger than stores we have built in the past toconcepts, and they create a betterpositive experience for our carryout customers; however, they are still generally smaller and less expensive to build, furnish and maintain than many other restaurant concepts.customers. The combination of this efficient store model and strong sales volume has resulted in strong store-level economics and, we believe, makes Domino’s an attractive business opportunity for existing and prospective franchisees around the world. We and our franchisees are continuing to focus on growing our global store count. In recent years, we have focused specifically on increasing our presence in our existing markets to provide better service to our customers, including shrinkingcondensing our delivery areas to provide better delivery service and adding locations that are closer to our carryout customers. We call this approach our fortressing strategy.
We believe our store financial returns have led to a strong, well-diversified franchise system. This established franchise system has produced strong cash flows and earnings for us, enabling us to invest in the Domino’s brand, stores, technology and supply chain centers, pay dividends, repurchase and retire shares of our common stock and service our debt obligations.
Technological Innovation
Technological innovation is vital to our brand and our long-term success. Digitalsuccess, and digital ordering is critical to competing in the global pizza industry. In 2019, more than halfand broader QSR industries. Emphasis on technological innovation helped us achieve approximately two-thirds of all global retail sales were derivedin 2022 from digital channels, primarily through our online ordering website and mobile applications. We believechannels. In the U.S., we are among the largeste-commerceretailers in terms of annual transactions. After launching digital ordering and the Domino’s Tracker®in the U.S. in 2008, we made the strategic decision in 2010 to develop our own online ordering platform and to manage this important and growing area of our business internally. Over the next five years, we launched mobile applications that cover the majority of the smartphones and tablets on the U.S. market. In 2013, we launched an enhanced online ordering profiles platform, allowing customers the ability to reorder their favorite order in as few as five clicks, or 30 seconds. In 2014, we introduced “Dom,” a voice ordering application, which we believe was the first in the restaurant industry, and we also made the Domino’s Tracker available on our ordering platforms. In 2015, we introducedhave developed several innovative ordering platforms, including Samsung Smart TV®, Twitter, and text message using a pizza emoji. We continued this trend of innovation in 2016 with the introduction ofzero-clickordering as well as addingthose for Google Home, Facebook Messenger, Apple Watch, and Amazon Echo, Twitter and more. We have also added GPS to our ordering platforms. In April 2018, we launched Domino’s Delivery HotSpots, featuring over 200,000 non-traditional delivery locations including parks, beaches, local landmarks and other unique gathering spots. In late 2017, we began an industry-first test of self-driving vehicle delivery, and in June 2019, we announced a partnership with Nuro, furthering our exploration and testing of autonomous pizza delivery. In 2019, we also opened our innovation garage, which is a 33,000 square-foot building on the campus of our corporate headquarters that includes collaboration workspaces and a fully functioning pizza theater to develop and test new technology in a store setting. We also launched our GPS delivery tracking technology in 2019,Tracker, which allows customers to trackmonitor the progress of their pizza delivery through Domino’s ordering platforms.
Our Piece of the Pie Rewards® loyalty program launched in 2015, is meant to reward customers with a program that is simple to understand and easy to use. Upon signing up for the program, customers become rewards members and can earn points for onlinetheir orders. When rewards members reach a certain amount of points, they can redeem their points for free pizza. Rewards members may also receive exclusive members-only discounts and bonus offers. We may also occasionally provide additional opportunities for participating customers to benefit under the Piece of the Pie Rewards program.
This improved functionality has been developed to work seamlessly with our Domino’s PULSEDecember 29, 2019,January 1, 2023, Domino’s PULSE is being used in every Company-owned and franchised store in the U.S., in more than 99% of our U.S. franchised stores and in approximately 76%79% of our international stores.
9
Product Innovation
We believe our core hand-tossed pizza in the U.S. with a new recipe which we believe has contributed to long-term growth in customer reorder rates, consumer traffic and increased sales. This recipe is now in use in other markets around the world. Our nearlymore than 60 years of innovation have resulted in numerous new product developments, including our more recent innovations of Handmade Pan Pizza, Specialty Chicken, Parmesan Bread Bites, Stuffed Cheesy Bread, Marbled Cookie Brownie and Bread Twists, among others.developments. Product innovation is also present in our global markets, where our master franchisees have the ability to recommend products to suit their local market tastes. Products includecan range from simple to indulgent, including the Mayo JagaCheese Fondue Fire Meat in Japan (bacon, potatoes(cheese, tomato and sweet mayonnaise)truffle cream sauce, barbecue pork, bacon and vegetables) and the Saumoneta in France (light cream, potatoes, onions, smoked salmon and dill).
Internal Dough Manufacturing and Supply Chain System
In addition to generating significant revenues and earnings in the U.S. and Canada, we believe our vertically integrated dough manufacturing and supply chain system enhances the quality and consistency of our products, enhances our relationships with franchisees and leverages economies of scale to offer lower costs to our stores. It also allows store managers to better focus on store operations and customer service by relieving them of the responsibility of mixing dough in the stores and sourcing other ingredients. Many of our international master franchisees also profit from running supply chain businesses in their respective markets.
Human Capital
As of January 1, 2023, we had approximately 11,000 employees, including approximately 6,600 employees supporting our U.S. Company-owned stores and U.S. franchise operations (our U.S. stores segment), approximately 3,300 employees supporting our U.S. and Canadian supply chain operations (our supply chain segment), approximately 100 employees supporting our international franchise operations (our international franchise segment) and approximately 1,000 corporate employees. Approximately 4,500 of our employees are part-time and approximately 6,500 are full-time equivalent. Our Ideals
Purpose and Values
We are a purpose-inspired and performance-driven company with exceptional people committed to feeding the power of possible, one pizza at a time. At the heart of our brand is a commitment to a set of values that define our core beliefs on how we run our business, treat our people, support our franchisees and serve our customers.
Do the Right Thing: We act with integrity and make disciplined decisions, even when it’s difficult or unpopular. High ethical standards and uncommon honesty.
Put People First: We create an inclusive culture, knowing our people are core to our success. We treat each other with dignity and respect, and we value the differences each team member brings. We strive to be a company where all team members can startbring their full selves to work and know that they can belong, contribute and reach their potential.
Create Inspired Solutions: We are a company built on entrepreneurship and innovation. We get better every day by having the humility and the courage to embrace and lead change. Together, we unlock our collective potential to be bold and think big. We have a bias for action to solve customer needs in new and relevant ways.
Champion our Customers: We deliver on our promises, treating each order and interaction as an entry-level positionopportunity to deepen relationships by delivering great products, services and becomeexperiences. We hold ourselves accountable, and if we don’t deliver on a promise, we are committed to making it right.
Grow and Win Together: We are not playing a finite game. We are committed to building an enduring brand that outlives any of our individual contributions. We will grow together, deliver exceptional results together, celebrate wins together, have fun together, and leave the Domino’s brand in a better place for those that come after.
10
Compensation and Benefits
Exceptional people are the core of our business. We are committed to providing competitive pay and benefits to attract and retain great talent, whether in our U.S. Company-owned stores, in our supply chain centers or in our corporate offices. We enable this by benchmarking and analyzing pay and benefits both externally and internally. In recent years, we have made continued investments in frontline team member wage rates in our U.S. Company-owned stores and supply chain centers. We are committed to providing pay equity for all employees.
Domino’s offers a comprehensive benefits package to eligible team members, including several benefits designed to promote an inclusive workplace like paid parental leaves, adoption support, discounted childcare tuition, and health plans that are available to dependents, spouses and domestic partners and include fertility and gender transition support. We also offer eligible team members a 401(k) plan, education assistance, access to financial education, a back-up childcare network and access to legal assistance.
Beyond basic insurance programs, Domino’s offers other wellness services to help team members participating in our health plan manage and optimize their health. These no-cost programs include smoking cessation, diabetes and hypertension management, at-home physical therapy for such team members, in addition to emotional support through Domino’s team member assistance program for all part-time and full-time team members and their dependents. Additionally, we provide up to 40 hours per year of sick time for all part-time and full-time team members, with no waiting period for our part-time team members who begin accruing sick pay on their first day of hire, and access to an outside wellness platform featuring 4,000+ videos on topics like mindfulness, exercise, nutrition, sleep, and financial well-being.
Talent Development and Recruiting
Having best-in-class talent across the globe is crucial to all aspects of Domino’s business, brand and long-term success. We are focused on attracting, developing and retaining high-performing, diverse teams and building an inclusive culture that inspires leadership, encourages innovative thinking and supports the development and advancement of all team members. Domino’s team members are empowered to drive their own success through different resources, training, and several development programs, including our G.O.L.D. (Global Operations Leadership Development) Program, our Supply Chain Services Driver Development Program and our Tech Rotation Program.
Our success will continue to depend on our ability to attract and retain qualified personnel to operate our stores, dough manufacturing and supply chain centers and international operations. In certain periods of 2022, we experienced labor shortages affecting store owner –hours and staffing levels in fact,many of our markets which contributed to lower order counts. To continue to strengthen our ability to attract and retain talent to ensure we have appropriate staffing to operate our stores and supply chain centers, we have launched a new Applicant Tracking System and have made continued investments in frontline team member wage rates in our U.S. Company-owned stores and supply chain centers. On an annual basis, we also review scores for our team member engagement and culture surveys to identify strengths and opportunities for our brand.
The opportunity and potential at Domino’s is best represented in a key statistic: substantially all of our independent U.S. franchise ownersfranchisees started their careers with us as delivery drivers or in otherThousandsWith the vast majority of Domino’s U.S. franchisees developed from within our own system, the opportunity to become a small business owner is a profound and unique aspect of Domino’s culture and strength as a brand. Experienced store managers and other team members – supervisors, trainers, quality auditors, international business consultants, marketersoperators can apply for Franchise Management School (“FMS”). At FMS, these operators receive training for a successful transition from store management to store ownership.
Inclusion and executives – also began their careers inDiversity Efforts
“Do the stores. Internal growthRight Thing” and providing opportunities for anyone willing to work hard“Put People First” are the foundationtwo of our core beliefs.
11
Domino’s is focused on building an inclusive culture that welcomes, seeks to understand and values everyone’s whole self. Our Inclusion and Diversity efforts have been crafted with a strategic framework that encompasses three pillars:
Workforce – focused on the relaunchdiversity of our brand. We were inspired by our harshest critics when it came to the perceived taste of our pizza. Our solution was not simply more advertising; the solution was to create a new recipe and a broader menu of great-tasting products. Our marketing campaign was shockingly honest in its approach: telling consumers (and showing them via television ads) that we heard their negative feedback and were listening. And, without thebuy-infrom our franchise owners, we couldn’t have done it. We believe that we can’t focus solely on the Company’s success; we must focus on making our stores and our franchisees successful. That’s winning together.
Workplace – focused on ensuring that our Company-owned stores, offices and supply chains are inclusive.
Marketplace – focused on ensuring our brand reaches and is relevant to all consumers.
As part our workplace initiatives, we provide leadership and funding to support team members in participating in Employee Resource Groups (“ERGs”). We currently have ERGs representing the Recycling Partnership.
We engaged outside experts to measure and quantify our environmental footprint, and identify opportunities to improve. With the help of these experts, we have conducted a materiality assessment, connected with key stakeholders inside and outside of the company and developed a baseline report for our carbon, water and land use footprint in the U.S. We have set two significant commitments on greenhouse gas emissions, including a commitment to set and reach Science Based Targets by 2032 and achieve net zero carbon emissions by 2050. We also continue to highlight important stewardship topics with consumers, including our recent efforts to promote the ability to recycle pizza boxes throughout the U.S. We also launched a fleet of electric vehicles in 2022 as part of an initiative to solve a business need with a solution that is also good for the planet.
Domino’s also has a long history of caring for the communities we serve. Our national philanthropic partner is St. Jude Children’s Research Hospital. St. Jude, which is internationally-recognizedinternationally recognized for its pioneering work in finding cures and saving children with cancer and other catastrophic diseases. Through a variety of internal and consumer-based activities, including a national consumer fundraising campaign called$68.7$109.2 million to St. Jude since our partnership began in 2004, including raising $10.6$13.3 million in 2019. In addition2022. We have committed to raisinga 10-year, $100 million campaign to raise funds we have supportedto build Domino’s Village at St. Jude, throughin-kinddonations, including hosting hospital-wide pizza parties for patients and their families. Our system also helps St. Jude build awareness througha planned housing complex that will accommodate up to 140 patient families during long-term stays at the inclusion of the St. Jude logo on millions of our pizza boxes and through a link on our consumer website, as well as a St. Jude-themed Pizza Tracker duringThanks and Giving®.
We also support the Domino’s Pizza Partners Foundation (the “Partners Foundation”). Founded in 1986, the mission of the Partners Foundation is “Team Members Helping Team Members.” Primarily funded by team member and franchise contributions, the Partners Foundation is a separate,$7.5over $11.3 million over the past five years. The Partners Foundation is committed to meeting the needs of Domino’s team members facing crisis situations, such as fire, illness, natural disasters or other personal tragedies.
Additionally, in 2020, Domino’s announced a pledge of December 29, 2019, we had approximately 13,100 employees$3.0 million to support the Black community in the U.S., including $1.0 million to create the Company’s first Black Franchisee Opportunity Fund.
You can find more information about our initiatives and read our 2022 Corporate Stewardship Report, which includes both Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI) indexed tables, at stewardship.dominos.com. The information included in our Company-owned stores, supply chain centers, World Resource CenterCorporate Stewardship Report is not incorporated by reference herein and regional offices. Noneshould not be considered a part of our employees are covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
12
Additional Disclosures
Working Capital
Information about the Company’s working capital is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7., pages 35 through 38.
Government Regulation
We, along with our franchisees, are subject to various federal, state and local laws affecting the operation of our business. Each store is subject to licensing and regulation by a number of governmental authorities, which include zoning, health, safety, sanitation, building and fire agencies in the jurisdiction in which the store is located. In connection with maintaining our stores, we may be required to expend funds to meet certain federal, state and local regulations, including regulations requiring that remodeled or altered stores be accessible to persons with disabilities. Difficulties in obtaining, or the failure to obtain, required licenses or approvals could delay or prevent the opening of a new store in a particular area or cause an existing store to cease operations. Our supply chain facilities are also licensed and subject to similar regulations by federal, state and local health and fire codes.
We are also subject to the Fair Labor Standards Act and various other federal and state laws governing such matters as minimum wage requirements, overtime and other working conditions and citizenship requirements. Labor costs are largely a function of the minimum wage for a majority of our store personnel and certain supply chain personnel. A significant number of both our and our franchisees’ food service personnel are paid at rates related to the applicable minimum wage, and past increases in the minimum wage have increased labor costs, as would future increases.
We are subject to the rules and regulations of the Federal Trade Commission (“FTC”) and various state laws regulating the offer and sale of franchises. The FTC and various state laws require that we furnish a franchise disclosure document containing certain information to prospective franchisees, and a number of states require registration of the franchise disclosure document with state authorities. We are operating under exemptions from registration in several states based on the net worth of our subsidiary, Domino’s Pizza Franchising LLC, and experience. We believe our franchise disclosure document, together with any applicable state versions or supplements, and franchising procedures comply in all material respects with both the FTC guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises.
Internationally, our franchise stores are subject to national and local laws and regulations that are often similar to those affecting our U.S. stores, including laws and regulations concerning franchises, labor, health, sanitation and safety. Our international stores are also often subject to tariffs and regulations on imported commodities and equipment, and laws regulating foreign investment. We believe our international disclosure statements, franchise offering documents and franchising procedures comply in all material respects with the laws of the foreign countries in which we have offered franchises.
Privacy and Data Protection
We are subject to a number of privacy and data protection laws and regulations both in the U.S. and globally. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increase in attention given to privacy and data protection issues with the potential to directly affect our business. This includes recently-enacted laws and regulations in the U.S. and internationally requiring notification to individuals and government authorities of security breaches involving certain categories of personal information. Any changes in privacy or data protection laws or regulations could also impact our marketing techniques and could change our marketing strategies. We have a privacy policy posted on our website at www.dominos.com
Trademarks
We have many registered trademarks and believe that the Domino’s mark and Domino’s Pizza names and logos, in particular, have significant value and are important to our business. Our policy is to pursue registration of our trademarks and to vigorously oppose the infringement of any of our trademarks. We license the use of our registered marks to franchisees through franchise agreements.
13
Environmental Matters
We are not aware of any federal, state or local environmental laws or regulations that we would expect to materially affect our earnings or competitive position or result in material capital expenditures. However, we cannot predict the effect of possible future environmental legislation or regulations. During 2019,2022, there were no material environmental compliance-related capital expenditures, and no such material expenditures are anticipated in 2020.
Available Information
The Company makes available, free of charge, through its internet website biz.dominos.comwww.sec.govinternet websitewww.dominos.com(the (the “Formbiz.dominos.comwww.dominos.com
14
Business, Operational and Industry Risks
The quick service restaurant (“QSR”) pizza category and the food service and food delivery markets in general are highly competitive and such competition could adversely affect our operating results.
In the U.S., we compete primarily against regional and local companies as well as national chains Pizza HutHut®John’s®couldmay experience increased competition from existing or new companies in the delivery andcarry-outcouldmay create increasing pressures to grow our business in order to maintain our market share. Competition for both customers and drivers from these order and delivery aggregators and other food delivery services has substantially increased as order and delivery aggregators have continued to grow in size and scale. Additionally, we face growing competition from the supermarket industry and meal kit and food delivery providers, with the improvement of prepared food and meal kit offerings, expansion in meal delivery platforms and services and the trend towards convergence in grocery, deli, retail and restaurant services.
We also compete on a broader scale with quick service and other international, national, regional and local restaurants. Competition from order and delivery aggregators and other food delivery services has also increased in recent years. The overall food service market, food delivery market and the quick service restaurantQSR market are intensely competitive with respect to food quality, price, service, image, convenience and concept, and are often affected by changes in:
•
We compete within the food service market and the quick service restaurantQSR market not only for customers, but also for management and hourly employees, including store team members, drivers and qualified franchisees, as well as suitable real estate sitessites. We and qualified franchisees. our franchisees have faced an increasingly competitive labor market due to sustained labor shortages and increased turnover resulting in part from the ongoing COVID-19 pandemic which has caused us and our franchisees to in certain cases reduce store hours and delay store openings, and has in the past prevented us from running promotions, which has impacted our sales, service levels and customer acquisition and experience and could ultimately impact our growth and competitive position. Our success is also dependent in large part upon our ability to maintain and enhance the goodwill and reputation of our brand, our customers’ connection to our brand, and a positive relationship with our franchisees and the communities in which we and our franchisees operate.
Our supply chain segment is also subject to competition from outside suppliers. While substantially all U.S. franchisees purchased food, equipment and supplies from us in 2019,2022, U.S. franchisees are not required to purchase food, equipment or supplies from us and they may choose to purchase from outside suppliers. If other suppliers who meet our qualification standards were to offer lower prices or better service to our franchisees for their ingredients and supplies and, as a result, our franchisees chose not to purchase from our U.S. supply chain centers, our financial condition, business and results of operations would be adversely affected.
If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for our products, reduced margins, loss of management or hourly employees, reduced service levels, disruption in our supply chain, centers, the inability to take advantage of new business opportunities and the loss of market share, all of which would have an adverse effect on our operating results and could cause our stock price to decline.
If we fail to successfully implement our growth strategy, which includes opening new U.S. and international stores, our ability to increase our revenues and operating profits could be adversely affected.
A significant component of our growth strategy includes the opening of new U.S. (both Company-owned as well as franchised stores) and international franchised stores. We and our franchisees face many challenges in opening new stores, including, among others:
15
The opening of additional franchise stores also depends, in part, upon the availability of prospective franchisees who meet our criteria.criteria, the ability of these franchisees to attract and retain qualified personnel and their desire to open new stores. Our failure to add a significant number of new stores would adversely affect our ability to increase revenues and operating income. Additionally, our growth strategy and the success of new stores depend in large part on the availability of suitable store sites. If wesites and our franchisees are not able to secure leases in desired locations on favorable terms, or to renew such leases, our business and results of operations may be adversely affected.
As part of our business. Ifgrowth strategy, we may decide to increase or decrease the number of Company-owned stores, either by refranchising existing Company-owned stores or by purchasing existing franchised stores, as we have done in the past. Our failure to successfully execute these transactions could have an adverse effect on our operating results and could cause our stock price to decline.
Increases in food, labor and other costs, labor shortages or negative economic conditions could adversely affect our profitability and operating results.
Given the inflation rates in fiscal 2022, which we anticipate may continue, there has been and may continue to be significant increases in food costs and labor costs which have impacted and could further impact our profitability and that of our franchisees and which could impact the opening of new U.S. and international franchised stores and adversely affect our operating results. Inflationary pressures may also impact the discretionary purchasing power of our customers, especially customers with less disposable income or for whom discretionary spending represents a smaller portion of their disposable income, resulting in decreased demand for our products. Matters having a broad global economic impact may also significantly impact particular costs, such as the ongoing Russia-Ukraine conflict’s impact on our transportation and energy costs. We have experienced increased labor shortages at many of our stores and supply chain centers and our franchisees have experienced similar labor shortages at their stores. While there historically has been some level of ordinary course turnover of employees, the ongoing COVID-19 pandemic and resulting actions and impacts have exacerbated labor shortages and increased turnover. Labor shortages and increased turnover rates within our team members and the employees of our franchisees have led to and could in the future lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain team members and could negatively affect our and our franchisees’ ability to efficiently operate our respective businesses and result in a negative impact on service and customer experience. Factors such as inflation, increased food costs, increased labor and employee health and benefit costs, increased rent costs, increased transportation costs and increased energy costs may adversely affect our operating costs and profitability and those of our franchisees and could result in menu price increases, which could impact consumer demand. An economic environment characterized by high unemployment, rising interest rates, cautious consumer spending, or changes in consumer practices due to a possible recession could also impact consumer spending or demand and our operating results. Most of the factors affecting costs are beyond our control and, in many cases, we may not be able to identify acquisition candidates, such acquisitions may be financed,pass along these increased costs to our customers or franchisees and to the extent permitted underwe were to raise menu prices to offset these costs, could result in decreased consumer demand, sales and profitability.
16
Most ingredients used in our debtpizza, particularly cheese, are subject to significant price fluctuations as a result of seasonality, weather, demand and other factors. For example, we have experienced increased volatility in prices for some ingredients in recent years and during the ongoing COVID-19 pandemic, which may continue even if the pandemic recedes. Cheese is a significant cost to us, representing approximately 25% of the market basket purchased by our Company-owned stores.
Additionally, while we strive to engage in a competitive bidding process for our ingredients, because certain of these ingredients, including meat products, may only be available from a limited number of vendors, we may not always be able to do so effectively. Furthermore, if we need to seek new suppliers, including as a result of expiration of existing supply agreements, we may be subject to pricing or other terms less favorable to us than those reflected in our current supply arrangements. Labor costs are largely a function of the minimum wage for a majority of our store personnel and certain supply chain center personnel and, generally, are also a function of the availability of labor. In addition to the increases in labor costs described above, several jurisdictions in which we and our franchisees operate have recently approved minimum wage increases. Federal, state and local proposals that increase minimum wage requirements or mandate other employee matters could, to the extent implemented, materially increase labor and other costs. As more jurisdictions implement minimum wage increases, we expect that labor costs will continue to increase. For example, labor and regulatory compliance costs could be adversely impacted as a result of California Assembly Bill No. 257, the Fast Food Accountability and Standards Recovery Act (“FAST Act”), which was signed into law in September 2022. The FAST Act, which is currently subject to a referendum campaign, authorizes the creation of a council to set minimum standards for workers in the industry, including for wages, working hours and other health and safety conditions. The implementation of the FAST Act could result in increased labor cost at franchised restaurants in California, thereby potentially impacting their profitability. Further, this bill could prompt similar legislation in other states or localities. The advent of legislation aimed at predictive scheduling may impact labor for our stores and our franchisees’ stores. Additionally, while we do not currently have any unionized employees, certain employees of other companies in our industry have recently become unionized. If a significant portion of our employees were to become unionized, our labor costs could increase and our business could be negatively affected by other union requirements that increase our costs, disrupt our business, reduce our flexibility and impact our employee culture. Further, our responses to any union organizing efforts could negatively impact how our brand is perceived. Labor costs and food costs, including cheese, generally represent approximately 55% to 65% of the sales at a typical Company-owned store.
Worldwide economic activity has been and is expected to continue to be adversely affected by the ongoing COVID-19 pandemic, the scale and scope of which is ultimately unknown, which could adversely affect our business, financial condition and results of operations.
The ongoing global COVID-19 pandemic continues to impact worldwide economic activity and create uncertainty. A public health pandemic such as COVID-19 poses the risk that we and/or our employees, franchisees, supply chain centers, suppliers, customers and other partners may be prevented from, or be limited in, conducting business activities for an indefinite period of time, including due to restrictions that have been or may be suggested or mandated by governmental authorities, or due to the impact of the disease itself on a business’ workforces. In response to governmental requirements, we and our franchisees have in the past implemented a number of measures, including, among others, temporarily closing certain stores, modifying stores’ hours and closing locations to in-store dining. We continue to monitor ongoing developments, and future potential federal, state or local COVID-19-related mandates could materially impact our results, including due to additional compliance costs as a result of any imposed mandate. While it is not possible at this time to estimate the full impact that COVID-19 could have on our business going forward, the continued spread of the virus and the measures taken in response have in the past disrupted, and in the future may disrupt, our operations and could disrupt our supply chain, which could adversely impact our business, financial condition and results of operations. The COVID-19 pandemic and mitigation measures have also impacted global economic conditions, which could have an adverse effect on our business and financial condition. The Company’s sales and operating results may be affected by uncertain or changing economic and market conditions arising in connection with substantial debtand in response to the COVID-19 pandemic, including inflation, changes to consumer demand, availability of labor or with potentially dilutive issuancesother changes. While the Company has seen an increase in sales in certain markets, including within the U.S., at times during the COVID-19 pandemic, including increased sales related to heightened reliance on delivery and carryout businesses, future sales and same store sales are not possible to estimate and it is unclear whether and to what extent sales will return to more normalized levels or lessen if and when consumer behavior and general economic and business activity return to pre-pandemic levels. The significance of equity securities.
17
Shortages, interruptions or disruptions in the supply or delivery of fresh food products and store equipment could adversely affect our operating results.
We and our franchisees are dependent on frequent deliveries of food products that meet our specifications as well as adequate supply of store equipment. We have single suppliers or a limited number of suppliers for certain of our ingredients, including pizza cheese and meat toppings. While we believe there are adequate reserve quantities and potential alternative suppliers, shortages, interruptions, or disruptions in the supply of food products and store equipment caused by increased demand, capacity constraints, expiration of existing agreements, problems in production or distribution, product recalls, financial or other difficulties of suppliers, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients and equipment. We have in the past experienced disruptions within our supply chain resulting from, among other things, capacity, volume, systems, staffing, operational and COVID-19-related challenges and may experience such supply chain disruptions again in the future, which could materially and adversely affect our business and operational results. Additionally, the effects of climate change could increase the frequency and duration of weather impacts on our operations and could adversely affect our operating results.
The food service market is affected by consumer preferences and perceptions. Changes in these preferences and perceptions may reduce the demand for our products, which would reduce sales and harm our business.
Food service businesses are affected by changes in consumer tastes, international, national, regional and local economic conditions, marketing, advertising, pricing, including both price increases and discounting, and demographic trends. For instance, if prevailing health or dietary preferences cause consumers to avoid pizza and other products we offer in favor of foods that are perceived as healthier, or consumers shift away from delivery or carryout food, our business and operating results would be harmed. Moreover, because we are primarily dependent on a single product, if consumer demand for pizza should decrease, our business would suffer more than if we had a more diversified menu, as many other food service businesses do. The preferences of customers also may change as a result of advances in technology or alternative delivery methods or channels. If we are not able to respond to these changes, or our competitors respond to these changes more effectively than us, our business and operating results could be adversely affected.
Reports of social media could adversely impact our business.
Reports, whether true or not, of product contamination, food-borne illnesses (such as E. coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the quick service restaurantQSR market and could in the future as well. These events could occur both at the store and supply chain center levels. If such an event was to occur, we may not be able to respond to it quickly and effectively. The potential for acts of terrorism affecting our global food supply also exists and, if such an event occurs, it could have a negative impact on us and could severely hurt sales and profits. In addition, our reputation is an important asset; as a result, anything that damages our reputation could immediately and severely affect our sales and profits. Further, a boycott or other campaign critical of us, through social media or otherwise, could negatively impact our brand’s reputation and, consequently, sales. Media reports of product contamination, illnesses and injuries, whether accurate or not, could force some stores to close or otherwise reduce sales at such stores. Moreover, as further described above,below, social media has dramatically increased the rate at which negative publicity, including as it relates to food-borne illness, can be disseminated before there is any meaningful opportunity to respond to or address an issue. Even reports of food-borne illnesses or food tampering occurring solely at the restaurants of competitors could, by resulting in negative publicity about the restaurant industry in general, adversely affect us on a local, regional, national or international basis. Further, the occurrenceOur international operations expose us to further risk as our master franchisees are responsible for obtaining their own supply of a widespread illness, health epidemic or other general health concern could adversely affect us on a local, regional or international basis.food and equipment, subject to their compliance with our quality standards. A decrease in global retail sales as a result ofdue to these health concerns, orany negative publicity or as a result of the closure of any Domino’s stores could have a material adverse effect onadversely affect our results of operations.
We do not have long-term contracts with certain of our suppliers, or have contracts which are set to expire, and as a result they could seek to significantly increase prices or fail to deliver.
We do not have long-term contracts or arrangements, or have contracts which are set to expire, with certain of our suppliers. Although in the past we have not experienced significant problems with our suppliers, our suppliers may implement significant price increases or may not meet our requirements, including those that may result from increases in volume, in a timely fashion or at all. The occurrence of any of the foregoing could have a material adverse effect on the ability of our supply chain centers to deliver necessary products to our stores and those of our franchisees and on our results of operations.
18
Any prolonged disruption in the operations of any of our dough manufacturing and supply chain centers could harm our business.
In the U.S., we operate 1922 regional dough manufacturing and supply chain centers, onetwo thin crust manufacturing center andfacilities, one vegetable processing center in theand one center providing equipment and supplies to our U.S. and certain international stores. We also operate five dough manufacturing and supply chain centers in Canada. We plan to continue investing in additional supply chain capacityproductivity initiatives in the future.
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could adversely impact our business.
The use of social media platforms and other consumer-oriented technologies has increased the speed and accessibility of information dissemination and given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors. Negative publicity related to our food products, operations, or stores or related to our operations or actions by our executives, team members or franchisees and their team members or others perceived to be associated with our brand could harm our business, brand, reputation, marketing partners, financial condition and results of operations, regardless of the accuracy of such negative publicity. Failure to use or respond to social media campaigns effectively could lead to a decline in brand value and revenue.
Our success depends in part upon effective advertising, and lower advertising funds may reduce our ability to adequately market the Domino’s Pizza brand.
We have been routinely named a Leading National Advertiser by. and our success depends in part on continued effective advertising. Each Domino’s store located in the contiguous U.S. is obligated to contribute 6% of its sales (subject, in certain instances, to lower rates based on certain incentives and waivers) to DNAF, which uses such fees for national advertising in addition to contributions for local market-level advertising. We currently anticipate that this 6% contribution rateobligation will remain in place for the foreseeable future.future, though the actual contribution rate could be lower in certain instances due to certain incentives and waivers. While additional funds for advertising in the past have been provided by us, our franchisees and other third parties, none of these additional funds are legally required. The lack of continued financial support for advertising activities could significantly curtail our marketing efforts, which may in turn materially and adversely affect our business and our operating results.
Loss of key employees or our inability to attract and retain new qualified employees could hurt our business and inhibit our ability to operate and grow successfully.
Our success in the highly competitive pizza delivery andcarry-outRichard E. Allison Jr. and Russell J. Weiner and Joseph H. Jordan, each of these executives may terminate his agreement on ninety days’ notice. Our other executive officers may terminate their employment pursuant to their employment agreements at any time. As a result, we may not be able to retain our executive officers and key personnel or attract additional qualified management.
While we do not have long-term employment agreements with our executive officers, for all of our executive officers we haveemployment.employment, although the FTC has proposed a new rule that would ban the use of non-compete agreements. Our success will also continue to depend on our ability to attract and retain qualified personnel to operate our stores, dough manufacturing and supply chain centers and international operations. The loss of these employees or our inability to recruit and retain qualified personnel, including general managers or other store-level team members, or our inability to adequately respond to changes in the labor market, could have a material adverse effect onadversely affect our operating results.
19
Our international operations subject us to additional risk. Such risks and costs may differ in each country in which we and our franchisees do business and may cause our profitability to decline due to increased costs.
We conduct a significant and growing portion of our business outside the U.S. Our financial condition and results of operations may be adversely affected if global markets in which our franchisefranchised stores compete are affected by changes in political, economic or other factors. These factors, many over which neither we nor our master franchisees have control, may include:
•
Our earnings and business growth strategy depend on the success of our franchisees, and we may be harmed by actions taken by our franchisees, or employees of our franchisees, that are outside of our control.
A significant portion of our earnings comes from royalties and fees generated by our franchise stores. Franchisees are independent operators, and their employees are not our employees. We provide tools forthat franchisees to usecan consider using in training their employees, but the quality of franchise store operations and our brand and branded products may be diminished by any number ofnumerous factors beyond our control. Consequently, franchisees may not operate stores in a manner consistent with our standards and requirements or they or their employees may take other actions that adversely affect the value of our brand. In such event, our business and reputation may suffer, and as a result our revenues and stock price could decline.
As of December 29, 2019,January 1, 2023, we had 777725 U.S. franchisees operating 5,7846,400 U.S. stores. TwentyAs of that same date, 22 of these franchisees each ownowned and operateoperated more than 50 U.S. stores, including our largest U.S. franchisee who ownsowned and operates 176operated 162 stores and the average U.S. franchisee ownsowned and operatesoperated approximately sevennine stores.
20
We may not be able to adequately protect our intellectual property, which could harm the value of our brand and branded products and adversely affect our business.
We depend in large part on our brand and branded products and believe that they are very important to our business. We rely on a combination of trademarks, copyrights, domain names, patents, trade secrets and similar intellectual property rights to protect our brand and branded products. The success of our business depends on our continued ability to use our existing trademarks in order to capitalize on our name recognition, increase brand awareness and further develop our branded products in both U.S. and international markets. We have registered certain trademarks and have other trademark applications pending in the U.S. and foreign jurisdictions. Not all of the trademarks or domain names that we currently use or contemplate using have been registered in all of the countries in which we do business, and they may never be registered in all of these countries. Some countries’ laws do not protect unregistered trademarks at all, or make them more difficult to enforce, and third parties may have filed for “Domino’s” or similar marks in countries where Domino’s has not registered its brand.brand for reasons including lack of presence by the brand where actual use is required to obtain trademark registration. Accordingly, we may not be able to adequately protect our trademarks everywhere in the world and our use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition.
The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of confidential information, or damage to our employee and business relationships, any of which could subject us to loss and harm our brand.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information about customers, franchisees, suppliers or employees. A number ofMany retailers and other companies have recently experienced serious cyber incidents and breaches of their information technology systems. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. outsourced and we may further be negatively impacted to the extent outdated or legacy systems cease to function appropriately. We have in the past been and in the future may also be subject to negative impacts to our business caused by cyber incidents relating to our third-party service providers or the service providers of those third parties or our franchisees.
The three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationships with customers, franchisees and employees, and private data exposure, including payment card or other financial data.data, public relations impact and regulatory fines. In addition to maintaining insurance coverage to address cyber incidents, we have also implemented processes, procedures and controls to help mitigate these risks. However, our cyber insurance coverage may not fully cover all of the costs associated with a cyber incident and these measures, as well as our increased awareness of the risk of a cyber incident, do not guarantee that our reputation and financial results will not be materially and adversely affected by such an incident.
Our and our franchisees’ operations depend upon our ability and the ability of franchisees, and third-party service providers and the service providers of those third parties (as well as franchisees’ third-party service providers)providers and the service providers of those third parties), to protect computer equipment and systems against damage from theft, fire, power loss, telecommunications failure and other catastrophic or unanticipated events, as well as internal and external security incidents, viruses,dependdepends on the continuing operation of our information technology and communications systems, including but not limited to Domino’s PULSE™operations. Someoperations, and some of our systems are not fully redundant, and our system’s disaster recovery planning cannot account for all eventualities.redundant. The occurrence of a natural disaster, intentional sabotage or other unanticipated problems could result in lengthy interruptions in service.
In addition, the implementation of technology changes and upgrades to maintain and upgrade our systems, errors or vulnerabilities in our systems, or damage to or failure of our systems, including because of systems becoming obsolete, could result in interruptions in our services and
21
Additionally, we have seen a significant increase in remote working that, particularly in light of such remote working continuing for an extended period of time, could exacerbate certain risks to our business, including an increased risk of cyber incidents and improper dissemination of personal or confidential information.
Because we and our franchisees accept electronic forms of payment from customers including credit cards, our business requires the collection and retention of customer data, including sensitive financial data and other personally identifiable information in various information systems that we and our franchisees maintain and in thoseare maintained by third parties with whom we and our franchisees contract to provide payment processing. A weakness in such third party’s systems or software products (or in the systems or software products in the service providers of those third parties) may provide a mechanism for a cyber threat. In recent years, a significant number of companies have experienced security data breaches in which customer information was stolen through vendor access channels. While we select our third-party suppliers carefully, cyber-attacksCyber-attacks and security data breaches at a payment processing contractor could compromise confidential information or adversely affect our ability to deliver products and services to our customers. There is also a potential heightened risk of cyber security incidents as a result of geopolitical events outside of our control, such as the ongoing Russia-Ukraine conflict. These problems could negatively affect our results of operations, and remediation could result in significant, unplanned capital investments.
We also maintain important internal Company data, such as personally identifiable information about our employees and franchisees and information relating to our operations. In addition, more than half80% of all globalour U.S. retail sales in 20192022 were derived from digital channels, primarily through our online ordering website and mobile applications, where customers enter personally identifiable information that we retain. Our use and retention of personally identifiable information is regulated by foreign, federal and state laws and regulations, as well as by certain third-party agreements. For example, the European Union adopted a new regulation that became effective in May 2018,Court of Justice of the European Union Generalinvalidated the U.S. – E.U. Privacy Shield framework, which was a commonly relied upon mechanism for exchanging personal data from the European Union to the U.S., in the July 16, 2020 “Schrems II” decision (Case C-311/18 Data Protection RegulationCommissioner v. Facebook Ireland and Maximillian Schrems) and the State of California has adopted the California Privacy Rights Act of 2020, an amendment to the California Consumer Privacy Act, that became effective on January 1, 2020, both of which may require companies to meet new requirements regardingchange their practices for handling of personal data. In addition, the handlingState of New York promulgated the New York SHIELD Act which has imposed obligations on businesses to implement physical, administrative and technical security measures to protect personal data. As privacy and information security laws and regulations change, we may incur additional costs to ensure that we remain in compliance with those laws and regulations.regulations, and our current and future planned uses of personal and other data may be adversely affected by future adopted privacy and information security laws, regulations and rulings. If our security and information systems are compromised or if we, our employees or franchisees fail to comply with these laws, regulations or contract terms, or to successfully implement appropriate processes related to applicable requirements, laws and regulations governing cyber incidents could require us to notify customers, employees or other groups, and could result in adverse publicity, loss of sales and cash flows, increased fees payable to third parties and fines, penalties or remediation and other costs that could adversely affect our reputation, business and results of operations. Any other material disruption or other adverse event affecting one or more of our digital ordering platforms, including, for instance, power loss, technological or systems failures, user error or cyber-attacks, could similarly result in adverse publicity, loss of sales and cash flows and other costs, which could in turn materially and adversely affect our reputation, business and results of operations.
We cannot predict the impact that new or improved technologies, alternative methods of delivery, including autonomous vehicle delivery, or changes in consumer or employee behavior facilitated by these technologies and alternative methods of delivery will have on our business.
Advances in technologies or alternative methods of delivery, including advances in digital ordering technology and autonomous vehicle delivery, or certain changes in consumer behavior driven by these or other technologies and methods of delivery could have a negative effect on our business and market position. Moreover, technology and consumer offerings continue to develop, and we expect that new or enhanced technologies and consumer offerings will be available in the future. We may pursue certain of those technologies and consumer offerings if we believe they offer a sustainable customer proposition and can be successfully integrated into our business model. However, we cannot predict consumer acceptance of these delivery channels or their impact on our business. In addition, our competitors, some of whom have greater resources (financial or otherwise) than we do, may be able to benefit from changes in technologies or consumer acceptance of alternative methods of delivery, which could harm our competitive position.
There can be no assurance that we will be able to successfully respond to changing consumer preferences, including with respect to new technologies and alternative methods of delivery, or to effectively adjust our product mix, service offerings, and marketing and merchandising initiatives for products and services that address, and anticipate advances in, technology and market trends. Alternative methods of delivery may also impact the potential labor pool from which we recruit our delivery experts and could reduce the available supply of labor.
22
If we are not able to successfully respond to these challenges, our business, market share, financial condition, and operating results could be materially and adversely affected.
We are subject to a variety of additional risks associated with our franchisees.
Our franchise system subjects us to a number of additional risks, related to credit card and debit card payments we accept.
Our current insurance coverage may not be adequate, insurance premiums for such coverage may increase and we may not be able to obtain insurance at acceptable rates, or at all.
For certain periods prior to December 1998 and for periods after December 2001, we maintain insurance coverage for workers’ compensation, general liability and owned and$1.0$2.0 million per occurrence under these retention programs for workers’ compensation and general liability.liability, depending on policy year and line of coverage. We are generally responsible for up to $3.0between $500,000 and $5.5 million per occurrence under these retention programs for owned andliabilities.liabilities, depending on policy year and line of coverage. Total insurance limits under these retention programs vary depending upon the period covered and range up to $110.0 million per occurrence for general liability and owned and
23
Environmental, social and quarterlygovernance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social and governance (“ESG”) matters, which are considered to contribute to the long-term sustainability of companies’ performance. A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. In addition, major institutional investors have publicly emphasized the importance of such ESG matters to their investment decisions. Further, we recently announced our goal to set and reach Science Based Targets by 2032 and achieve net zero carbon emissions by 2050. Execution of these strategies and achievement of these goals are subject to significant fluctuations depending on various factors,risks and uncertainties, many of which are beyondoutside of our control and ifmay prove to be more costly than we failanticipate. These risks and uncertainties include, but are not limited to, meetour ability to execute our strategies and achieve our goals within the expectationscurrently projected costs and the expected timeframes; unforeseen design, operational and technological difficulties; the outcome of securities analysts or investors, our share price may decline significantly.
Risks Related to activist investor campaigns. Responding to actions of an activist investor may be a significant distraction for our management and staff and could require us to expend significant time and resources, including legal fees and potential proxy solicitation expenses. Any of these conditions could materially adversely affect our financial performance.
Our substantial indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our business.
We have a substantial amount of indebtedness. As of December 29, 2019,January 1, 2023, our consolidated total indebtedness was approximately $4.11$5.02 billion. We may also incur additional debt, which would not be prohibited under the terms of our current securitized debt agreements. Our substantial indebtedness could have important consequences for our business and our shareholders. For example, it could:
•
Further, a portion of our indebtedness bears2021 Variable Funding Notes bear interest at fluctuating interest rates that in certain circumstances is based on the London interbank offered rate (“LIBOR”), and there is currently uncertainty around whether. In 2021, ICE Benchmark Administration Limited, the administrator for LIBOR, will continueconfirmed its intention to existcease the publication of any U.S. dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023.
Our 2021 Variable Funding Notes loan documents provide that after 2021. Ifthe date on which the administrator for LIBOR permanently or indefinitely ceases to exist, we may need to renegotiate certainprovide all available settings of U.S. dollar LIBOR, any new advances under the 2021 Variable Funding Notes that would otherwise have borne interest based on LIBOR, as well as any existing LIBOR advances for which the interest period has expired, will instead bear interest at a forward-looking term rate based on the Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment, that in each case have been selected or recommended by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York. The loan documents also permit the lenders to effect a transition from LIBOR to Term SOFR at an earlier date, subject to certain conditions. Because the composition and we cannot predict what alternative indexcharacteristics of Term SOFR are not the same as those of LIBOR, there can be no assurance that Term SOFR will perform the same way LIBOR would be negotiated with our lenders. have at any given time or for any applicable period.
24
As a result, our interest expense could increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.
In addition, the financial and other covenants we agreed to with our lenders may limit our ability to incur additional indebtedness, make investments, pay dividends and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of repayment of all of our indebtedness.
Downgrades in our credit ratings could impact our ability to access capital and materially and adversely affect our business, financial condition and results of operations.
Our debt is rated by credit rating agencies. These agencies may downgrade their credit ratings for us based on the performance of our business, our capital strategies or their overall view of our industry. There can be no assurance that any rating assigned to our currently outstanding indebtedness will remain in effect for any given period of time or that any such ratings will not be lowered, suspended or withdrawn entirely by a rating agency if, in that agency’s judgment, circumstances so warrant. A downgrade of our credit ratings could, among other things, increase our cost of borrowing, limit our ability to access capital or result in more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur, including restrictions on our ability to pay dividends or repurchase shares, or require us to provide collateral for future borrowings, and thereby could adversely impact our business financial condition and results of operations.
We may be unable to generate sufficient cash flow to satisfy our significant debt service obligations, which would adversely affect our financial condition and results of operations.
Our ability to make principal and interest payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us under our variable funding notes in amounts sufficient to fund our other liquidity needs, our financial condition and results of operations may be adversely affected. If we cannot generate sufficient cash flow from operations to make scheduled principal amortization and interest payments on our debt obligations in the future, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity. If we are unable to refinance any of our indebtedness on commercially reasonable terms or at all or to affect any other action relating to our indebtedness on satisfactory terms or at all, our business may be harmed.
The terms of our securitized debt financing of certain of our wholly-owned subsidiaries have restrictive terms and our failure to comply with any of these terms could put us in default, which would have an adverse effect on our business and prospects.
Unless and until we repay all outstanding borrowings under our securitized debt, we will remain subject to the restrictive terms of these borrowings. The securitized debt, under which certain of our wholly-owned subsidiaries issued and guaranteed fixed rate notes and variable funding senior revolving notes, contain a number of covenants, with the most significant financial covenant being a debt service coverage calculation. These covenants limit the ability of certain of our subsidiaries to, among other things:
•
The securitized debt also requires us to maintain specified financial ratios at the end of each fiscal quarter. These restrictions could affect our ability to pay dividends or repurchase shares of our common stock. Our ability to meet these financial ratios can be affected by events beyond our control, and we may not satisfy such a test. A breach of this covenant could result in a rapid amortization event or default under the securitized debt. If amounts owed under the securitized debt are accelerated because of a default under the securitized debt and we are unable to pay such amounts, the investors may have the right to assume control of substantially all of the securitized assets.
25
During the term following issuance, the outstanding senior notes will accrue interest in accordance with the terms of the debt agreements. Additionally, our senior notes have original scheduled principal payments of $42.0 million in each of 2020 and 2021, $897.0 million in 2022, $33.0$51.5 million in each of 2023 and 2024, $1.15$1.17 billion in 2025, $20.8$39.3 million in 2026, $1.28$1.31 billion in 2027, $6.8$811.5 million in 2028, and $614.3$625.9 million in 2029. 2029, $10.0 million in 2030 and $905.0 million in 2031.
In accordance with our debt agreements, the payment of principal on the outstanding senior notes shallmay be suspended if the leverage ratiosratio for the Company areis less than or equal to 5.0x total debt, as defined, to adjusted EBITDA, as defined in the indenture governing our securitized debt, and no
If we are unable to refinance or repay amounts under the securitized debt prior to the expiration of the term, our cash flow would be directed to the repayment of the securitized debt and, other than a weekly management fee sufficient to cover minimal selling, general and administrative expenses, would not be available for operating our business.
Regulatory, Legal and Compliance Risks
We face risks of litigation, investigations, enforcement actions and negative publicity from customers, franchisees, suppliers, employees, regulators and others in the ordinary course of business, which could divert our financial and management resources. Litigation, investigations, enforcement actions or publicity may adversely impact our financial condition and results of operations.
Claims of illness or injury relating to food quality or food handling are common in the food service industry, and vehicular accidents and injuries occur in the food delivery business. We are currently subject to a varietythese types of additionalclaims and have been subject to these types of claims in the past. Claims within our industry of improper supplier actions also occasionally arise that, if made against one of our suppliers, could potentially damage our brand image.
In addition, class action lawsuits have been filed, and may continue to be filed, against various QSRs alleging, among other things, that QSRs have failed to disclose the health risks associated with high-fat foods and that QSR marketing practices have encouraged obesity. State attorney general offices or other regulators have initiated and may in the future initiate investigations or enforcement actions against us. In addition to decreasing our franchisees.
Further, we may be subject to the reliance of a franchised store business on its franchiseesemployee, franchisee and the nature of franchisees in general, including the retention of franchisees (especially including ourtop-performingfranchisees)other claims in the future based on, among other things, discrimination, harassment, working and safety conditions, wrongful termination and wage, expense reimbursement, rest break and meal break issues, including claims relating to minimum wage and overtime compensation. We and our international master franchisees have been and continue to be subject to these types of claims. If one or more of these claims were to be successful or if there is a significant increase in the number of these claims or if we receive significant negative publicity, our abilitybusiness, financial condition and operating results could be harmed.
We and our franchisees are subject to attract, retain,extensive laws and motivate sufficient numbersgovernment regulation and requirements issued by other groups and our failure to comply with existing or increased laws and regulations could adversely affect our business and operating results.
26
We are subject to numerous federal, state, local and foreign laws and regulations, as well as requirements issued by other groups, including those relating to:
We are subject to an FTC rule and to various state and foreign laws that govern the offer and sale of franchises. These laws regulate various aspects of the franchise relationship, including terminations and the refusal to renew franchises. The failure to comply with these laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales, fines or other penalties or require us to make offers of rescission or restitution, any of which could adversely affect our business.
We and our franchisees face various regulatory and legislative efforts to enforce employment laws, such as efforts to categorize franchisors as the co-employers or joint employers of their franchisees’ employees or to aggregate individual franchised businesses and classify them as large employers for minimum wage or other employment-related purposes. In August 2015, the National Labor Relations Board (“NLRB”) adopted a new and broader standard for determining when two or more otherwise unrelated employers may be found to be a joint employer of the same caliberemployees under the National Labor Relations Act. The NLRB issued a final rule which became effective April 27, 2020 that reinstates the standard that was in place before August 2015.
In December 2019, the NLRB directed an administrative law judge to approve settlement agreements (rather than rejecting the settlement and allowing the claims asserting that the franchisor should be the joint employer of its franchisees’ employees to proceed) in a decision related to another franchise system. On April 22, 2022, a federal appellate court rejected an appeal seeking to overturn that decision. The NLRB issued a proposed rule on September 6, 2022 that largely reestablishes the August 2015 joint employer standard. If the NLRB’s September 2022 proposed rule goes into effect or is adopted by other government agencies and/or applied generally to franchise relationships, it could cause us to be liable or held responsible for unfair labor practices and other violations of our franchisees and subject us to other liabilities, and require us to conduct collective bargaining negotiations regarding employees of totally separate, independent employers, most notably our franchisees. In such event, our operating expenses may increase as a result of required modifications to our business practices, increased litigation, governmental investigations or proceedings, administrative enforcement actions, fines and civil liability.
Additionally, depending upon the outcome and application of certain legal proceedings pending or concluded in federal court in California involving the California wage and hour laws in another franchise system, franchisors may be subject to claims that their franchisees should be treated as employees and not as independent contractors under the wage and hour laws of that state and, potentially, certain other states and localities with similar wage and hour laws. The California legislature has enacted a statute known as Assembly Bill 5 (AB-5), which went into effect on January 1, 2020. AB-5 requires “gig economy” workers to be reclassified as employees instead of independent contractors. However, depending upon the application of AB-5, franchisors in certain industries could be deemed to be covered by the statute, in which event certain franchisees could be deemed employees of the franchisors. While active efforts to narrow the reach of AB-5 continue, a bill (SB 967), which was introduced specifically to exempt the relationship between a franchisor and franchisee from the scope of AB-5, was not successful in the future.
27
We and our franchisees are subject to the Fair Labor Standards Act of 1938, as amended (the “Fair Labor Standards Act”), which, along with the Family and Medical Leave Act, governs such matters as minimum wage and overtime requirements and other working conditions and various family leave mandates, as well as a variety of other laws enacted, or rules and regulations promulgated, by federal, state and local governmental authorities that govern these and other employment matters. We and our franchisees have experienced and expect further increases in payroll expenses as a result of government-mandated increases in the minimum wage, and although such increases are not currently expected to be material, there may be material increases in the future, including as a result of the FAST Act. Enactment and enforcement of various federal, state and local laws, rules and regulations on immigration and labor organizations may adversely impact the availability and costs of labor for Domino’s and franchisees’ stores in a particular area or across the United States. In addition, third-party suppliers may be affected by higher minimum wage standards, which may increase the price of goods and services they supply to us. Such increased expenses may cause our franchisees to exit the business or cause us to reduce the number of Company-owned stores, or otherwise adversely affect the amount of royalty payments and license fees we receive.
On January 12, 2020, the U.S. Department of Labor announced a final rule to update and clarify the definition of joint employer under the Fair Labor Standards Act. Under the final rule, the general test for assessing whether a party can be deemed a joint employer would be based upon whether that party (i) hires or fires the employee; (ii) supervises and controls the employee’s work schedule or conditions of employment; (iii) determines the employee’s rate and method of payment; and (iv) maintains the employee’s employment records. In the final rule, the Department of Labor describes instances in which joint employment would not be more or less likely to be found to exist under the Fair Labor Standards Act, which, according to the Department of Labor, includes the relationships that exist under the typical franchise business model. This rule may reduce a franchisor’s risk of liability that currently exists under the joint employer standard now in effect under the Fair Labor Standards Act (though ultimately, the facts specific to the franchisor-franchisee model at issue would be considered when determining liability). On September 8, 2020, a federal district court struck down a significant portion of the final rule. On July 29, 2021, the current administration’s Department of Labor issued a final rule rescinding the 2020 rule. The Department of Labor may revert to the more expansive interpretation of joint employer that existed prior to the adoption of the 2020 rule and/or interpretations that could result in franchisors being held liable or responsible for Fair Labor Standards Act violations by their franchisees. The rules of the Department of Labor are separate from the joint employer standard under the National Labor Relations Act or, as described above, potential liability as a joint employer under the National Labor Relations Act.
Certain governmental authorities and private litigants have recently asserted claims against franchisors, including us, for provisions in our prior franchise agreements that restrict franchisees from soliciting or hiring the employees of other franchisees or the applicable franchisor. Claims against franchisors for such clauses include allegations that these clauses violate state and federal antitrust and unfair practices laws by restricting the free movement of employees of franchisees and/or franchisor (including the employees of Company-owned stores), thereby depressing the wages of those employees.
The Patient Protection and Affordable Care Act (as amended, the “Affordable Care Act”) requires employers such as us to provide health insurance for all qualifying employees or pay penalties for not providing coverage. The majority of the increases in these costs began in 2015, and while the incremental costs of this program have not been material to us to date, we cannot predict what effect these costs will have on our results of operations and financial position, or the effects of the Affordable Care Act on some of our larger franchisees. Modifications to, or repeal of, all or certain provisions of the Affordable Care Act are also possible. Changes in tax laws or tax policy more broadly, increases in the enacted tax rates, adverse outcomes in connection with tax audits in any jurisdiction or any change in the pronouncements relating to accounting for income taxes could also impact our financial condition and results of operations. We may also become subject to legislation or regulation seeking to tax and/or regulate high-fat foods, foods with high sugar and salt content, or foods otherwise deemed to be “unhealthy,” and our capital expenditures could increase due to remediation and compliance measures related to these laws or regulations.
Adverse government regulations and enforcement efforts or non-compliance by us or our franchisees with any of the foregoing laws and regulations could lead to various claims or governmental or judicial fines, sanctions or other enforcement measures, which could negatively impact our business.
28
Market and General Risks
Fluctuations in value of the U.S. dollar in relation to other currencies may lead to lower revenues and earnings.
Exchange rate fluctuations could have an adverse effect on our results of operations and we have in the past experienced significant adverse changes in foreign currency rates. International franchise royalties and fees represented approximately 6.5%, 6.8% and 6.1% of our total revenues in 2022, 2021 and 2020, respectively, a majority of which were denominated in foreign currencies. We also operate dough manufacturing and distribution facilities in Canada, which generate revenues denominated in Canadian dollars. Sales made by franchise stores outside the U.S. are denominated in the currency of the country in which the store is located, and this currency could become less valuable in U.S. dollars as a result of exchange rate fluctuations. Unfavorable currency fluctuations could lead to increased prices to customers outside the U.S. or lower profitability to our franchisees outside the U.S., or could result in lower revenues for us, on a U.S. dollar basis, from such customers and franchisees. A hypothetical 10% adverse change in the foreign currency rates in our international markets would have resulted in a negative impact on international royalty revenues of approximately $26.1 million in 2022.
Our annual and quarterly financial results are subject to significant fluctuations depending on various factors, many of which are beyond our control, and if we fail to meet the expectations of securities analysts or investors, our stock price may decline significantly or be subject to significant fluctuations.
Our annual and quarterly financial results, including our sales and operating results, can vary significantly from quarter-to-quarter and year-to-year depending on various factors, many of which are beyond our control. These factors include, among other things:
•
As a result, our operational performance may decline quickly and significantly in response to changes in order patterns or rapid decreases in demand for our products. Any such decline may cause us and our franchisees to experience lower sales revenue. We anticipate that fluctuations in operating results will continue in the future, and such fluctuations may result in significant fluctuations or a significant decline in our stock price.
29
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease approximately 250,000285,000 square feet for our World Resource Center, including our Domino’s Innovation Garage, located in Ann Arbor, Michigan under an operating lease with Domino’s Farms Office Park, L.L.C., an unrelated company. Under an amendment to this lease, Domino’s Farms Office Park, L.L.C. constructed a new 33,000 square foot building that was leased to the Company upon completion in 2019. The lease, as amended, expires in 2029 and has two five-year renewal options.
We own five supply chain center buildings. We also own one store building that we lease to a U.S. franchisee. All other U.S. Company-owned stores are leased by us, typically underten-yearleases with one or two five-year renewal options. All other U.S. and internationalCanadian supply chain centers are leased by us, typically under leases ranging between five and 21 years with one or two five-year renewal options. All otherbuildings for U.S. Company-owned stores are leased by us, typically under ten-year leases with one or two five-year renewal options. All franchise stores are leased or owned directly by the respective franchisees. We believe that our existing headquarters and other leased and owned facilities are adequate to meet our current requirements.
Item 3. Legal Proceedings.
We are a party to lawsuits, revenue agent reviews by taxing authorities and administrative proceedings in the ordinary course of business which include, without limitation, workers’workers' compensation, general liability, automobile and franchisee claims. We are also subject to suits related to employment practices.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. These matters referenced above could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy. In management’s opinion, these matters, individually and in the aggregate, should not have a significant adverse effect on the financial condition of the Company, and the established accruals adequately provide for the estimated resolution of such claims.
While we may occasionally be party to large claims, including class action suits, we do not believe that any existing matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 4A. Executive Officers of the Registrant.
The listing of executive officers of the Company is set forth under Part III Item 10. Directors, Executive Officers and Corporate Governance, on pages 75 through 78, which is incorporated herein by reference.
30
As of February 13, 2020,16, 2023, Domino’s Pizza, Inc. had 170,000,000 authorized shares of common stock, par value $0.01 per share, of which 38,667,03935,419,653 were issued and outstanding. As of February 16, 2023, there were 1,507 registered holders of record of Domino’s Pizza, Inc.’s common stock. Domino’s Pizza, Inc.’s common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “DPZ.”
Our Board of Directors declared a quarterly dividend of $0.78$1.21 per common share on February 19, 202021, 2023 payable on March 30, 20202023 to shareholders of record at the close of business on March 13, 2020.
We currently anticipate continuing the payment of quarterly cash dividends. The actual amount of such dividends, if any, will depend upon future earnings, results of operations, capital requirements, our financial condition and certain other factors. There can be no assurance as to the amount of free cash flow that we will generate in future years and, accordingly, dividends will be considered after reviewing returns to shareholders, profitability expectations and financing needs and will be declared at the discretion of our Board of Directors.
As of February 13, 2020, there were 1,510 registered holders of record of Domino’s Pizza, Inc.’s common stock.
|
| Total |
|
| Average |
|
| Total |
|
| Maximum |
| ||||
Period #10 (September 12, 2022 to October 9, 2022) |
|
| 1,651 |
|
| $ | 310.40 |
|
|
| — |
|
| $ | 410,358 |
|
Period #11 (October 10, 2022 to November 6, 2022) |
|
| 1,052 |
|
|
| 338.17 |
|
|
| — |
|
|
| 410,358 |
|
Period #12 (November 7, 2022 to December 4, 2022) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 410,358 |
|
Period #13 (December 5, 2022 to January 1, 2023) |
|
| 854 |
|
|
| 380.09 |
|
|
| — |
|
|
| 410,358 |
|
Total |
|
| 3,557 |
|
| $ | 335.34 |
|
|
| — |
|
| $ | 410,358 |
|
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | ||||||||||||
Period #10 (September 9, 2019 to October 6, 2019) | 1,281 | $ | 244.16 | — | $ | 1,000,000 | ||||||||||
Period #11 (October 7, 2019 to November 3, 2019) | 4,441 | 239.20 | 3,300 | 999,242 | ||||||||||||
Period #12 (November 4, 2019 to December 1, 2019) | 933,055 | 285.26 | 933,055 | 733,078 | ||||||||||||
Period #13 (December 2, 2019 to December 29, 2019) | 1,128,072 | 290.09 | 1,127,023 | 406,142 | ||||||||||||
Total | 2,066,849 | $ | 287.81 | 2,063,378 | $ | 406,142 | ||||||||||
(2)
31
The following comparative stock performance line graph compares the cumulative shareholder return on the common stock of Domino’s Pizza, Inc. (NYSE: DPZ) for the five-year period between December 31, 20142017 and December 31, 2019,2022, with the cumulative total return on (i) the Standard & Poor’s 500 Index (the “S&P 500”) and, (ii) the peer group, the Standard & Poor’s 400 Restaurant Index (the “S&P 400 Restaurant Index”), which was the Company’s previously-utilized comparison index, and (iii) the Company’s current comparison index, the Standard & Poor’s Composite 1500 Restaurant Index (the “S&P 1500 Restaurant Index”). Management believes that the companies included in the S&P 4001500 Restaurant Index more appropriately reflect the scope and scale of the Company’s operations and better match the competitive market in which the Company operates.operates than the S&P 400 Restaurant Index. Due to the change in selected comparative indices, we are presenting the current comparative index and the comparative index that was used in the prior year. The cumulative total return computations set forth in the performance graph assume the investment of $100 in each of the Company’s common stock, the S&P 500, Index and the S&P 400 Restaurant Index and the S&P 1500 Restaurant Index on December 31, 2014.
Item 6. [Reserved].
32
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in this Form10-K.The selected financial data, with the exception of store counts, global retail sales growth and same store sales growth, has been derived from the audited consolidated financial statements of Domino’s Pizza, Inc. and subsidiaries. This historical data is not necessarily indicative of results to be expected for any future period.
Fiscal year ended (8) | ||||||||||||||||||||
(dollars in millions, except per share data) | December 29, 2019 | December 30, 2018 (4) | December 31, 2017 | January 1, 2017 | January 3, 2016 | |||||||||||||||
Income statement data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
U.S. Company-owned stores | $ | 453.6 | $ | 514.8 | $ | 490.8 | $ | 439.0 | $ | 396.9 | ||||||||||
U.S. franchise royalties and fees | 428.5 | 391.5 | 351.4 | 312.3 | 272.8 | |||||||||||||||
U.S. franchise advertising (1) | 390.8 | 358.5 | — | — | — | |||||||||||||||
U.S. stores | 1,272.9 | 1,264.8 | 842.2 | 751.3 | 669.7 | |||||||||||||||
Supply chain | 2,104.9 | 1,943.3 | 1,739.0 | 1,544.3 | 1,383.2 | |||||||||||||||
International franchise royalties and fees | 241.0 | 224.7 | 206.7 | 177.0 | 163.6 | |||||||||||||||
Total revenues | 3,618.8 | 3,432.9 | 2,788.0 | 2,472.6 | 2,216.5 | |||||||||||||||
Cost of sales | 2,216.3 | 2,130.2 | 1,922.0 | 1,704.9 | 1,533.4 | |||||||||||||||
Operating margin | 1,402.5 | 1,302.7 | 866.0 | 767.7 | 683.1 | |||||||||||||||
General and administrative expense | 382.3 | 372.5 | 344.8 | 313.6 | 277.7 | |||||||||||||||
U.S. franchise advertising (1) | 390.8 | 358.5 | — | — | — | |||||||||||||||
Income from operations | 629.4 | 571.7 | 521.2 | 454.0 | 405.4 | |||||||||||||||
Interest income | 4.0 | 3.3 | 1.5 | 0.7 | 0.3 | |||||||||||||||
Interest expense | (150.8 | ) | (146.3 | ) | (122.5 | ) | (110.1 | ) | (99.5 | ) | ||||||||||
Income before provision for income taxes | 482.6 | 428.7 | 400.2 | 344.7 | 306.2 | |||||||||||||||
Provision for income taxes | 81.9 | 66.7 | 122.2 | 130.0 | 113.4 | |||||||||||||||
Net income | $ | 400.7 | $ | 362.0 | $ | 277.9 | $ | 214.7 | $ | 192.8 | ||||||||||
Earnings per share: | ||||||||||||||||||||
Common stock – basic | $ | 9.83 | $ | 8.65 | $ | 6.05 | $ | 4.41 | $ | 3.58 | ||||||||||
Common stock – diluted | 9.56 | 8.35 | 5.83 | 4.30 | 3.47 | |||||||||||||||
Balance sheet data (at end of period): | ||||||||||||||||||||
Cash and cash equivalents | $ | 190.6 | $ | 25.4 | $ | 35.8 | $ | 42.8 | $ | 133.4 | ||||||||||
Restricted cash and cash equivalents | 209.3 | 167.0 | 191.8 | 126.5 | 180.9 | |||||||||||||||
Cash and cash equivalents included in advertising fund assets, restricted | 84.0 | 45.0 | 27.3 | 25.1 | 19.9 | |||||||||||||||
Working capital (2) | 121.0 | 14.6 | (10.3 | ) | (34.3 | ) | 45.7 | |||||||||||||
Total assets (3) | 1,382.1 | 907.4 | 836.8 | 716.3 | 799.8 | |||||||||||||||
Total debt net of debt issuance cost | 4,114.4 | 3,531.6 | 3,153.8 | 2,187.9 | 2,240.8 | |||||||||||||||
Total stockholders’ deficit | (3,415.8 | ) | (3,039.9 | ) | (2,735.4 | ) | (1,883.1 | ) | (1,800.3 | ) |
Fiscal year ended (8) | ||||||||||||||||||||
(dollars in millions, except per share data) | December 29, 2019 | December 30, 2018 (4) | December 31, 2017 | January 1, 2017 | January 3, 2016 | |||||||||||||||
Other financial data: | ||||||||||||||||||||
Depreciation and amortization | $ | 59.9 | $ | 53.7 | $ | 44.4 | $ | 38.1 | $ | 32.4 | ||||||||||
Capital expenditures (5) | $ | 88.7 | $ | 119.7 | $ | 90.3 | $ | 61.5 | $ | 62.4 | ||||||||||
Dividends declared per share | $ | 2.60 | $ | 2.20 | $ | 1.84 | $ | 1.52 | $ | 1.24 | ||||||||||
Global retail sales growth | 8.0 | % | 10.8 | % | 13.0 | % | 12.8 | % | 18.6 | % | ||||||||||
Same store sales growth (7): | ||||||||||||||||||||
U.S. Company-owned stores | 2.8 | % | 4.8 | % | 8.7 | % | 10.4 | % | 12.2 | % | ||||||||||
U.S. franchise stores | 3.2 | % | 6.8 | % | 7.6 | % | 10.5 | % | 11.9 | % | ||||||||||
U.S. stores | 3.2 | % | 6.6 | % | 7.7 | % | 10.5 | % | 12.0 | % | ||||||||||
International stores | 1.9 | % | 3.5 | % | 3.4 | % | 6.3 | % | 7.8 | % | ||||||||||
Store counts (at end of period): | ||||||||||||||||||||
U.S. Company-owned stores | 342 | 390 | 392 | 392 | 384 | |||||||||||||||
U.S. franchise stores | 5,784 | 5,486 | 5,195 | 4,979 | 4,816 | |||||||||||||||
U.S. stores | 6,126 | 5,876 | 5,587 | 5,371 | 5,200 | |||||||||||||||
International stores | 10,894 | 10,038 | 9,269 | 8,440 | 7,330 | |||||||||||||||
Total stores | 17,020 | 15,914 | 14,856 | 13,811 | 12,530 | |||||||||||||||
Overview
Our fiscal year typically includes 52 weeks, comprised of three twelve-week quarters and one sixteen-week quarter. Every five or six years our fiscal year includes an extra (or 532019, 20182022 and 20172021 each consisted of 52 weeks and fiscal 2020 consisted of 53 weeks.
In this section, we discuss the results of our operations for the fiscal year ended December 29, 2019January 1, 2023 compared to the fiscal year ended December 30, 2018.January 2, 2022. For a discussion of the fiscal year ended December 30, 2018January 2, 2022 compared to the fiscal year ended December 31, 2017,January 3, 2021, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on FormDecember 30, 2018.
Description of the Business
Domino’s is the largest pizza company in the world, based on global retail sales, with more than 17,00019,800 locations in over 90 markets around the world.world as of January 1, 2023, and operates two distinct service models within its stores with a significant business in both delivery and carryout. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Although we are a highly-recognized global brand, and we focus on value while serving neighborhoods locally through our large network of franchise owners and Company-owned stores.
Our business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees.
Domino’s generates revenues and earnings by charging royalties and fees to our independent franchisees. Royalties are ongoingpercent-of-salesfees for use of the Domino’s brand marks. We also generate revenues and earnings by selling food, equipment and supplies to franchisees primarily in the U.S. and Canada and by operating a number of our own stores.Company-owned stores in the U.S. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza brand to master franchisees. These master franchisees are charged with developing their geographical area, and they maycan profit bystores. Everyonestores directly. We believe that everyone in the system can benefit, including the end consumer, who can purchase Domino’s menu items for themselves andfeed their family conveniently and economically.
Our financial results are driven largely by retail sales at our franchised and Company-owned stores. Changes in retail sales are driven by changes in same store sales and store counts. We monitor both of these metrics very closely, as they directly impact our revenues and profits, and we strive to consistently increase both metrics. Retail sales drive royalty payments from franchisees, as well as Company-owned store and supply chain revenues. Retail sales are primarily impacted by the strength of the Domino’s Pizza brand, the results of our extensive advertising through various media channels, the impact of technological innovation and digital ordering, our ability to execute our strong and proven business model and the overall global economic environment.
Our business model can yield strong returns for our franchise owners and our Company-owned stores. It can also yield significant cash flow to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases since becoming a publicly-traded company in 2004.
Critical accounting policies and estimates
The following discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, our management evaluates its estimates, including those related to revenue recognition, long-lived assets, casualty insurance and legal matters, share-based paymentsreserves and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. Changesestimates, and changes in our accounting policies and estimates could materially impactaffect our results of operations and financial condition for any particular period.
33
We believe that our most critical accounting policies and estimates are:
Long-lived assets.
We record long-lived assets, including property, plant and equipment and capitalized software, at cost. For acquisitions of franchise operations, we estimate the fair values of the assets and liabilities acquired based on physical inspection of assets, historical experience and other information available to us regarding the acquisition. We depreciate and amortize long-lived assets using useful lives determined by us based on historical experience and other information available to us. We evaluate the potential impairment of long-lived assets at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Our periodic evaluation is based on various analyses, including, on an annual basis, the projection of undiscounted cash flows. If we determine that the carrying amount of an asset (or asset group) may not be recoverable, we compare the net carrying value of the asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. For Company-owned stores, we perform related impairment tests on an operating market basis, which we have determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows. If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset, we estimate the fair value of the asset. If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is recognized, and the asset is written down to its estimated fair value.
We have not made any significant changes in the methodology used to project the future market cash flows of Company-owned stores during the years presented. Same store sales fluctuations and the rates at which operating costs will fluctuate in the future are key factors in evaluatingdetermining projected cash flows used to evaluate recoverability of the related assets. If our same store sales significantly decline or if operating costs increase and we are unable to recover these costs, the carrying value of our Company-owned stores, by market, may be unrecoverable and we may be required to recognize an impairment charge.
Casualty insurance reserves
For certain periods prior to December 1998 and for periods after December 2001, we maintain insurance coverage for workers’ compensation, general liability and owned andunder insurance policies requiring paymentdepending on policy year and line of a deductiblecoverage. We are generally responsible for each occurrence up to between $500,000 and $3.0$5.5 million per occurrence under these retention programs for owned and non-owned automobile liabilities, depending on the policy year and line of coverage. The related insurance reserves are based on undiscounted independent actuarial estimates, which are based on historical information along with assumptions about future events. There is inherent uncertainty in the ultimate cost for known claims under our insurance coverages, and for incidents that have occurred that will be subject to a claim, but have yet to be reported to us. Analyses of historical trends and actuarial valuation methods are utilized to estimate the ultimate claim costs for claims incurred as of the balance sheet date and for claims incurred but not yet reported. When estimating these liabilities, several factors are considered, including the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.
Our methodology for determining our exposure has remained consistent throughout the years presented. Management believes that the various assumptions developed, and actuarial methods used to determine our casualty insurance reserves are reasonable and provide meaningful data that management uses to make its best estimate of our exposure to these risks. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause our estimates to change in the near term which could result in an increase or decrease in the related expense in future periods. A 10% change in our casualty insurance liability at December 29, 2019January 1, 2023 would have affected our income before provision for income taxes by approximately $5.8 million in 2019.2022. We had accruals for casualty insurance mattersreserves of approximately $58.4$57.6 million and $56.5 million at December 29, 2019January 1, 2023 and $53.3 million at December 30, 2018.
34
Income taxes
The U.S. Federal statutory income tax rate was 21% in each of 2022, 2021 and 2020. Our Federal income tax provision calculated based on the grant date fair value of the awards. The grant date fair value of each restricted stockFederal statutory rate was $120.3 million, $131.4 million and performance-based restricted stock award is equal to the market price of our stock on the date of grant. The grant date fair value of each stock option award is estimated using the Black-Scholes option pricing model. The pricing model requires assumptions, including the expected life of the stock option, the risk-free interest rate, the expected dividend yield$116.6 million in 2022, 2021 and expected volatility of our stock over the expected life, which significantly impact the assumed fair value. We account for forfeitures as they occur. Additionally, our stock option, restricted stock and performance-based restricted stock arrangements provide for accelerated vesting and the ability to exercise during the remainder of theten-yearstock option life upon the retirement of individuals holding the awards who have achieved specified service and age requirements.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We measure deferred tax assets and liabilitiestaxes using current enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid. Judgment is required in determining the provision for income taxes, related reserves and deferred tax assets and liabilities.taxes. These include establishing a valuation allowance related to the ability to realize certain deferred tax assets, if necessary. On an ongoing basis, management will assess whether it remains more likely than not that the net deferred tax assets will be realized. Our accounting for deferred tax assetstaxes represents our best estimate of future events. Our netExcept with respect to certain foreign tax credits and interest deductibility in separately filed states, our deferred tax assets assume that we will generate sufficient taxable income in specific tax jurisdictions, based on our estimates and assumptions. As of January 1, 2023 and January 2, 2022, we had total foreign tax credits of $13.5 million and $10.2 million, respectively, each of which were fully offset with a corresponding valuation allowance. We also had valuation allowances related to interest deductibility in separately filed states of $1.5 million and $1.2 million as of January 1, 2023 and January 2, 2022, respectively. We believe our remaining deferred tax assets will be realized. Changes in our current estimates due to unanticipated events could have a material impact on our financial condition and results of operations.
Fiscal 2022 Highlights
Excluding the negative impact of foreign currency, Domino’s experienced global retail sales growth during 2022. U.S. same store sales declined 0.8% during 2022, rolling over an increase in U.S. same store sales of 3.5% in 2021. The decline in U.S. same store sales in 2022 was attributable to lower order counts due in part to labor shortages affecting store hours and staffing levels in many of our markets and economic stimulus activity in the U.S in 2021 in response to the COVID-19 pandemic which did not recur in 2022. A higher average ticket per transaction resulting from higher menu and national offer pricing as well as increases to our average delivery fee partially offset the decline in U.S. same store sales in 2022. International same store sales (excluding foreign currency impact) increased 0.1% during 2022, rolling over an increase in international same store sales (excluding foreign currency impact) of 8.0% in 2021. International same store sales (excluding foreign currency impact) were pressured in 2022 due in part to a value added tax holiday in the United Kingdom in 2021 that expired during the first quarter of 2022. Our U.S. and international same store sales (excluding foreign currency impact) continue to be pressured by our fortressing strategy, which includes increasing store concentration in certain markets where we compete, as well as from aggressive competitive activity.
During fiscal 2022, we experienced significant inflationary pressures in our commodity, labor and fuel costs resulting from the macroeconomic environment in the U.S., which had a significant impact on our overall operating results as compared to 2021. Our overall operating results in fiscal 2022 were also negatively impacted by changes in foreign currency exchange rates resulting from the global macroeconomic environment.
During 2022, we continued our global expansion with the opening of 1,032 net stores. We had 126 net stores open in the U.S. comprised of 141 store openings and 15 closures. We had 906 net stores open internationally comprised of 1,135 store openings and 229 closures, primarily in Brazil, Russia and Italy.
We remained focused on improving the customer experience through our technology initiatives, including our GPS delivery tracking technology, which allows customers to monitor the progress of their food, from the preparation stages to the time it is in the oven to the time it arrives at their doors. Our emphasis on technological innovation helped the Domino’s system generate approximately two-thirds of global retail sales from digital channels in 2022. Overall, we believe our continued global store growth, along with our global retail sales growth (excluding foreign currency impact), emphasis on technology and marketing initiatives, have combined to strengthen our brand.
35
Statistical Measures
The tables below outline certain statistical measures we utilize to analyze our performance. This historical data is not necessarily indicative of results to be expected for any future period.
Global Retail Sales Growth (excluding foreign currency impact)
Global retail sales growth (excluding foreign currency impact) is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Global retail sales growth refers to total worldwide retail sales at Company-owned and franchised stores. We believe global retail sales information is useful in analyzing revenues because franchisees pay royalties and, in the U.S., advertising fees that are based on a percentage of franchise retail sales. We review comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales in the U.S. and Canada. Retail sales for franchise stores are reported to us by our franchisees and are not included in our revenues. Global retail sales growth, excluding foreign currency impact, is calculated as the change of international local currency global retail sales against the comparable period of the prior year. Global retail sales growth in 2021 and 2020 reflect the impact of the 53rd week in 2020.
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
U.S. stores |
|
| + 1.3% |
|
|
| + 4.3% |
|
|
| + 17.6% |
|
International stores (excluding foreign currency impact) |
|
| + 6.3% |
|
|
| + 13.9% |
|
|
| + 8.8% |
|
Total (excluding foreign currency impact) |
|
| + 3.9% |
|
|
| + 8.9% |
|
|
| + 13.2% |
|
Same Store Sales Growth
2019 | 2018 (1) | 2017 | ||||||||||
U.S. Company-owned stores | 2.8 | % | 4.8 | % | 8.7 | % | ||||||
U.S. franchise stores | 3.2 | % | 6.8 | % | 7.6 | % | ||||||
U.S. stores | 3.2 | % | 6.6 | % | 7.7 | % | ||||||
International stores (excluding foreign currency impact) | 1.9 | % | 3.5 | % | 3.4 | % | ||||||
Same store sales growth is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Same store sales growth is calculated for a given period by including only sales from stores that also had sales in the comparable weeks of both periods. International same store sales growth is calculated similarly to U.S. same store sales growth. Changes in international same store sales are reported on a constant dollar basis, which reflects changes in international local currency sales. The 53rd week in fiscal 2020 had no impact on reported same store sales growth amounts.
|
| 2022 |
| 2021 |
| 2020 |
U.S. Company-owned stores (1) |
| (2.6)% |
| (3.6)% |
| + 11.0% |
U.S. franchise stores (1) |
| (0.7)% |
| + 3.9% |
| + 11.5% |
U.S. stores |
| (0.8)% |
| + 3.5% |
| + 11.5% |
International stores (excluding foreign currency impact) |
| + 0.1% |
| + 8.0% |
| + 4.4% |
(1) | During the first quarter of 2022, we |
U.S. Company- owned Stores | U.S. Franchise Stores | Total U.S. Stores | International Stores | Total | ||||||||||||||||
Store count at January 1, 2017 | 392 | 4,979 | 5,371 | 8,440 | 13,811 | |||||||||||||||
Openings | 16 | 213 | 229 | 891 | 1,120 | |||||||||||||||
Closings | — | (13 | ) | (13 | ) | (62 | ) | (75 | ) | |||||||||||
Transfers | (16 | ) | 16 | — | — | — | ||||||||||||||
Store count at December 31, 2017 | 392 | 5,195 | 5,587 | 9,269 | 14,856 | |||||||||||||||
Openings | 12 | 255 | 267 | 916 | 1,183 | |||||||||||||||
Closings | — | (9 | ) | (9 | ) | (116 | ) | (125 | ) | |||||||||||
Transfers (1) | (14 | ) | 45 | 31 | (31 | ) | — | |||||||||||||
Store count at December 30, 2018 | 390 | 5,486 | 5,876 | 10,038 | 15,914 | |||||||||||||||
Openings | 12 | 253 | 265 | 939 | 1,204 | |||||||||||||||
Closings | (1 | ) | (14 | ) | (15 | ) | (83 | ) | (98 | ) | ||||||||||
Transfers | (59 | ) | 59 | — | — | — | ||||||||||||||
Store count at December 29, 2019 | 342 | 5,784 | 6,126 | 10,894 | 17,020 | |||||||||||||||
(dollars in millions) | 2019 | 2018 (1) | 2017 | |||||||||||||||||||||
U.S. Company-owned stores | $ | 453.6 | $ | 514.8 | $ | 490.8 | ||||||||||||||||||
U.S. franchise royalties and fees | 428.5 | 391.5 | 351.4 | |||||||||||||||||||||
Supply chain | 2,104.9 | 1,943.3 | 1,739.0 | |||||||||||||||||||||
International franchise royalties and fees | 241.0 | 224.7 | 206.7 | |||||||||||||||||||||
U.S. franchise advertising (2) | 390.8 | 358.5 | — | |||||||||||||||||||||
Total revenues | 3,618.8 | 100.0 | % | 3,432.9 | 100.0 | % | 2,788.0 | 100.0 | % | |||||||||||||||
U.S. Company-owned stores | 346.2 | 398.2 | 377.7 | |||||||||||||||||||||
Supply chain | 1,870.1 | 1,732.0 | 1,544.3 | |||||||||||||||||||||
Total cost of sales | 2,216.3 | 61.2 | % | 2,130.2 | 62.1 | % | 1,922.0 | 68.9 | % | |||||||||||||||
Operating margin | 1,402.5 | 38.8 | % | 1,302.7 | 37.9 | % | 866.0 | 31.1 | % | |||||||||||||||
General and administrative | 382.3 | 10.6 | % | 372.5 | 10.8 | % | 344.8 | 12.4 | % | |||||||||||||||
U.S. franchise advertising (2) | 390.8 | 10.8 | % | 358.5 | 10.4 | % | — | — | % | |||||||||||||||
Income from operations | 629.4 | 17.4 | % | 571.7 | 16.7 | % | 521.2 | 18.7 | % | |||||||||||||||
Interest expense, net | (146.8 | ) | (4.1 | )% | (143.0 | ) | (4.2 | )% | (121.1 | ) | (4.3 | )% | ||||||||||||
Income before provision for income taxes | 482.6 | 13.3 | % | 428.7 | 12.5 | % | 400.2 | 14.4 | % | |||||||||||||||
Provision for income taxes | 81.9 | 2.3 | % | 66.7 | 2.0 | % | 122.2 | 4.4 | % | |||||||||||||||
Net income | $ | 400.7 | 11.1 | % | $ | 362.0 | 10.5 | % | $ | 277.9 | 10.0 | % | ||||||||||||
During the fourth quarter of 2022, we refranchised 114 U.S. Company-owned stores (the “2022 Store Sale”). The same store sales growth for these stores is reflected in U.S. franchise |
Store Growth Activity
Store counts and net store growth are commonly used statistical measures in the quick-service restaurant industry that are important to 2018
|
| U.S. |
|
| U.S. |
|
| Total |
|
| International Stores |
|
| Total |
| |||||
Store count at December 29, 2019 |
|
| 342 |
|
|
| 5,784 |
|
|
| 6,126 |
|
|
| 10,894 |
|
|
| 17,020 |
|
Openings |
|
| 22 |
|
|
| 218 |
|
|
| 240 |
|
|
| 718 |
|
|
| 958 |
|
Closings |
|
| (1 | ) |
|
| (10 | ) |
|
| (11 | ) |
|
| (323 | ) |
|
| (334 | ) |
Store count at January 3, 2021 |
|
| 363 |
|
|
| 5,992 |
|
|
| 6,355 |
|
|
| 11,289 |
|
|
| 17,644 |
|
Openings |
|
| 13 |
|
|
| 201 |
|
|
| 214 |
|
|
| 1,094 |
|
|
| 1,308 |
|
Closings |
|
| (1 | ) |
|
| (8 | ) |
|
| (9 | ) |
|
| (95 | ) |
|
| (104 | ) |
Store count at January 2, 2022 |
|
| 375 |
|
|
| 6,185 |
|
|
| 6,560 |
|
|
| 12,288 |
|
|
| 18,848 |
|
Openings |
|
| 5 |
|
|
| 136 |
|
|
| 141 |
|
|
| 1,135 |
|
|
| 1,276 |
|
Closings |
|
| (3 | ) |
|
| (12 | ) |
|
| (15 | ) |
|
| (229 | ) |
|
| (244 | ) |
Transfers |
|
| (91 | ) |
|
| 91 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Store count at January 1, 2023 |
|
| 286 |
|
|
| 6,400 |
|
|
| 6,686 |
|
|
| 13,194 |
|
|
| 19,880 |
|
36
Income Statement Data
(tabular amounts in millions, except percentages)
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Company-owned stores |
| $ | 445.8 |
|
|
|
|
| $ | 479.0 |
|
|
|
|
| $ | 485.6 |
|
|
|
| |||
U.S. franchise royalties and fees |
|
| 556.3 |
|
|
|
|
|
| 539.9 |
|
|
|
|
|
| 503.2 |
|
|
|
| |||
Supply chain |
|
| 2,754.7 |
|
|
|
|
|
| 2,561.0 |
|
|
|
|
|
| 2,416.7 |
|
|
|
| |||
International franchise royalties and fees |
|
| 295.0 |
|
|
|
|
|
| 298.0 |
|
|
|
|
|
| 249.8 |
|
|
|
| |||
U.S. franchise advertising |
|
| 485.3 |
|
|
|
|
|
| 479.5 |
|
|
|
|
|
| 462.2 |
|
|
|
| |||
Total revenues |
|
| 4,537.2 |
|
|
| 100.0 | % |
|
| 4,357.4 |
|
|
| 100.0 | % |
|
| 4,117.4 |
|
|
| 100.0 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Company-owned stores |
|
| 378.0 |
|
|
|
|
|
| 374.1 |
|
|
|
|
|
| 379.6 |
|
|
|
| |||
Supply chain |
|
| 2,510.5 |
|
|
|
|
|
| 2,295.0 |
|
|
|
|
|
| 2,143.3 |
|
|
|
| |||
Total cost of sales |
|
| 2,888.6 |
|
|
| 63.7 | % |
|
| 2,669.1 |
|
|
| 61.3 | % |
|
| 2,522.9 |
|
|
| 61.3 | % |
Gross margin |
|
| 1,648.6 |
|
|
| 36.3 | % |
|
| 1,688.2 |
|
|
| 38.7 | % |
|
| 1,594.5 |
|
|
| 38.7 | % |
General and administrative |
|
| 416.5 |
|
|
| 9.2 | % |
|
| 428.3 |
|
|
| 9.8 | % |
|
| 406.6 |
|
|
| 9.9 | % |
U.S. franchise advertising |
|
| 485.3 |
|
|
| 10.7 | % |
|
| 479.5 |
|
|
| 11.0 | % |
|
| 462.2 |
|
|
| 11.2 | % |
Refranchising gain |
|
| (21.2 | ) |
|
| (0.5 | )% |
|
| — |
|
|
| 0.0 | % |
|
| — |
|
|
| 0.0 | % |
Income from operations |
|
| 767.9 |
|
|
| 16.9 | % |
|
| 780.4 |
|
|
| 17.9 | % |
|
| 725.6 |
|
|
| 17.6 | % |
Other income |
|
| — |
|
|
| 0.0 | % |
|
| 36.8 |
|
|
| 0.8 | % |
|
| — |
|
|
| 0.0 | % |
Interest expense, net |
|
| (195.1 | ) |
|
| (4.3 | )% |
|
| (191.5 | ) |
|
| (4.3 | )% |
|
| (170.5 | ) |
|
| (4.1 | )% |
Income before provision for income taxes |
|
| 572.8 |
|
|
| 12.6 | % |
|
| 625.7 |
|
|
| 14.4 | % |
|
| 555.1 |
|
|
| 13.5 | % |
Provision for income taxes |
|
| 120.6 |
|
|
| 2.6 | % |
|
| 115.2 |
|
|
| 2.7 | % |
|
| 63.8 |
|
|
| 1.6 | % |
Net income |
| $ | 452.3 |
|
|
| 10.0 | % |
| $ | 510.5 |
|
|
| 11.7 | % |
| $ | 491.3 |
|
|
| 11.9 | % |
2022 compared to 2021
(tabular amounts in millions, except percentages)
Revenues
|
| 2022 |
|
| 2021 |
| ||||||||||
U.S. Company-owned stores |
| $ | 445.8 |
|
|
| 9.8 | % |
| $ | 479.0 |
|
|
| 11.0 | % |
U.S. franchise royalties and fees |
|
| 556.3 |
|
|
| 12.3 | % |
|
| 539.9 |
|
|
| 12.4 | % |
Supply chain |
|
| 2,754.7 |
|
|
| 60.7 | % |
|
| 2,561.0 |
|
|
| 58.8 | % |
International franchise royalties and fees |
|
| 295.0 |
|
|
| 6.5 | % |
|
| 298.0 |
|
|
| 6.8 | % |
U.S. franchise advertising |
|
| 485.3 |
|
|
| 10.7 | % |
|
| 479.5 |
|
|
| 11.0 | % |
Total revenues |
| $ | 4,537.2 |
|
|
| 100.0 | % |
| $ | 4,357.4 |
|
|
| 100.0 | % |
Revenues primarily consist of retail sales from our Company-owned stores, royalties and fees and advertising contributions and fees from our U.S. franchised stores, royalties and fees from our international franchised stores and sales of food, equipment and supplies from our supply chain centers to substantially all of our U.S. franchised stores and certain international franchised stores. Company-owned store and franchised store revenues may vary from period to period due to changes in store count mix. Supply chain revenues may vary significantly as a result of fluctuations in commodity prices as well as the mix of products we sell.
Consolidated revenues increased $185.9$179.8 million, or 5.4%4.1%, in 20192022 due primarily to higher supply chain food volumes as well as higher global franchise revenues resulting from retail sales growth. Thesedue to increases in revenues were partially offset by lower U.S. Company-owned store revenues resulting from the sale of 59 Company-owned storesour market basket pricing to certain of our existing U.S. franchisees during the second quarter of 2019 (the “2019 Store Sale”). These changes in revenues are more fully described below.
2019 | 2018 | |||||||||||||||
U.S. Company-owned stores | $ | 453.6 | 35.6 | % | $ | 514.8 | 40.7 | % | ||||||||
U.S. franchise royalties and fees | 428.5 | 33.7 | % | 391.5 | 31.0 | % | ||||||||||
U.S. franchise advertising | 390.8 | 30.7 | % | 358.5 | 28.3 | % | ||||||||||
Total U.S. stores revenues | $ | 1,272.9 | 100.0 | % | $ | 1,264.8 | 100.0 | % | ||||||||
37
U.S. Stores
|
| 2022 |
|
| 2021 |
| ||||||||||
U.S. Company-owned stores |
| $ | 445.8 |
|
|
| 30.0 | % |
| $ | 479.0 |
|
|
| 32.0 | % |
U.S. franchise royalties and fees |
|
| 556.3 |
|
|
| 37.4 | % |
|
| 539.9 |
|
|
| 36.0 | % |
U.S. franchise advertising |
|
| 485.3 |
|
|
| 32.6 | % |
|
| 479.5 |
|
|
| 32.0 | % |
Total U.S. stores revenues |
| $ | 1,487.4 |
|
|
| 100.0 | % |
| $ | 1,498.4 |
|
|
| 100.0 | % |
U.S. Company-owned Stores
Revenues from U.S. Company-owned store operations decreased $33.2 million, or 6.9%, in 2022 primarily driven by the 2022 Store Sale. This decrease was partially offset by an increase in revenues resulting from the 2022 Store Purchase. The decrease in U.S. Company-owned store revenue was also a result of lower U.S. Company-owned same store sales in 2022. U.S. Company-owned same store sales declined 2.6% in 2022 and declined 3.6% in 2021.
U.S. Franchise Royalties and Fees
Revenues from U.S. franchise advertisingroyalties and fees increased $32.3$16.4 million, or 9.0%3.0%, in 20192022, due primarily to higher same store sales and an increase in the average number of U.S. franchised stores open during the yearperiod resulting primarily from net store growth as well as an increase in fees paid by our franchisees for the use of our technology platforms. The 2022 Store Sale also contributed to the increase in U.S. franchise royalties and fee revenues. These increases were partially offset by a decline in U.S. franchise same store sales in 2022 and, to a lesser extent, the 20192022 Store Sale.
U.S. Franchise Advertising
Revenues from supply chain operations are primarily comprised of sales of food, equipment and supplies from our supply chain centers to substantially all of our U.S. franchised stores and certain international franchised stores. Supply chain revenuesfranchise advertising increased $161.6$5.8 million, or 8.3%1.2%, in 2019. This increase was due primarily to higher volumes from increased orders resulting from an increase in the average number of U.S. franchise stores open during the year and an increase in market basket pricing to stores. Our market basket pricing to stores increased 1.7% during 2019, which resulted in an estimated $31.8 million increase in supply chain revenue.
Supply Chain
Supply chain revenues increased $193.8 million, or 7.6%, in 2022 due to higher market basket pricing to stores, and was partially offset by lower order volumes at our U.S. franchised stores during 2022. The market basket pricing change, a statistical measure utilized by management, is calculated as the percentage change of the market basket purchased by an average U.S. store (based on average weekly unit sales) from our U.S. supply chain centers against the comparable period of the prior year. We believe this measure is important to understanding Company performance because as our market basket prices fluctuate, our revenues, cost of sales and gross margin percentages in our supply chain segment also fluctuate. Our market basket pricing to stores increased 13.2% during 2022, which resulted in an estimated $296.1 million increase in supply chain revenues.
International Franchise Royalties and Fees
Revenues from international franchise royalties and fees decreased $3.0 million, or 1.0%, in 2022 due primarily to the negative impact of changes in foreign currency exchange rates of approximately $8.9$28.4 million in 20192022 which was partially offset these increases. by an increase in the average number of international franchised stores open during the period resulting from net store growth. The impact of changes in foreign currency exchange rates on international franchise royalty revenues, a statistical measure utilized by management, is calculated as the difference in international franchise royalty revenues resulting from translating current year local currency results to U.S. dollars at current year exchange rates as compared to prior year exchange rates. We believe this measure is important to understanding Company performance given the significant variability in international franchise royalty revenues that can be driven by changes in foreign currency exchange rates.
Excluding the impact of foreign currency exchange rates, international same store sales increased 1.9%0.1% in 2019 as compared to 2018.
38
Cost of salesSales / Operating margin.
|
| 2022 |
|
| 2021 |
| ||||||||||
Total revenues |
| $ | 4,537.2 |
|
|
| 100.0 | % |
| $ | 4,357.4 |
|
|
| 100.0 | % |
Total cost of sales |
|
| 2,888.6 |
|
|
| 63.7 | % |
|
| 2,669.1 |
|
|
| 61.3 | % |
Gross margin |
| $ | 1,648.6 |
|
|
| 36.3 | % |
| $ | 1,688.2 |
|
|
| 38.7 | % |
Consolidated cost of sales consists primarily of U.S. Company-owned store and supply chain costs incurred to generate related revenues. Components of consolidated cost of sales primarily include food, labor, delivery and occupancy costs. The changes to the consolidated operatingConsolidated gross margin which(which we define as revenues less cost of sales are summarized in the following table.
2019 | 2018 | |||||||||||||||
Consolidated revenues | $ | 3,618.8 | 100.0 | % | $ | 3,432.9 | 100.0 | % | ||||||||
Consolidated cost of sales | 2,216.3 | 61.2 | % | 2,130.2 | 62.1 | % | ||||||||||
Consolidated operating margin | $ | 1,402.5 | 38.8 | % | $ | 1,302.7 | 37.9 | % | ||||||||
As a percentage of total revenues, ourthe consolidated operatinggross margin increased 0.9decreased 2.4 percentage points to 36.3% in 2022 from 38.7% in 2021. Company-owned store gross margin decreased 6.7 percentage points in 2019 due to higher global royalty revenues and an increase in Company-owned store2022 and supply chain operating margins. Company-owned store operatinggross margin increased 1.0 percentage point in 2019 and supply chain operating margin increased 0.3decreased 1.5 percentage points in 2019.2022. These changes in gross margin are described in more fully discusseddetail below.
U.S. Company-owned stores.
|
| 2022 |
|
| 2021 |
| ||||||||||
Revenues |
| $ | 445.8 |
|
|
| 100.0 | % |
| $ | 479.0 |
|
|
| 100.0 | % |
Cost of sales |
|
| 378.0 |
|
|
| 84.8 | % |
|
| 374.1 |
|
|
| 78.1 | % |
Store gross margin |
| $ | 67.8 |
|
|
| 15.2 | % |
| $ | 104.9 |
|
|
| 21.9 | % |
U.S. Company-owned store operatinggross margin which do(which does not include other store-level costs such as royalties and advertising, are summarizedadvertising) decreased $37.1 million, or 35.4%, in 2022 due primarily to the 2022 Store Sale and higher market basket prices and, to a lesser extent, higher occupancy costs. These decreases were partially offset by lower labor and delivery costs, primarily attributable to the decrease in the following table.
2019 | 2018 | |||||||||||||||
Revenues | $ | 453.6 | 100.0 | % | $ | 514.8 | 100.0 | % | ||||||||
Cost of sales | 346.2 | 76.3 | % | 398.2 | 77.3 | % | ||||||||||
Store operating margin | $ | 107.4 | 23.7 | % | $ | 116.6 | 22.7 | % | ||||||||
•
Supply chain.
|
| 2022 |
|
| 2021 |
| ||||||||||
Revenues |
| $ | 2,754.7 |
|
|
| 100.0 | % |
| $ | 2,561.0 |
|
|
| 100.0 | % |
Cost of sales |
|
| 2,510.5 |
|
|
| 91.1 | % |
|
| 2,295.0 |
|
|
| 89.6 | % |
Supply chain gross margin |
| $ | 244.2 |
|
|
| 8.9 | % |
| $ | 266.0 |
|
|
| 10.4 | % |
Supply chain operatinggross margin are summarized in the following table.
2019 | 2018 | |||||||||||||||
Revenues | $ | 2,104.9 | 100.0 | % | $ | 1,943.3 | 100.0 | % | ||||||||
Cost of sales | 1,870.1 | 88.8 | % | 1,732.0 | 89.1 | % | ||||||||||
Supply chain operating margin | $ | 234.8 | 11.2 | % | $ | 211.3 | 10.9 | % | ||||||||
39
General and administrative expenses.
General and administrative expenses increased $9.8decreased $11.8 million, or 2.6%2.8%, in 2019. Apre-taxgain of $5.9 million recognized from the sale of 12 Company-owned stores in 2018 resulted in an increase in general and administrative expenses as compared to the prior year. Lower advertising expenses, resulting2022 driven primarily from the 2019 Store Sale,by lower labor costs, partially offset these increases. Continued investments in technological initiatives and other areas also contributed to the increase in 2019.
U.S. franchise advertising
U.S. franchise advertising expenses increased $32.3$5.8 million, or 9.0%1.2%, in 2019, consistent with the increase in2022 due to higher U.S. franchise advertising revenue.revenues as discussed above. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized, as our consolidated
Refranchising Gain
During 2022, we completed the 2022 Store Sale in which we refranchised 114 U.S. Company-owned stores in Arizona and Utah for proceeds of $41.1 million. In connection with the 2022 Store Sale, we recorded a $21.2 million pre-tax refranchising gain on the sale of the related assets and liabilities, including a $4.3 million reduction in goodwill.
Other Income
Other income increased $0.7 million to $4.0was $36.8 million in 2019 due2021, representing the unrealized gains recorded on the Company’s investment in DPC Dash Ltd resulting from the observable changes in price from the valuation of the Company’s additional $40.0 million investment made in the first quarter of 2021 and the additional $9.1 million investment made in the fourth quarter of 2021. We did not record any adjustments to athe carrying amount of $125.8 million in fiscal 2022.
Interest Expense, Net
Interest expense, net, increased $3.6 million, or 1.9%, in 2022 driven primarily by higher average cash and cash equivalents balance andborrowings resulting from our recapitalization transaction completed on April 16, 2021 (the “2021 Recapitalization”), as well as borrowings on our variable funding notes. These increases were partially offset by higher interest ratesincome earned on our cash equivalents and restricted cash equivalents.
Provision for income taxes.
Provision for income taxes increased $15.2$5.3 million, or 4.6% in 2022 due to $81.9 milliona higher effective tax rate, partially offset by a decrease in 2019 and theincome before provision for income taxes. The effective tax rate increased to 17.0% in 201921.0% during 2022 as compared to 15.6%18.4% in 2018. Higherpre-taxincome and2021. The higher effective tax rate in 2022 was driven in part by a $4.3 million valuation allowance, primarily related to expected limitations on foreign tax credits, contributed to the increase2.6 percentage point change in tax expense. Higher excess tax benefits onfrom equity-based compensation, which are recorded as a reduction to the provision for income tax provision, partially offset these increases. Excesstaxes. The decrease in excess tax benefits recorded were higher by $1.9 millionfrom equity-based compensation was a result of fewer stock option exercises in 20192022 as compared to 2018.
40
Segment Income
We evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest, taxes, depreciation, amortization and other, referred to as Segment Income. Segment Income for each of our reportable segments is summarized in the table below. Other Segment Income primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.
|
| 2022 | 2021 |
| ||||
U.S. Stores |
| $ | 438.6 |
|
| $ | 454.9 |
|
Supply Chain |
|
| 208.8 |
|
|
| 229.9 |
|
International Franchise |
|
| 236.1 |
|
|
| 241.9 |
|
Other |
|
| (26.0 | ) |
|
| (42.9 | ) |
U.S. Stores
U.S. stores Segment Income decreased $16.3 million, or 3.6%, in 2022, primarily as a result of the $37.1 million decrease in U.S. Company-owned store gross margin, and was partially offset by the increase in revenues from U.S. franchise royalties and fees of $16.4 million, each as discussed above. U.S. franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on U.S. stores Segment Income. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized and had no impact on U.S. stores Segment Income.
Supply Chain
Supply chain Segment Income decreased $21.1 million, or 9.2%, in 2022 due primarily to the $21.7 million decrease in supply chain gross margin described above.
International Franchise
International franchise Segment Income decreased $5.7 million, or 2.4%, in 2022 due primarily to the $3.0 million decrease in international franchise revenues discussed above, as well as higher provision for losses on accounts receivable. International franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on international franchise Segment Income.
Other
Other Segment Income increased $16.9 million, or 39.4%, in 2022 due primarily to lower labor costs as well as higher corporate administrative costs allocated to our segments as compared to 2021. The increase in allocated costs in 2022 was due primarily to higher investments in technological initiatives to support technology for our U.S. and international franchise stores.
New Accounting Pronouncements
The impact of new accounting pronouncements adopted and the estimated impact of new accounting pronouncements that we will adopt in future years is included in Note 1 to the consolidated financial statements.
COVID-19 Impact
During the COVID-19 pandemic, we have made certain investments related to safety and cleaning equipment, enhanced sick pay and compensation for frontline team members and support for our franchisees and their communities. While we have seen an increase in sales in certain markets during the COVID-19 pandemic, including increased sales related to heightened reliance on delivery and carryout businesses, future sales are not possible to estimate and it is unclear whether and to what extent sales and same store sales will be impacted if and when consumer behavior and general economic and business activity return to pre-pandemic levels. While it is not possible at this time to estimate the full continued impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt our continuing operations and supply chain and, as a result, could adversely impact our business, financial condition or results of operations.
41
Liquidity and capital resources
Historically, we have operated with minimal positive working capital or negative working capital, primarily because our receivable collection periods and inventory turn rates are faster than the normal payment terms on our current liabilities.liabilities resulting in efficient deployment of working capital. We generally collect our receivables within three weeks from the date of the related sale and we generally experience multiple inventory turns per month. In addition, our sales are not typically seasonal, which further limits variations in our working capital requirements. These factors coupled with the use ofallow us to manage our working capital and our ongoing cash flows from operations to service our debt obligations, invest in our business and other strategic opportunities, pay dividends and repurchase and retire shares of our common stock, reduce our working capital amounts.stock. As of December 29, 2019,January 1, 2023, we had working capital of $121.0$58.0 million, excluding restricted cash and cash equivalents of $209.3$191.3 million, advertising fund assets, restricted of $105.4$162.7 million and advertising fund liabilities of $101.9$157.9 million. Working capital includes total unrestricted cash and cash equivalents of $190.6$60.4 million.
Our primary sourcesources of liquidity isare cash flows from operations and availability of borrowings under our variable funding notes. During 2022, we experienced global retail sales growth, excluding foreign currency impact, in both our U.S. and international businesses. These factors contributed to our continued ability to generate positive operating cash flows. In connection with the 2019 Recapitalization,addition to our cash flows from operations, we issued ahave two variable funding note facilityfacilities. The facilities include our 2022 Variable Funding Notes (defined in the “2022 Variable Funding Notes” section, below), which allows for advances of up to $120.0 million, as well as our 2021 Variable Funding Notes (defined in the “2021 Recapitalization” section, below), which allows for advances of up to $200.0 million of Series2019-1Variable Funding Senior Secured Notes, Class A-1Notes and certain other credit instruments, including letters of credit (the “2019(collectively, with the 2022 Variable Funding Notes, the “2022 and 2021 Variable Funding Notes”). As of December 29, 2019, we had no outstanding borrowings and $158.6 million of available borrowing capacity under our 2019 Variable Funding Notes, net of letters of credit issued of $41.4 million. The letters of credit are primarily relatedrelate to our casualty insurance programs and certain supply chain center leases. BorrowingsDuring 2022, we borrowed and repaid $120.0 million under the 2019our 2021 Variable Funding Notes. As of January 1, 2023, we had no outstanding borrowings and $120.0 million of available borrowing capacity under our 2022 Variable Funding Notes. As of January 1, 2023, we had no outstanding borrowings and $157.8 million of available borrowing capacity under our 2021 Variable Funding Notes, arenet of letters of credit issued of $42.2 million.
We expect to continue to use our unrestricted cash and cash equivalents, cash flows from operations, excess cash from our recapitalization transactions and available borrowings under our 2022 and 2021 Variable Funding Notes to, among other things, fund our working capital requirements, capital expendituresinvest in our core business and subject to other limitations, other general corporate purposes including dividend payments and share repurchases.
Fiscal Year Ended | ||||||||||||
(In millions) | December 29, 2019 | December 30, 2018 | December 31, 2017 | |||||||||
Cash Flows Provided By (Used In) | ||||||||||||
Net cash provided by operating activities | $ | 497.0 | $ | 394.2 | $ | 341.3 | ||||||
Net cash used in investing activities | (27.9 | ) | (88.3 | ) | (83.7 | ) | ||||||
Net cash used in financing activities | (222.8 | ) | (322.8 | ) | (197.1 | ) | ||||||
Exchange rate changes | 0.2 | (0.5 | ) | 0.1 | ||||||||
Change in cash and cash equivalents, restricted cash and cash equivalents | $ | 246.5 | $ | (17.4 | ) | $ | 60.4 | |||||
Our ability to continue to fund these items and continue to service our debt could be adversely affected by the occurrence of any of the events described in Item 1A. Risk Factors. There can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available under the 2019our 2022 and 2021 Variable Funding Notes or otherwise to enable us to service our indebtedness, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the 2021, 2019, 2018, 2017 and 2015 Notes and to service, extend or refinance the 20192022 and 2021 Variable Funding Notes will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
42
Long-Term Debt
2022 Variable Funding Notes
On September 16, 2022, certain of our subsidiaries issued a new variable funding note facility which allows for advances of up to $120.0 million of Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 Notes (the “2022 Variable Funding Notes”). Additional information related to our 2022 Variable Funding Notes is included in Note 3 to our consolidated financial statements.
2021 Recapitalization
On April 16, 2021, we completed the 2021 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist of $850.0 million Series 2021-1 2.662% Fixed Rate Senior Secured Notes, Class A-2-I with an anticipated term of 7.5 years (the “2021 7.5-Year Notes”) and $1.0 billion Series 2021-1 3.151% Fixed Rate Senior Secured Notes, Class A-2-II with an anticipated term of 10 years (the “2021 Ten-Year Notes”, and, collectively with the 2021 7.5-Year Notes, the “2021 Notes”). Gross proceeds from the issuance of the 2021 Notes were $1.85 billion.
Concurrently, certain of our subsidiaries also issued a new variable funding note facility which allows for advances of up to $200.0 million of Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 Notes and certain other credit instruments, including letters of credit (the “2021 Variable Funding Notes”). In connection with the issuance of the 2021 Variable Funding Notes, our 2019 variable funding notes were canceled.
The proceeds from the 2021 Recapitalization were used to repay the remaining $291.0 million in outstanding principal under our 2017 Floating Rate Notes and $582.0 million in outstanding principal under our 2017 Five-Year Notes, prefund a portion of the interest payable on the 2021 Notes, pay transaction fees and expenses and repurchase and retire shares of our common stock. Additional information related to the 2021 Recapitalization is included in Note 3 to our consolidated financial statements.
2019 Recapitalization
On November 19, 2019, we completed the 2019 Recapitalization in which certain of our subsidiaries issued $675.0 million Series 2019-1 3.668% Fixed Rate Senior Secured Notes, Class A-2 with an anticipated term of 10 years (the “2019 Notes”) pursuant to an asset-backed securitization. Concurrently, we also issued the 2019 variable funding notes. Gross proceeds from the issuance of the 2019 Notes was $675.0 million. Additional information related to the 2019 Recapitalization is included in Note 3 to our consolidated financial statements.
2018 Recapitalization
On April 24, 2018, we completed the 2018 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist of $425.0 million Series 2018-1 4.116% Fixed Rate Senior Secured Notes, Class A-2-I with an anticipated term of 7.5 years (the “2018 7.5-Year Notes”), and $400.0 million Series 2018-1 4.328% Fixed Rate Senior Secured Notes, Class A-2-II with an anticipated term of 9.25 years (the “2018 9.25-Year Notes” and, collectively with the 2018 7.5-Year Notes, the “2018 Notes”) in an offering exempt from registration under the Securities Act of 1933, as amended. Gross proceeds from the issuance of the 2018 Notes were $825.0 million. Additional information related to the 2018 Recapitalization is included in Note 3 to our consolidated financial statements.
2017 Recapitalization
On July 24, 2017, we completed the 2017 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of $300.0 million Series 2017-1 Floating Rate Senior Secured Notes, Class A-2-I with an anticipated term of five years (the “2017 Floating Rate Notes”), $600.0 million Series 2017-1 3.082% Fixed Rate Senior Secured Notes, Class A-2-II with an anticipated term of five years (the “2017 Five-Year Notes”), and $1.0 billion Series 2017-1 4.118% Fixed Rate Senior Secured Notes, Class A-2-III with an anticipated term of 10 years (the “2017 Ten-Year Notes” and, collectively with the 2017 Floating Rate Notes and the 2017 Five-Year Notes, the “2017 Notes”). The interest rate on the 2017 Floating Rate Notes was payable at a rate equal to LIBOR plus 125 basis points. Gross proceeds from the issuance of the 2017 Notes were $1.9 billion. The 2017 Floating Rate Notes and the 2017 Five-Year Notes were repaid in connection with the 2021 Recapitalization. Additional information related to the 2017 Recapitalization is included in Note 3 to our consolidated financial statements.
43
2015 Recapitalization
On October 21, 2015, we completed the 2015 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of $500.0 million of Series 2015-1 3.484% Fixed Rate Senior Secured Notes, Class A-2-I (the “2015 Five-Year Notes”), $800.0 million Series 2015-1 4.474% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Ten-Year Notes” and collectively with the 2015 Five-Year Notes, the “2015 Notes”). Gross proceeds from the issuance of the 2015 Notes were $1.3 billion. The 2015 Five-Year Notes were repaid in connection with the 2018 Recapitalization. Additional information related to the 2015 Recapitalization is included in Note 3 to our consolidated financial statements.
2021, 2019, 2018, 2017 and 2015 Notes
The 2021 Notes, 2019 Notes, 2018 Notes, 2017 Notes and the 2015 Notes are collectively referred to as the “Notes.”
The Notes have original scheduled principal payments of $51.5 million in each of 2023 and 2024, $1.17 billion in 2025, $39.3 million in 2026, $1.31 billion in 2027, $811.5 million in 2028, $625.9 million in 2029, $10.0 million in 2030 and $905.0 million in 2031. However, in accordance with our debt agreements, the payment of principal on the outstanding senior notes may be suspended if our leverage ratio is less than or equal to 5.0x total debt, as defined, to adjusted EBITDA, as defined, and no catch-up provisions are applicable.
As of the fourth quarter of 2020, we had a leverage ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payment beginning in the first quarter of 2021. Subsequent to the closing of the 2021 Recapitalization, the Company had a leverage ratio of greater than 5.0x and, accordingly, the Company resumed making the scheduled amortization payments in the second quarter of 2021.
The Notes are subject to certain financial and non-financial covenants, including a debt service coverage ratio calculation. The covenant requires a minimum coverage ratio of 1.75x total debt service to securitized net cash flow, as defined in the related agreements. In the event that certain covenants are not met, the Notes may become due and payable on an accelerated schedule.
Leases
We lease certain retail store and supply chain center locations, supply chain vehicles, various equipment and our World Resource Center under leases with expiration dates through 2041. Refer to Note 5 to the consolidated financial statements for additional information regarding our leases, including future minimum rental commitments.
Capital Expenditures
In the past three years, we have spent approximately $270.2 million on capital expenditures. In 2022, we spent $87.2 million on capital expenditures which primarily related to investments in our technology initiatives, including our proprietary internally developed point-of-sale system (Domino’s PULSE), our supply chain centers, new Company-owned stores and asset upgrades for our existing Company-owned stores and other assets. We did not have any material commitments for capital expenditures as of January 1, 2023.
Investments
During the second quarter of 2020, we acquired a materialnon-controlling interest in DPC Dash Ltd (“DPC Dash”), a privately-held company limited by shares incorporated with limited liability under the laws of the British Virgin Islands, for $40.0 million. Through its subsidiaries, DPC Dash serves as the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. Our investment in DPC Dash’s senior ordinary shares, which are not in-substance common stock, represents an equity investment without a readily determinable fair value and is recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments.
In the first quarter of 2021, we invested an additional $40.0 million in DPC Dash based on DPC Dash’s achievement of certain pre-established performance conditions and recorded a positive adjustment of $2.5 million to the original carrying amount of $40.0 million resulting from the observable change in price from the valuation of the additional investment, resulting in a net carrying amount of $82.5 million as of the end of the first quarter of 2021. In the fourth quarter of 2021, we invested an additional $9.1 million in DPC Dash and recorded a positive adjustment of $34.3 million to the carrying amount of $82.5 million resulting from the observable change in price from the valuation of the additional investment, resulting in a net carrying amount of $125.8 million as of January 2, 2022. We did not record any adjustments to the carrying amount of $125.8 million in fiscal 2022.
44
Share Repurchase Programs
Our share repurchase programs have historically been funded by excess operating cash flows, excess proceeds from our recapitalization transactions and borrowings under our variable funding notes. We used cash of $293.7 million in 2022, $1.32 billion in 2021 and $304.6 million in 2020 for share repurchases.
On October 4, 2019, our Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company’s common stock. On February 24, 2021, our Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of the Company's common stock, which was fully utilized in connection with the ASR Agreement, described below. On April 30, 2021, we entered into an accelerated share repurchase agreement with a counterparty (the “ASR Agreement”). Pursuant to the terms of the ASR Agreement, on May 3, 2021, we used a portion of the proceeds from the 2021 Recapitalization to pay the counterparty $1.0 billion in cash and received and retired 2,012,596 shares of our common stock. Final settlement of the ASR Agreement occurred on July 21, 2021. In connection with the ASR Agreement, we received and retired a total of 2,250,786 shares of our common stock at an average price of $444.29, including the 2,012,596 shares of our common stock received and retired during the second quarter of 2021.
On July 20, 2021, our Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of our common stock. This repurchase program replaced our previously approved $1.0 billion share repurchase program, which was fully utilized in connection with the ASR Agreement. We had $410.4 million remaining under this share repurchase authorization as of January 1, 2023.
Dividends
We declared dividends of $157.5 million (or $4.40 per share) in 2022, $139.6 million (or $3.76 per share) in 2021 and $122.2 million (or $3.12 per share) in 2020. We paid dividends of $157.5 million, $139.4 million and $121.9 million in 2022, 2021 and 2020, respectively.
On February 21, 2023, the Company’s Board of Directors declared a quarterly dividend of $1.21 per common share payable on March 30, 2023 to shareholders of record at the close of business on March 15, 2023.
Sources and Uses of Cash
The following table illustrates the main components of our cash flows:
|
| Fiscal Year Ended |
| |||||
(In millions) |
| January 1, 2023 |
|
| January 2, 2022 |
| ||
Cash flows provided by (used in) |
|
|
|
|
|
| ||
Net cash provided by operating activities |
| $ | 475.3 |
|
| $ | 654.2 |
|
Net cash used in investing activities |
|
| (53.7 | ) |
|
| (142.7 | ) |
Net cash used in financing activities |
|
| (515.9 | ) |
|
| (522.8 | ) |
Effect of exchange rate changes on cash |
|
| (1.0 | ) |
|
| (0.3 | ) |
Change in cash and cash equivalents, restricted cash and cash equivalents |
| $ | (95.3 | ) |
| $ | (11.7 | ) |
Operating Activities
Cash provided by operating activities decreased $178.9 million in 2022 primarily due to the negative impact of changes in operating assets and liabilities of $80.8 million. The negative impact of changes in operating assets and liabilities primarily related to the timing of payments on accrued liabilities and higher cash paid for income taxes in 2022 as compared to 2021. The decrease was also a result of a $62.7 million negative impact of changes in advertising fund assets and liabilities, restricted, in 2022 as compared to 2021 due to payments for advertising activities outpacing contributions. Additionally, net income decreased $58.2 million. However, this decrease in net income was partially offset by a $22.8 million increase in non-cash adjustments, resulting in an overall decrease to cash provided by operating activities in 2022 as compared to 2021 of $35.4 million.
We are focused on continually improving our net income and cash flow from operations and management expects to continue to generate positive cash flows from operating activities for the foreseeable future.
45
Investing Activities
Cash used in investing activities was $53.7 million in 2022 which consisted primarily of capital expenditures of $87.2 million (driven primarily by investments in technological initiatives, supply chain centers and Company-owned store operations). In connection with the 2022 Store Sale, we refranchised 114 U.S. Company-owned stores for $41.1 million. Additionally, in connection with the 2022 Store Purchase, we acquired 23 U.S. franchised stores from certain of our U.S. franchisees for $6.8 million.
Cash used in investing activities was $142.7 million in 2021 which consisted primarily of capital expenditures of $94.2 million (driven primarily by investments in technological initiatives, supply chain centers and Company-owned stores) and our investments in DPC Dash of $49.1 million.
Financing Activities
Cash used in financing activities was $515.9 million in 2022. We repurchased and retired $293.7 million in shares of our common stock under our Board of Directors-approved share repurchase program and we also made dividend payments to our shareholders of $157.5 million. We borrowed and repaid $120.0 million under our 2021 Variable Funding Notes and also made $55.7 million in repayments on our operationslong-term debt and finance lease obligations. We made $10.7 million of tax payments for restricted stock upon vesting and we also paid $1.6 million in 2019, 2018 or 2017.financing costs associated with the issuance of our 2022 Variable Funding Notes. We also received proceeds from the exercise of stock options in 2022 of $3.3 million.
Cash used in financing activities was $522.8 million in 2021. We completed the 2021 Recapitalization and issued $1.9 billion under the 2021 Notes. We made $910.2 million of payments on our long-term debt (of which $291.0 million related to the repayment of outstanding principal under our 2017 Floating Rate Notes and $582.0 million related the repayment of outstanding principal under our 2017 Five-Year Notes in connection with the 2021 Recapitalization). We also repurchased and retired $1.32 billion in shares of our common stock under our Board of Directors-approved share repurchase program (including $1.0 billion under the ASR Agreement). We also made dividend payments to our shareholders of $139.4 million, paid $14.9 million in financing cost associated with our 2021 Recapitalization and made tax payments of $6.8 million for restricted stock upon vesting. These uses of cash were partially offset by proceeds from the exercise of stock options of $19.7 million.
Impact of Inflation
Given the inflation rates in fiscal 2022, there have been and may continue to be increases in food costs and labor costs which have and could further impact our profitability and that of our franchisees and which could impact the opening of new U.S. and international franchised stores and adversely affect our operating results. Factors such as inflation, increased food costs, increased labor and employee health and benefit costs, increased rent costs and increased energy costs may adversely affect our operating costs and profitability and those of our franchisees and could result in menu price increases. The impact of inflation is described with respect to our market basket pricing to stores and our labor cost, in the discussion of supply chain revenues and gross margin, above. Severe increases in inflation however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition and results of operations. Further discussion on the impact of commodities and other cost pressures is included above, as well as in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
(dollars in millions) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||
Long-term debt (1): | ||||||||||||||||||||||||||||
Principal | $ | 42.0 | $ | 42.0 | $ | 897.0 | $ | 33.0 | $ | 33.0 | $ | 3,078.7 | $ | 4,125.7 | ||||||||||||||
Interest (2) | 162.3 | 158.3 | 145.2 | 128.9 | 127.5 | 288.8 | 1,011.0 | |||||||||||||||||||||
Finance leases (3) | 3.3 | 2.8 | 2.8 | 2.9 | 2.9 | 25.8 | 40.5 | |||||||||||||||||||||
Operating leases (4) | 39.9 | 40.1 | 36.9 | 34.4 | 30.0 | 92.8 | 274.1 |
46
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form
These forward-looking statements generally can be identified by the use of words such as “anticipate,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “predict,” “project,” “seek,” “approximately,” “potential,” “outlook” and similar terms and phrases that concern our strategy, plans or intentions, including references to assumptions. These forward-looking statements address various matters including information concerning future results of operations and business strategy, the expected demand for future pizza delivery, our expectation that we will meet the terms of our agreement with our third-party supplier of pizza cheese, our belief that alternative third-party suppliers are available for our key ingredients in the event we are required to replace any of our supply partners, our intention to continue to enhance and grow online ordering, digital marketing and technological capabilities, our expectation that there will be no material environmental compliance-related capital expenditures, our plans to expand U.S. and international operations in many of the markets where we currently operate and in selected new markets, our expectation that the contribution rateobligation for advertising fees payable to DNAF will remain in place for the foreseeable future, and the availability of our borrowings under the 20192021 Variable Funding Notes and 2022 Variable Funding Notes for, among other things, funding working capital requirements, paying capital expenditures and funding other general corporate purposes, including payment of dividends.
Forward-looking statements relating to our anticipated profitability, estimates in same store sales growth, store growth and the growth of our U.S. and international business in general, ability to service our indebtedness, our future cash flows, our operating performance, trends in our business and other descriptions of future events reflect management’s expectations based upon currently available information and data. While we believe these expectations and projections are based on reasonable assumptions, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including the risk factors listed under Item 1A. Risk Factors, as well as other cautionary language in this Form
Actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including but not limited to, the following:
•
47
•
In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Formdeclinedisclaim any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances arising after the date of this Form
Readers are cautioned not to place undue reliance on the forward-looking statements included in this Form
48
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk
We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. In connection with the 2017 Recapitalization,recapitalizations of our business, we have issued fixed and floating rate notes and entered into variable funding notes and, at December 29, 2019,January 1, 2023, we are exposed to interest rate risk on borrowings under our 2017 Five-Year Floating Rate Notes and our 2019 Variable Funding Notes.variable funding notes. As of December 29, 2019,January 1, 2023, we did not have any outstanding borrowings under our 20192022 and 2021 Variable Funding Notes.
Our 2017 Five-Year Floating Rate Notes and our 20192021 Variable Funding Notes bear interest at fluctuating interest rates based on LIBOR. A hypothetical 1.0% adverse changeOur 2021 Variable Funding Notes loan documents provide that after the date on which the administrator for LIBOR permanently or indefinitely ceases to provide all available settings of U.S. dollar LIBOR, any new advances under the 2021 Variable Funding Notes that would otherwise have borne interest based on LIBOR, as well as any existing LIBOR advances for which the interest period has expired, will instead bear interest at a forward-looking term rate based on the Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment, that in each case have been selected or recommended by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York. The loan documents also permit the lenders to effect a transition from LIBOR rateto Term SOFR at an earlier date, subject to certain conditions. Because the composition and characteristics of Term SOFR are not the same as those of LIBOR, there can be no assurance that Term SOFR will perform the same way LIBOR would have resulted in higher interest expense of approximately $3.1 million in 2019.
Our fixed-rate debt exposes the Company to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.
We are exposed to market risks from changes in commodity prices. During the normal course of business, we purchase cheese and certain other food products that are affected by changes in commodity prices and, as a result, we are subject to volatility in our food costs. Severe increases in commodity prices or food costs, including as a result of inflation, could affect the global and U.S. economies and could also adversely impact our business, financial condition or results of operations. We may periodically enter into financial instruments to manage this risk.risk, although we have not done so historically. We do not engage in speculative transactions nor do weor hold or issue financial instruments for trading purposes. In instances when we use fixed pricing agreements with our suppliers, these agreements cover our physical commodity needs, are not
Foreign currency exchange rate risk
We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside the U.S., which can adversely impact our net income and cash flows. Approximately 6.7% of our total revenues in 2019, 6.5% of our total revenues in 2018 and 7.4%2022, 6.8% of our total revenues in 20172021 and 6.1% of our total revenues in 2020 were derived from our international franchise segment, a majority of which were denominated in foreign currencies. We also operate dough manufacturing and distribution facilities in Canada, which generate revenues denominated in Canadian dollars. We do not enter into financial instruments to manage this foreign currency exchange risk. A hypothetical 10% adverse change in the foreign currency rates for our international markets would have resulted in a negative impact on royalty revenues of approximately $21.2$26.1 million in 2019.
49
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Domino’s Pizza, Inc. and its subsidiaries (the “Company”) as of December 29, 2019January 1, 2023 and December 30, 2018,January 2, 2022, and the related consolidated statements of income, of comprehensive income, of stockholders’ deficit and of cash flows for each of the three years in the period ended December 29, 2019,January 1, 2023, including the related notes the schedulesand schedule of condensed financial information of the registrant as of December 29, 2019January 1, 2023 and December 30, 2018January 2, 2022 and for each of the three years in the period ended December 29, 2019 and of valuation and qualifying accounts for each of the three years in the period ended December 29, 2019January 1, 2023 appearing under Item 1615 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 29, 2019,January 1, 2023, based on criteria established in
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 29, 2019January 1, 2023 and December 30, 2018,December 29, 2019December 29, 2019,January 1, 2023, based on criteria established in
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
50
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
Valuation of Casualty Insurance Reserves
As described in Note 1 to the consolidated financial statements, the Company has retention programs for workers’ compensation, general liability, and owned andDecember 29, 2019,January 1, 2023, the Company had accruals for these casualty insurance matters of $50.3$57.6 million. The casualty insurance reserves are based on undiscounted independent actuarial estimates, which are based on historical information along with assumptions about future events. The CompanyManagement utilizes various methods, including analyses of historical trends and actuarial valuation methods, to estimate the cost to settle reported claims and claims incurred but not yet reported. The actuarial valuation methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date. When estimating these liabilities, several factors are considered, including the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.
The principal considerations for our determination that performing procedures relating to the valuation of casualty insurance reserves is a critical audit matter are there was(i) the significant judgment by management when developing the estimated reserves. This in turn led toreserves; (ii) a high degree of auditor judgment and effort in performing procedures relating to the auditing of the actuarial valuation methods used to develop future ultimate claim costs includingand actuarial assumptions related to the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation. In addition,inflation; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of casualty insurance reserves, including controls over the assumptions and data used in the actuarial valuation methods.reserves. These procedures also included, among others, obtaining and evaluating the Company’s casualty insurance program documents and testing the underlying historical claims data. Professionals with specialized skill and knowledge were used to assist in testing management’s process for estimating the valuation of casualty insurance reserves, including evaluating the appropriateness of the actuarial valuation methods and the reasonableness of actuarial assumptions related to the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 23, 2023
We have served as the Company’s auditor since 2002.
51
Domino’s Pizza, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 29, 2019 | December 30, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 190,615 | $ | 25,438 | ||||
Restricted cash and cash equivalents | 209,269 | 166,993 | ||||||
Accounts receivable, net of reserves of $2,856 in 2019 and $1,879 in 2018 | 210,260 | 190,091 | ||||||
Inventories | 52,955 | 45,975 | ||||||
Prepaid expenses and other | 19,129 | 25,710 | ||||||
Advertising fund assets, restricted | 105,389 | 112,744 | ||||||
Total current assets | 787,617 | 566,951 | ||||||
Property, plant and equipment: | ||||||||
Land and buildings | 44,845 | 41,147 | ||||||
Leasehold and other improvements | 164,071 | 170,498 | ||||||
Equipment | 243,708 | 243,654 | ||||||
Construction in progress | 42,705 | 31,822 | ||||||
495,329 | 487,121 | |||||||
Accumulated depreciation and amortization | (252,448 | ) | (252,182 | ) | ||||
Property, plant and equipment, net | 242,881 | 234,939 | ||||||
Other assets: | ||||||||
Operating lease right-of-use assets | 228,785 | — | ||||||
Investments in marketable securities, restricted | 11,982 | 8,718 | ||||||
Goodwill | 15,093 | 14,919 | ||||||
Capitalized software, net of accumulated amortization of $104,237 in 2019 and $89,161 in 2018 | 73,140 | 63,809 | ||||||
Other assets, net of accumulated amortization of $56 in 2019 and $776 in 2018 | 12,521 | 12,523 | ||||||
Deferred income taxes | 10,073 | 5,526 | ||||||
Total other assets | 351,594 | 105,495 | ||||||
Total assets | $ | 1,382,092 | $ | 907,385 | ||||
Liabilities and stockholders’ deficit | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 43,394 | $ | 35,893 | ||||
Accounts payable | 111,101 | 92,546 | ||||||
Accrued compensation | 46,214 | 40,962 | ||||||
Accrued interest | 27,881 | 25,981 | ||||||
Operating lease liabilities | 33,318 | — | ||||||
Insurance reserves | 23,735 | 22,210 | ||||||
Advertising fund liabilities | 101,921 | 107,150 | ||||||
Other accrued liabilities | 66,267 | 55,001 | ||||||
Total current liabilities | 453,831 | 379,743 | ||||||
Long-term liabilities: | ||||||||
Long-term debt, less current portion | 4,071,055 | 3,495,691 | ||||||
Operating lease liabilities | 202,731 | — | ||||||
Insurance reserves | 34,675 | 31,065 | ||||||
Other accrued liabilities | 35,559 | 40,807 | ||||||
Total long-term liabilities | 4,344,020 | 3,567,563 | ||||||
Total liabilities | 4,797,851 | 3,947,306 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit | ||||||||
Common stock, par value $0.01 per share; 170,000,000 shares authorized; 38,934,009 in 2019 and 40,977,561 in 2018 issued and outstanding | 389 | 410 | ||||||
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, NaN issued | — | — | ||||||
Additional paid-in capital | 243 | 569 | ||||||
Retained deficit | (3,412,649 | ) | (3,036,471 | ) | ||||
Accumulated other comprehensive loss | (3,742 | ) | (4,429 | ) | ||||
Total stockholders’ deficit | (3,415,759 | ) | (3,039,921 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,382,092 | $ | 907,385 | ||||
|
| January 1, |
|
| January 2, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 60,356 |
|
| $ | 148,160 |
|
Restricted cash and cash equivalents |
|
| 191,289 |
|
|
| 180,579 |
|
Accounts receivable, net of reserves of $4,762 in 2022 and $1,869 in 2021 |
|
| 257,492 |
|
|
| 255,327 |
|
Inventories |
|
| 81,570 |
|
|
| 68,328 |
|
Prepaid expenses and other |
|
| 37,287 |
|
|
| 27,242 |
|
Advertising fund assets, restricted |
|
| 162,660 |
|
|
| 180,904 |
|
Total current assets |
|
| 790,654 |
|
|
| 860,540 |
|
Property, plant and equipment: |
|
|
|
|
|
| ||
Land and buildings |
|
| 105,659 |
|
|
| 108,372 |
|
Leasehold and other improvements |
|
| 172,725 |
|
|
| 193,572 |
|
Equipment |
|
| 333,787 |
|
|
| 312,772 |
|
Construction in progress |
|
| 22,536 |
|
|
| 27,815 |
|
|
|
| 634,707 |
|
|
| 642,531 |
|
Accumulated depreciation and amortization |
|
| (332,472 | ) |
|
| (318,466 | ) |
Property, plant and equipment, net |
|
| 302,235 |
|
|
| 324,065 |
|
Other assets: |
|
|
|
|
|
| ||
Operating lease right-of-use assets |
|
| 219,202 |
|
|
| 210,702 |
|
Investments in marketable securities, restricted |
|
| 13,395 |
|
|
| 15,433 |
|
Goodwill |
|
| 11,763 |
|
|
| 15,034 |
|
Capitalized software, net of accumulated amortization of $165,457 in 2022 |
|
| 108,354 |
|
|
| 95,558 |
|
Investments |
|
| 125,840 |
|
|
| 125,840 |
|
Other assets |
|
| 28,852 |
|
|
| 22,535 |
|
Deferred income tax assets, net |
|
| 1,926 |
|
|
| 2,109 |
|
Total other assets |
|
| 509,332 |
|
|
| 487,211 |
|
Total assets |
| $ | 1,602,221 |
|
| $ | 1,671,816 |
|
Liabilities and stockholders' deficit |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Current portion of long-term debt |
| $ | 54,813 |
|
| $ | 55,588 |
|
Accounts payable |
|
| 89,715 |
|
|
| 91,547 |
|
Accrued compensation |
|
| 40,442 |
|
|
| 59,567 |
|
Accrued interest |
|
| 34,473 |
|
|
| 37,982 |
|
Operating lease liabilities |
|
| 34,877 |
|
|
| 37,155 |
|
Insurance reserves |
|
| 31,435 |
|
|
| 32,588 |
|
Advertising fund liabilities |
|
| 157,909 |
|
|
| 173,737 |
|
Other accrued liabilities |
|
| 92,957 |
|
|
| 102,577 |
|
Total current liabilities |
|
| 536,621 |
|
|
| 590,741 |
|
Long-term liabilities: |
|
|
|
|
|
| ||
Long-term debt, less current portion |
|
| 4,967,420 |
|
|
| 5,014,638 |
|
Operating lease liabilities |
|
| 195,244 |
|
|
| 184,471 |
|
Insurance reserves |
|
| 40,179 |
|
|
| 36,913 |
|
Deferred income tax liabilities |
|
| 7,761 |
|
|
| 3,922 |
|
Other accrued liabilities |
|
| 44,061 |
|
|
| 50,667 |
|
Total long-term liabilities |
|
| 5,254,665 |
|
|
| 5,290,611 |
|
Total liabilities |
|
| 5,791,286 |
|
|
| 5,881,352 |
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
| ||
Stockholders' deficit |
|
|
|
|
|
| ||
Common stock, par value $0.01 per share; 170,000,000 shares authorized; |
|
| 354 |
|
|
| 361 |
|
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 9,693 |
|
|
| 840 |
|
Retained deficit |
|
| (4,194,418 | ) |
|
| (4,207,917 | ) |
Accumulated other comprehensive loss |
|
| (4,694 | ) |
|
| (2,820 | ) |
Total stockholders’ deficit |
|
| (4,189,065 | ) |
|
| (4,209,536 | ) |
Total liabilities and stockholders’ deficit |
| $ | 1,602,221 |
|
| $ | 1,671,816 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the Years Ended | ||||||||||||
December 29, 2019 | December 30, 2018 | December 31, 2017 | ||||||||||
Revenues: | ||||||||||||
U.S. Company-owned stores | $ | 453,560 | $ | 514,804 | $ | 490,846 | ||||||
U.S. franchise royalties and fees | 428,504 | 391,493 | 351,387 | |||||||||
Supply chain | 2,104,936 | 1,943,297 | 1,739,038 | |||||||||
International franchise royalties and fees | 240,975 | 224,747 | 206,708 | |||||||||
U.S. franchise advertising | 390,799 | 358,526 | — | |||||||||
Total revenues | 3,618,774 | 3,432,867 | 2,787,979 | |||||||||
Cost of sales: | ||||||||||||
U.S. Company-owned stores | 346,168 | 398,158 | 377,674 | |||||||||
Supply chain | 1,870,107 | 1,732,030 | 1,544,314 | |||||||||
Total cost of sales | 2,216,275 | 2,130,188 | 1,921,988 | |||||||||
Operating margin | 1,402,499 | 1,302,679 | 865,991 | |||||||||
General and administrative | 382,293 | 372,464 | 344,759 | |||||||||
U.S. franchise advertising | 390,799 | 358,526 | — | |||||||||
Income from operations | 629,407 | 571,689 | 521,232 | |||||||||
Interest income | 4,048 | 3,334 | 1,462 | |||||||||
Interest expense | (150,818 | ) | (146,345 | ) | (122,541 | ) | ||||||
Income before provision for income taxes | 482,637 | 428,678 | 400,153 | |||||||||
Provision for income taxes | 81,928 | 66,706 | 122,248 | |||||||||
Net income | $ | 400,709 | $ | 361,972 | $ | 277,905 | ||||||
Earnings per share: | ||||||||||||
Common Stock – basic | $ | 9.83 | $ | 8.65 | $ | 6.05 | ||||||
Common Stock – diluted | $ | 9.56 | $ | 8.35 | $ | 5.83 |
|
| For the Years Ended |
| |||||||||
|
| January 1, |
|
| January 2, |
|
| January 3, |
| |||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Revenues: |
|
|
|
|
|
|
|
|
| |||
U.S. Company-owned stores |
| $ | 445,810 |
|
| $ | 478,976 |
|
| $ | 485,569 |
|
U.S. franchise royalties and fees |
|
| 556,269 |
|
|
| 539,883 |
|
|
| 503,196 |
|
Supply chain |
|
| 2,754,742 |
|
|
| 2,560,977 |
|
|
| 2,416,651 |
|
International franchise royalties and fees |
|
| 295,007 |
|
|
| 298,036 |
|
|
| 249,757 |
|
U.S. franchise advertising |
|
| 485,330 |
|
|
| 479,501 |
|
|
| 462,238 |
|
Total revenues |
|
| 4,537,158 |
|
|
| 4,357,373 |
|
|
| 4,117,411 |
|
Cost of sales: |
|
|
|
|
|
|
|
|
| |||
U.S. Company-owned stores |
|
| 378,018 |
|
|
| 374,104 |
|
|
| 379,598 |
|
Supply chain |
|
| 2,510,534 |
|
|
| 2,295,027 |
|
|
| 2,143,320 |
|
Total cost of sales |
|
| 2,888,552 |
|
|
| 2,669,131 |
|
|
| 2,522,918 |
|
Gross margin |
|
| 1,648,606 |
|
|
| 1,688,242 |
|
|
| 1,594,493 |
|
General and administrative |
|
| 416,524 |
|
|
| 428,333 |
|
|
| 406,613 |
|
U.S. franchise advertising |
|
| 485,330 |
|
|
| 479,501 |
|
|
| 462,238 |
|
Refranchising gain |
|
| (21,173 | ) |
|
| — |
|
|
| — |
|
Income from operations |
|
| 767,925 |
|
|
| 780,408 |
|
|
| 725,642 |
|
Other income |
|
| — |
|
|
| 36,758 |
|
|
| — |
|
Interest income |
|
| 3,162 |
|
|
| 345 |
|
|
| 1,654 |
|
Interest expense |
|
| (198,254 | ) |
|
| (191,806 | ) |
|
| (172,166 | ) |
Income before provision for income taxes |
|
| 572,833 |
|
|
| 625,705 |
|
|
| 555,130 |
|
Provision for income taxes |
|
| 120,570 |
|
|
| 115,238 |
|
|
| 63,834 |
|
Net income |
| $ | 452,263 |
|
| $ | 510,467 |
|
| $ | 491,296 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
| |||
Common Stock – basic |
| $ | 12.66 |
|
| $ | 13.72 |
|
| $ | 12.61 |
|
Common Stock – diluted |
| $ | 12.53 |
|
| $ | 13.54 |
|
| $ | 12.39 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the Years Ended | ||||||||||||
December 29, 2019 | December 30, 2018 | December 31, 2017 | ||||||||||
Net income | $ | 400,709 | $ | 361,972 | $ | 277,905 | ||||||
Currency translation adjustment | 687 | (2,048 | ) | 1,080 | ||||||||
Comprehensive income | $ | 401,396 | $ | 359,924 | $ | 278,985 | ||||||
|
| For the Years Ended |
| |||||||||
|
| January 1, |
|
| January 2, |
|
| January 3, |
| |||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net income |
| $ | 452,263 |
|
| $ | 510,467 |
|
| $ | 491,296 |
|
Currency translation adjustment |
|
| (1,874 | ) |
|
| (396 | ) |
|
| 1,318 |
|
Comprehensive income |
| $ | 450,389 |
|
| $ | 510,071 |
|
| $ | 492,614 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands, except share and per share data)
Common Stock | Additional Paid-in Capital | Retained Deficit | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at January 1, 2017 | 48,100,143 | $ | 481 | $ | 1,006 | $ | (1,881,520 | ) | $ | (3,110 | ) | |||||||||
Net income | — | �� | — | 277,905 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($1.84) | — | — | — | (84,215 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 65,669 | 1 | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (49,159 | ) | (1 | ) | (9,448 | ) | — | — | ||||||||||||
Purchases of common stock | (5,576,249 | ) | (56 | ) | (12,590 | ) | (1,051,607 | ) | — | |||||||||||
Exercises of stock options | 357,925 | 4 | 6,095 | — | — | |||||||||||||||
Non-cash compensation expense | — | — | 20,713 | — | — | |||||||||||||||
Other | — | — | (122 | ) | — | — | ||||||||||||||
Currency translation adjustment | — | — | — | — | 1,080 | |||||||||||||||
Balance at December 31, 2017 | 42,898,329 | 429 | 5,654 | (2,739,437 | ) | (2,030 | ) | |||||||||||||
Net income | — | — | — | 361,972 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($2.20) | — | — | — | (92,211 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 79,868 | 1 | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (27,308 | ) | — | (6,962 | ) | — | — | |||||||||||||
Purchases of common stock | (2,387,430 | ) | (24 | ) | (30,743 | ) | (560,445 | ) | — | |||||||||||
Exercises of stock options | 414,102 | 4 | 9,828 | — | — | |||||||||||||||
Non-cash compensation expense | — | — | 22,792 | — | — | |||||||||||||||
Adoption of ASC 606 (Note 1) | — | — | — | (6,701 | ) | — | ||||||||||||||
Currency translation adjustment | — | — | — | — | (2,048 | ) | ||||||||||||||
Reclassification adjustment for stranded taxes (Note 1) | — | — | — | 351 | (351 | ) | ||||||||||||||
Balance at December 30, 2018 | 40,977,561 | 410 | 569 | (3,036,471 | ) | (4,429 | ) | |||||||||||||
Net income | — | — | — | 400,709 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($2.60) | — | — | — | (105,605 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 46,913 | — | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (22,506 | ) | — | (5,951 | ) | — | — | |||||||||||||
Purchases of common stock | (2,493,560 | ) | (25 | ) | (27,700 | ) | (671,282 | ) | — | |||||||||||
Exercises of stock options | 425,601 | 4 | 13,060 | — | — | |||||||||||||||
Non-cash compensation expense | — | — | 20,265 | — | — | |||||||||||||||
Currency translation adjustment | — | — | — | — | 687 | |||||||||||||||
Balance at December 29, 2019 | 38,934,009 | $ | 389 | $ | 243 | $ | (3,412,649 | ) | $ | (3,742 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
| Common Stock |
|
| Additional |
|
|
|
|
| Other |
| ||||||||
|
|
|
|
|
|
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| |||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income (Loss) |
| |||||
Balance at December 29, 2019 |
|
| 38,934,009 |
|
| $ | 389 |
|
| $ | 243 |
|
| $ | (3,412,649 | ) |
| $ | (3,742 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 491,296 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (122,183 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 35,210 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (18,681 | ) |
|
| — |
|
|
| (6,803 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (838,871 | ) |
|
| (8 | ) |
|
| (43,524 | ) |
|
| (261,058 | ) |
|
| — |
|
Exercises of stock options |
|
| 756,683 |
|
|
| 8 |
|
|
| 30,962 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 24,244 |
|
|
| — |
|
|
| — |
|
Adoption of ASC 326 (Note 1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102 |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,318 |
|
Balance at January 3, 2021 |
|
| 38,868,350 |
|
|
| 389 |
|
|
| 5,122 |
|
|
| (3,303,492 | ) |
|
| (2,424 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 510,467 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (139,588 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| (1,994 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (14,826 | ) |
|
| — |
|
|
| (6,820 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (2,912,558 | ) |
|
| (30 | ) |
|
| (45,568 | ) |
|
| (1,275,304 | ) |
|
| — |
|
Exercises of stock options |
|
| 199,301 |
|
|
| 2 |
|
|
| 19,680 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 28,670 |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (396 | ) |
Balance at January 2, 2022 |
|
| 36,138,273 |
|
|
| 361 |
|
|
| 840 |
|
|
| (4,207,917 | ) |
|
| (2,820 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 452,263 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (157,479 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 15,012 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (26,699 | ) |
|
| — |
|
|
| (10,349 | ) |
|
| (371 | ) |
|
| — |
|
Purchases of common stock |
|
| (739,847 | ) |
|
| (7 | ) |
|
| (12,819 | ) |
|
| (280,914 | ) |
|
| — |
|
Exercises of stock options |
|
| 32,979 |
|
|
| — |
|
|
| 3,312 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 28,709 |
|
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,874 | ) |
Balance at January 1, 2023 |
|
| 35,419,718 |
|
| $ | 354 |
|
| $ | 9,693 |
|
| $ | (4,194,418 | ) |
| $ | (4,694 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended | ||||||||||||
December 29, 2019 | December 30, 2018 | December 31, 2017 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 400,709 | $ | 361,972 | $ | 277,905 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 59,930 | 53,665 | 44,369 | |||||||||
Loss (gain) on sale/disposal of assets | 2,023 | (4,737 | ) | (3,148 | ) | |||||||
Amortization of debt issuance costs | 4,748 | 8,033 | 10,976 | |||||||||
(Benefit) provision for deferred income taxes | (3,297 | ) | (872 | ) | 6,160 | |||||||
Non-cash compensation expense | 20,265 | 22,792 | 20,713 | |||||||||
Excess tax benefits from equity-based compensation | (25,735 | ) | (23,786 | ) | (27,227 | ) | ||||||
Provision (benefit) for losses and accounts and notes receivable | 1,195 | 899 | (277 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Changes in accounts receivable | (20,900 | ) | (18,172 | ) | (22,649 | ) | ||||||
Changes in inventories, prepaid expenses and other | (6,741 | ) | (12,455 | ) | 1,527 | |||||||
Changes in accounts payable and accrued liabilities | 66,137 | 10,010 | 22,267 | |||||||||
Changes in insurance reserves | 5,322 | 2,174 | 8,420 | |||||||||
Changes in operating lease assets and liabilities | 3,302 | — | — | |||||||||
Changes in advertising fund assets and liabilities, restricted | (10,008 | ) | (5,352 | ) | 2,225 | |||||||
Net cash provided by operating activities | 496,950 | 394,171 | 341,261 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (85,565 | ) | (119,888 | ) | (90,011 | ) | ||||||
Proceeds from sale of assets | 12,258 | 8,367 | 6,835 | |||||||||
Maturities of advertising fund investments, restricted | 50,152 | 94,007 | — | |||||||||
Purchases of advertising fund investments, restricted | — | (70,152 | ) | — | ||||||||
Purchases of franchise operations and other assets | (3,423 | ) | — | — | ||||||||
Other | (1,276 | ) | (591 | ) | (562 | ) | ||||||
Net cash used in investing activities | (27,854 | ) | (88,257 | ) | (83,738 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of long-term debt | 675,000 | 970,000 | 1,900,000 | |||||||||
Repayments of long-term debt and finance lease obligations | (92,085 | ) | (604,088 | ) | (928,193 | ) | ||||||
Proceeds from exercise of stock options | 13,064 | 9,832 | 6,099 | |||||||||
Purchases of common stock | (699,007 | ) | (591,212 | ) | (1,064,253 | ) | ||||||
Tax payments for restricted stock upon vesting | (5,951 | ) | (6,962 | ) | (9,449 | ) | ||||||
Payments of common stock dividends and equivalents | (105,715 | ) | (92,166 | ) | (84,298 | ) | ||||||
Cash paid for financing costs | (8,098 | ) | (8,207 | ) | (16,846 | ) | ||||||
Other | — | — | (205 | ) | ||||||||
Net cash used in financing activities | (222,792 | ) | (322,803 | ) | (197,145 | ) | ||||||
Effect of exchange rate changes on cash | 201 | (538 | ) | 66 | ||||||||
Change in cash and cash equivalents, restricted cash and cash equivalents | $ | 246,505 | $ | (17,427 | ) | $ | 60,444 | |||||
Cash and cash equivalents, beginning of period | 25,438 | 35,768 | 42,815 | |||||||||
Restricted cash and cash equivalents, beginning of period | 166,993 | 191,762 | 126,496 | |||||||||
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 44,988 | 27,316 | 25,091 | |||||||||
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period | $ | 237,419 | $ | 254,846 | $ | 194,402 | ||||||
Cash and cash equivalents, end of period | 190,615 | 25,438 | 35,768 | |||||||||
Restricted cash and cash equivalents, end of period | 209,269 | 166,993 | 191,762 | |||||||||
Cash and cash equivalents included in advertising fund assets, restricted, end of period | 84,040 | 44,988 | 27,316 | |||||||||
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period | $ | 483,924 | $ | 237,419 | $ | 254,846 | ||||||
|
| For the Years Ended |
| |||||||||
|
| January 1, |
|
| January 2, |
|
| January 3, |
| |||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 452,263 |
|
| $ | 510,467 |
|
| $ | 491,296 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 80,251 |
|
|
| 72,923 |
|
|
| 65,038 |
|
Refranchising gain |
|
| (21,173 | ) |
|
| — |
|
|
| — |
|
Loss on sale/disposal of assets |
|
| 1,813 |
|
|
| 1,189 |
|
|
| 2,922 |
|
Amortization of debt issuance costs |
|
| 5,645 |
|
|
| 7,509 |
|
|
| 5,526 |
|
Provision for deferred income taxes |
|
| 253 |
|
|
| 1,988 |
|
|
| 14,424 |
|
Non-cash equity-based compensation expense |
|
| 28,709 |
|
|
| 28,670 |
|
|
| 24,244 |
|
Excess tax benefits from equity-based compensation |
|
| (2,169 | ) |
|
| (18,911 | ) |
|
| (60,364 | ) |
Provision for losses on accounts and notes receivable |
|
| 3,536 |
|
|
| 659 |
|
|
| 2,134 |
|
Unrealized gain on investments |
|
| — |
|
|
| (36,758 | ) |
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Changes in accounts receivable |
|
| (6,333 | ) |
|
| (8,107 | ) |
|
| (33,334 | ) |
Changes in inventories, prepaid expenses and other |
|
| (17,059 | ) |
|
| (9,420 | ) |
|
| (24,959 | ) |
Changes in accounts payable and accrued liabilities |
|
| (36,605 | ) |
|
| 51,346 |
|
|
| 68,954 |
|
Changes in insurance reserves |
|
| 1,507 |
|
|
| 6,216 |
|
|
| 5,544 |
|
Changes in operating lease assets and liabilities |
|
| 2,174 |
|
|
| 1,210 |
|
|
| 2,592 |
|
Changes in advertising fund assets and liabilities, restricted |
|
| (17,495 | ) |
|
| 45,225 |
|
|
| 28,777 |
|
Net cash provided by operating activities |
|
| 475,317 |
|
|
| 654,206 |
|
|
| 592,794 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| |||
Capital expenditures |
|
| (87,234 | ) |
|
| (94,172 | ) |
|
| (88,768 | ) |
Proceeds from sale of assets |
|
| 41,089 |
|
|
| 16 |
|
|
| 174 |
|
Purchases of franchise operations and other assets |
|
| (6,814 | ) |
|
| — |
|
|
| — |
|
Purchase of investments |
|
| — |
|
|
| (49,082 | ) |
|
| (40,000 | ) |
Other |
|
| (722 | ) |
|
| 515 |
|
|
| (333 | ) |
Net cash used in investing activities |
|
| (53,681 | ) |
|
| (142,723 | ) |
|
| (128,927 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| |||
Proceeds from issuance of long-term debt |
|
| 120,000 |
|
|
| 1,850,000 |
|
|
| 158,000 |
|
Repayments of long-term debt and finance lease obligations |
|
| (175,676 | ) |
|
| (910,212 | ) |
|
| (202,058 | ) |
Proceeds from exercise of stock options |
|
| 3,312 |
|
|
| 19,682 |
|
|
| 30,970 |
|
Purchases of common stock |
|
| (293,740 | ) |
|
| (1,320,902 | ) |
|
| (304,590 | ) |
Tax payments for restricted stock upon vesting |
|
| (10,720 | ) |
|
| (6,820 | ) |
|
| (6,803 | ) |
Payments of common stock dividends and equivalents |
|
| (157,531 | ) |
|
| (139,399 | ) |
|
| (121,925 | ) |
Cash paid for financing costs |
|
| (1,594 | ) |
|
| (14,938 | ) |
|
| — |
|
Other |
|
| — |
|
|
| (244 | ) |
|
| — |
|
Net cash used in financing activities |
|
| (515,949 | ) |
|
| (522,833 | ) |
|
| (446,406 | ) |
Effect of exchange rate changes on cash |
|
| (963 | ) |
|
| (316 | ) |
|
| 761 |
|
Change in cash and cash equivalents, restricted cash and cash equivalents |
|
| (95,276 | ) |
|
| (11,666 | ) |
|
| 18,222 |
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents, beginning of period |
|
| 148,160 |
|
|
| 168,821 |
|
|
| 190,615 |
|
Restricted cash and cash equivalents, beginning of period |
|
| 180,579 |
|
|
| 217,453 |
|
|
| 209,269 |
|
Cash and cash equivalents included in advertising fund assets, restricted, |
|
| 161,741 |
|
|
| 115,872 |
|
|
| 84,040 |
|
Cash and cash equivalents, restricted cash and cash equivalents |
|
| 490,480 |
|
|
| 502,146 |
|
|
| 483,924 |
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents, end of period |
|
| 60,356 |
|
|
| 148,160 |
|
|
| 168,821 |
|
Restricted cash and cash equivalents, end of period |
|
| 191,289 |
|
|
| 180,579 |
|
|
| 217,453 |
|
Cash and cash equivalents included in advertising fund assets, restricted, |
|
| 143,559 |
|
|
| 161,741 |
|
|
| 115,872 |
|
Cash and cash equivalents, restricted cash and cash equivalents |
| $ | 395,204 |
|
| $ | 490,480 |
|
| $ | 502,146 |
|
The accompanying notes are an integral part of these consolidated financial statements.
56
Domino’s Pizza, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except percentages, share and per share amounts)
Description of Business
Domino’s Pizza, Inc. (“DPI”), a Delaware corporation, conducts its operations and derives substantially all of its operating income from operations and cash flowsprovided by operating activities through its wholly-owned subsidiary, Domino’s, Inc. (“Domino’s”) and Domino’s wholly-owned subsidiary, Domino’s Pizza LLC (“DPLLC”). DPI and its wholly-owned subsidiaries (collectively, “the Company”the “Company”) are primarily engaged in the following business activities: (i) retail sales of food through Company-owned Domino’s Pizza stores; (ii) sales of food, equipment and supplies to Company-owned and franchised Domino’s Pizza stores through Company-owned supply chain centers;centers in the U.S. and Canada; (iii) receipt of royalties, advertising contributions and fees from U.S. Domino’s Pizza franchisees; and (iv) receipt of royalties and fees from international Domino’s Pizza franchisees.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of DPI and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Fiscal Year
The Company’s fiscal year ends on the Sunday closest to December 31. The 20192022 fiscal year ended on December 29, 2019,January 1, 2023, the 20182021 fiscal year ended on December 30, 2018January 2, 2022 and the 20172020 fiscal year ended on December 31, 2017.January 3, 2021. The 2019, 20182022 and 20172021 fiscal years alleach consisted of fifty-two weeks and the 2020 fiscal year consisted of fifty-three weeks.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase. These investments are carried at cost, which approximates fair value.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents at December 29, 2019 includes approximately $157.4
Restricted cash and cash equivalents at December 30, 2018 includes approximately $130.3
Allowances for Credit Losses
The Company closely monitors accounts and notes receivable balances and estimates the allowance for credit losses. These estimates are based on historical collection experience and other factors, including those related to current market conditions and events. The Company’s allowances for accounts and notes receivable have not historically been material.
The Company also monitors its off-balance sheet exposures under its letters of credit (Note 3), lease guarantees (Note 5) and surety bonds. Total conditional commitments under surety bonds were $14.7 million and $15.3 million as of January 1, 2023 and January 2, 2022, respectively. None of these arrangements has had or is likely to have a material effect on the Company’s results of operations, financial condition, revenues, expenses or liquidity.
57
Inventories
Inventories are valued at the lower of cost (on aDecember 29, 2019January 1, 2023 and December 30, 2018 areJanuary 2, 2022 were comprised of the following (in thousands):following:
|
| January 1, |
|
| January 2, |
| ||
Food |
| $ | 74,052 |
|
| $ | 61,994 |
|
Equipment and supplies |
|
| 7,518 |
|
|
| 6,334 |
|
Inventories |
| $ | 81,570 |
|
| $ | 68,328 |
|
2019 | 2018 | |||||||
Food | $ | 49,304 | $ | 42,921 | ||||
Equipment and supplies | 3,651 | 3,054 | ||||||
Inventories | $ | 52,955 | $ | 45,975 | ||||
Other Assets
Current and long-term other assets primarily include prepaid expenses such as insurance, taxes, deposits, notes receivable, software licenses, implementation costs for software as a service arrangement,cloud-based computing arrangements, covenants As of December 29, 2019, other
Other long-term assets included a $1.3implementation costs for cloud-based computing arrangements (primarily related to certain enterprise systems) of $11.9 million amortizable intangible asset associated with the acquisitionand $10.6 million, net of three U.S. franchise stores during 2019 (Note 13). Asaccumulated amortization of December 30, 2018, all intangible assets with useful lives were fully amortized.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost. Repair and maintenance costs are expensed as incurred. Depreciation and amortization expense are providedrecorded using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are generally as follows (in years):
Buildings | 20 | |||
Leasehold and other improvements | 5 – 15 | |||
Equipment | 3 – 15 |
Depreciation and amortization expense on property, plant and equipment was approximately $37.1$51.8 million, $35.0$48.6 million and $29.6$42.0 million in 2019, 20182022, 2021 and 2017,2020, respectively.
Impairments of Long-Lived Assets
The Company evaluates the potential impairment of long-lived assets at least annually based on various analyses including, on an annual basis, the projection of undiscounted cash flows and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the Company determines that the carrying amount of an asset (or asset group) may not be recoverable, the Company compares the net carrying value of the asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. For Company-owned stores, the Company performs this evaluation on an operating market basis, which the Company has determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows. If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset, the Company estimates the fair value of the assets. If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is recognized, and the asset is written down to its estimated fair value. TheThere were no triggering events in 2022, 2021 and 2020 and accordingly, the Company did not record any impairment losses on long-lived assets in 2019, 2018 or 2017.2022, 2021 and 2020.
Investments in Marketable Securities
Investments in marketable securities consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plan (Note 8). These investments are stated at aggregate fair value, are restricted and have been placed in a rabbi trust whereby the amounts are irrevocably set aside to fund the Company’s obligations under the deferred compensation plan. The Company classifies and accounts for these investments in marketable securities as trading securities.
Goodwill
The Company’s goodwill amounts primarily relate to franchise store acquisitions and are not amortized.acquisitions. The Company performs its required impairment tests in the fourth quarter of each fiscal year and did not recognize any goodwill impairment charges in 2019, 20182022, 2021 and 2017.2020.
58
Capitalized Software
Capitalized software is recorded at cost and includes purchased, internally-developed and externally-developed software used in the Company’s operations. Amortization expense is provided using the straight-line method over the estimated useful lives of the software, which range from one to seventen years. Capitalized software amortization expense was approximately $22.8$28.5 million, $18.7$24.3 million and $14.8$23.0 million in 2019, 20182022, 2021 and 2017,2020, respectively.
As of December 29, 2019,January 1, 2023, scheduled amortizationhashad been placed in service as of January 1, 2023 is approximately $19.2as follows in the table below. As of January 1, 2023, the Company also had $19.4 million of capitalized software that had not yet been placed in 2020, $15.1 millionservice.
2023 |
| $ | 22,657 |
|
2024 |
|
| 16,250 |
|
2025 |
|
| 10,336 |
|
2026 |
|
| 7,286 |
|
2027 |
|
| 6,506 |
|
Thereafter |
|
| 25,990 |
|
|
| $ | 89,025 |
|
Equity Investments Without Readily Determinable Fair Values
Equity investments without readily determinable fair values are recorded at cost with adjustments for observable changes in 2021, $8.0 millionprices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments (Note 4). These amounts are recorded in 2022, $2.1 millioninvestments in 2023, $0.8 millionthe Company’s consolidated balance sheet. Any adjustments to the carrying amount are recognized in 2024other income in the Company’s consolidated statements of income.
The Company evaluates the potential impairment of its investments based on various analyses including financial results and $0.7 million thereafter.operating trends, implied values from recent similar transactions and other relevant available information, including the contractual terms of the Company’s investment thereof. If the carrying amount of the investment exceeds the estimated fair value of the investment, an impairment loss is recognized, and the investment is written down to its estimated fair value.
Debt Issuance Costs
Debt issuance costs are recorded as a reduction to the Company’s debt balance and primarily include the expenses incurred by the Company as part of the 2021, 2019, 2018, 2017 and 2015 Recapitalizations. SeeRefer to Note 43 for a description of the 2021, 2019, 2018, 2017 and 2015 Recapitalizations. Amortization is recorded on a straight-line basis (which is materially consistent with the effective interest method) over the expected terms of the respective debt instrument to which the costs relate and is included in interest expense.
Insurance Reserves
The Company has retention programs for workers’ compensation, general liability and owned and$1.0$2.0 million per occurrence under these retention programs for workers’ compensation and general liability exposures. The Company is also generally responsible for between $500,000$500,000 and $3.0$5.5 million per occurrence under these retention programs for owned and$110.0$110.0 million per occurrence for general liability and owned and
Casualty insurance reserves relating to ourthe Company's retention programs are based on undiscounted actuarial estimates. These estimates are based on historical information and on certain assumptions about future events. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause these estimates to change in the near term. The Company generally receives
In addition, the Company maintains reserves for its share of employee health costs as part of the health care benefits offered to its employees. Reserves are based on estimated claims incurred that have not yet been paid, based on historical claims and payment lag times.
59
Contract Liabilities
Contract liabilities consist primarily of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $
Changes in deferred franchise fees and deferred development fees in 20192022 and 20182021 were as follows (in thousands):follows:
|
| Fiscal Year Ended |
| |||||
|
| January 1, |
|
| January 2, |
| ||
Deferred franchise fees and deferred development fees, beginning of period |
| $ | 29,694 |
|
| $ | 19,090 |
|
Revenue recognized during the period |
|
| (6,654 | ) |
|
| (5,845 | ) |
New deferrals due to cash received and other |
|
| 5,185 |
|
|
| 16,449 |
|
Deferred franchise fees and deferred development fees, end of period |
| $ | 28,225 |
|
| $ | 29,694 |
|
Fiscal Year Ended | ||||||||
December 29, 2019 | December 30, 2018 | |||||||
Deferred franchise fees and deferred development fees at beginning of period | $ | 19,900 | $ | 19,404 | ||||
Revenue recognized during the period | (5,695 | ) | (5,235 | ) | ||||
New deferrals due to cash received and other | 6,258 | 5,731 | ||||||
Deferred franchise fees and deferred development fees at end of period | $ | 20,463 | $ | 19,900 | ||||
The Company expects to recognize revenue of $4.2 million in 2020, $3.1 million in 2021, $2.8 million in 2022, $2.6 million in 2023, $2.3 million in 2024 and $5.5 million thereafter associated with the total deferred franchise feefees and deferred development fee amount above.
2023 |
| $ | 5,510 |
|
2024 |
|
| 5,200 |
|
2025 |
|
| 4,847 |
|
2026 |
|
| 4,458 |
|
2027 |
|
| 2,942 |
|
Thereafter |
|
| 5,268 |
|
|
| $ | 28,225 |
|
Other Accrued Liabilities
Current and long-term other accrued liabilities primarily include accruals for income, sales, property and other taxes, legal reserves, store operating expenses, dividends payable, and deferred compensation, unredeemed gift cards and contract liabilities.
Foreign Currency Translation
The Company’s foreign entities use their local currency as the functional currency. For these entities, the Company translates net assets into U.S. dollars at year end exchange rates, while income and expense accounts are translated at average annual exchange rates. Currency translation adjustments are included in accumulated other comprehensive income (loss) and foreign currency transaction gains and losses are included in determining net income.
Revenue Recognition
U.S. Company-owned stores revenues are comprised of retail sales of food through Company-owned Domino’s Pizza stores located in the U.S. and are recognized when the items are delivered to or carried out by customers. Customer payments are generally due at the time of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of income as revenue.
U.S. franchise royalties and fees are primarily comprised of royalties and fees from Domino’s Pizza franchisees with operations in the U.S. Each franchisee is generally required to pay a 5.5%5.5% royalty
60
Supply chain revenues are primarily comprised of sales of food, equipment and supplies to franchised Domino’s Pizza stores located in the U.S. and Canada. Revenues from the sale of food are recognized upon delivery of the food to franchisees and payments for food purchases are generally due within 30 days of the shipping date. Revenues from the sale of equipment and supplies are recognized upon delivery or shipment of the related products to franchisees, based on shipping terms, and payments for equipment and supplies are generally due within 90 days of the shipping date. The Company also offers profit sharing rebates and volume discounts to its franchisees. Obligations for profit sharing rebates are calculated based on actual results of its supply chain centers and are recognized as a reduction to revenue. Volume discounts are based on annual sales. The Company estimates the amount that will be earned and records a reduction to revenue.
International franchise royalties and fees are primarily comprised of royalties and fees from Domino’s Pizza franchisees outside of the U.S. Royalty revenues are recognized when the items are delivered to or carried out by franchisees’ customers. Store openingFranchise fees received from international franchisees are recognized as revenue on a straight-line basis over the term of each respective franchise store agreement, which is typically ten years. Development fees received from international master franchisees are also deferred when amounts are received and are recognized as revenue on a straight-line basis over the term of the respective master franchise agreement, which is typically ten years. International franchise fee revenues primarily relate to per-transaction technology fees that are recognized as the related sales occur. International franchise royalties and fees are invoiced at least quarterly and payments are generally due within 60 days.
U.S. franchise advertising revenues are comprised of contributions from Domino’s Pizza franchisees with operations in the U.S. to the Domino’s National Advertising Fund Inc. (“DNAF”), the Company’s consolidated6%6% of their retail sales to fund national marketing and advertising campaigns (subject, in certain instances, to lower rates based on certain incentives and waivers). These revenues are recognized when items are delivered to or carried out by franchisees’ customers. Payments for U.S. franchise advertising revenues are generally due within seven days of the prior week end date. Although these revenues are restricted to be used only for advertising and promotional activities to benefit franchised stores, the Company has determined there are not performance obligations associated with the franchise advertising contributions received by DNAF that are separate from its U.S. royalty payment stream and as a result, these franchise contributions and the related expenses are presented gross in the Company’s consolidated statements
Disaggregation of Revenue
Current accounting standards require that companies disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company has included its revenues disaggregated in its consolidated statements of income to satisfy this requirement.
Supply Chain Profit-Sharing Arrangements
The Company enters into profit-sharing arrangements with U.S. and Canadian storesfranchisees that purchase all of their food from Supply Chain (Note 12).the Company’s supply chain centers. These profit-sharing arrangements generally offer Company-owned stores and participating franchisees with 50%50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of their regionalthe pre-tax profit from the Company’s supply chain center’spre-taxprofits based upon each store’s purchases from the supply chain center.center operations. Profit-sharing obligations are recorded as a revenue reduction in Supply Chainto supply chain revenues in the same period as the related revenues and costs are recorded, and were $143.5$110.0 million, $132.7$148.3 million and $119.7$169.0 million in 2019, 20182022, 2021 and 2017,2020, respectively.
Cost of Sales
Cost of sales consists primarily of U.S. Stores (Note 12)Company-owned store and supply chain costs incurred to generate related revenues. Components of consolidated cost of sales primarily include food, labor, delivery, occupancy costs (including rent, telephone, utilities and depreciation) and insurance expense.
General and Administrative
General and administrative expense consists primarily of labor cost (including variable performance-based compensation expense and non-cash equity-based compensation expense), depreciation and amortization, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.
61
Advertising
U.S. stores are generally required to contribute 6% of sales to DNAF. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized, as DNAF is obligated to expend such revenues on advertising.advertising and other activities that promote the Domino’s brand. U.S. franchise advertising costs expended by DNAF are included in U.S. franchise advertising expenses in the Company’s consolidated statements of income. Advertising costs funded by Company-owned stores are generally expensed as incurred and are included in general and administrative expense. The contributionsContributions from Company-owned stores that have not yet been expended are included in advertising fund assets, restricted on the Company’s consolidated balance sheet.
Advertising expense included $390.8$485.3 million, $479.5 million and $358.5$462.2 million of U.S. franchise advertising expense in 20192022, 2021 and 2018,2020, respectively. In years prior to 2018, franchise advertising costs were recorded net against franchise advertising revenues. Advertising expense also included $37.6$33.8 million, $43.4$42.1 million and $39.8$35.7 million in 2019, 20182022, 2021 and 20172020, respectively, primarily related to advertising costs funded by U.S. Company-owned stores and other general marketing expenses which isare included in general and administrative expense in the consolidated statements of income.
As of December 29, 2019,January 1, 2023, advertising fund assets, restricted of $105.4$162.7 million consisted of $84.0$143.6 million of cash and cash equivalents, $15.3$13.1 million of accounts receivable and $6.1$6.0 million of prepaid expenses. As of December 29, 2019,January 1, 2023, advertising fund cash and cash equivalents included $3.5$4.8 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
As of December 30, 2018,January 2, 2022, advertising fund assets, restricted of $112.7$180.9 million consisted of $95.1$161.7 million of cash and cash equivalents, and investments, $15.3$14.5 million of accounts receivable and $2.3$4.7 million of prepaid expenses. As of December 30, 2018,January 2, 2022, advertising fund cash and cash equivalents and investments included $5.5$7.2 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
Leases
The Company leases certain retail store and supply chain center locations, supply chain vehicles, equipment and its corporate headquarters. The Company determines whether an arrangement is or contains a lease at contract inception. The majority of the Company’s leases are classified as operating leases, which are included in operating leasesheet.sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt on the Company’s consolidated balance sheet.
Right-of-use
The Company estimates its incremental borrowing rate for each lease using a portfolio approach based on the respective weighted average term of the agreements. This estimation considers the market rates of the Company’s outstanding collateralized borrowings and interpolations of rates outside of the terms of the outstanding borrowings, including comparisons to comparable borrowings of similarlyrated companies with longer term borrowings.
Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and is included in cost of sales.Interest or general and administrative expense. Interest expense for finance leases is recognized using the effective interest method. Variable lease payments that do not depend on a rate or index, payments associated with
Common Stock Dividends
The Company declared dividends of $157.5 million (or $4.40 per share) in 2022, $139.6 million (or $3.76 per share) in 2021 and $122.2 million (or $3.12 per share) in 2020. The Company paid dividends of approximately $105.6$157.5 million, (or $2.60$139.4 million, and $121.9 million in 2022, 2021 and 2020, respectively.
On February 21, 2023, the Company’s Board of Directors declared a quarterly dividend of $1.21 per share) in 2019, approximately $92.2 million (or $2.20 per share) in 2018 and approximately $84.2 million (or $1.84 per share) in 2017. common share payable on March 30, 2023 to shareholders of record at the close of business on March 15, 2023.
62
Stock Options and Other Equity-Based Compensation Arrangements
The cost of all of the Company’s stock options, as well as other equity-based compensation arrangements, is reflected in the financial statements based on the estimated fair value of the awards (Note 10)9).
Earnings Per Share
The Company discloses two calculations of earnings per share (“EPS”): basic EPS and diluted EPS (Note 2). The numerator in calculating common stock basic and diluted EPS is consolidated net income. The denominator in calculating common stock basic EPS is the weighted average shares outstanding. The denominator in calculating common stock diluted EPS includes the additional dilutive effect of outstanding stock options, unvested restricted stock grantsawards and units and unvested performance-based restricted stock grants.awards and units.
Supplemental Disclosures of Cash Flow Information
The Company paid interest of approximately $142.3$188.5 million, $132.8$174.6 million and $107.4$160.6 million during 2019, 20182022, 2021 and 2017,2020, respectively,,4)3). Cash paid for income taxes was approximately $80.3$134.4 million, $71.7$106.3 million and $122.6$60.4 million in 2019, 20182022, 2021 and 2017.
The Company had $6.9$6.9 million, $3.8$5.4 million and $4.0$4.3 million ofDecember 29, 2019, December 30, 2018January 1, 2023, January 2, 2022 and December 31, 2017,January 3, 2021, respectively. The Company also had $0.1 million, $0.4 million and $0.7 million of non-cash investing activities related to lease incentives in 2022, 2021 and 2020 respectively.
New Accounting Pronouncements
Recently Adopted Accounting Standards
Accounting Standards Update2016-02,Leases (“ASU”)2016-13, Financial Instruments – Credit Losses (Topic 842)
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued ASU2016-02,Leases (Topic 842)which requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. On December 31, 2018, the first day of its fiscal 2019 year, the Company adopted ASC 842 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Balance at December 30, 2018 | Adjustments Due to ASC 842 | Balance at December 31, 2018 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Prepaid expenses and other | $ | 25,710 | $ | (35 | ) | $ | 25,675 | |||||
Property, plant and equipment: | ||||||||||||
Construction in progress | 31,822 | (1,904 | ) | 29,918 | ||||||||
Other assets: | ||||||||||||
Operating lease right-of-use assets | — | 218,860 | 218,860 | |||||||||
Liabilities and stockholders’ deficit | ||||||||||||
Current liabilities: | ||||||||||||
Operating lease liabilities | — | 32,033 | 32,033 | |||||||||
Other accrued liabilities | 55,001 | (136 | ) | 54,865 | ||||||||
Long-term liabilities: | ||||||||||||
Operating lease liabilities | — | 194,736 | 194,736 | |||||||||
Other accrued liabilities | 40,807 | (9,712 | ) | 31,095 |
Accounting for Income Taxes (Topic 740)
The Company has considered all new accounting pronouncements issued by the FASB. The Company has not yet adopted the following standard:
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, updated by ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”)
In December 2019,March 2020, the FASB issued Accounting Standard Update No. 2019-12,Income TaxesASU 2020-04, Reference Rate Reform (Topic 740)848): SimplifyingFacilitation of the Accounting for Income Taxes (ASU 2019-12)simplifiesprovides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. The Company’s 2021 Variable Funding Notes (Note 3) bear interest at fluctuating interest rates based on LIBOR. However, the accountingassociated loan documents provide that after the date on which the administrator for income taxes.LIBOR permanently or indefinitely ceases to provide all available settings of U.S. dollar LIBOR, any new advances under the 2021 Variable Funding Notes that would otherwise have borne interest based on LIBOR, as well as any existing LIBOR advances for which the interest period has expired, will instead bear interest at a forward-looking term rate based on the Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment. The loan documents also permit the lenders to effect a transition from LIBOR to Term SOFR at an earlier date, subject to certain conditions. The Company’s 2022 Variable Funding Notes (Note 3) bear interest at fluctuating interest rates based on Term SOFR. ASU2019-12is effective for fiscal years beginning after 2020-04, as updated by ASU 2022-06, may currently be adopted and may be applied prospectively to contract modifications made on or before December 15, 2020, including applicable interim periods.31, 2024. The Company is currently evaluatingdoes not expect the impactadoption of the newthis guidance to have a material impact on its consolidated financial statements.
63
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The computation of basic and diluted earnings per common share for 2022, 2021 and 2020 is as follows (in thousands, except share and per share amounts):follows:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net income available to common stockholders – basic and diluted |
| $ | 452,263 |
|
| $ | 510,467 |
|
| $ | 491,296 |
|
Weighted average number of common shares |
|
| 35,724,325 |
|
|
| 37,198,292 |
|
|
| 38,974,037 |
|
Earnings per common share – basic |
| $ | 12.66 |
|
| $ | 13.72 |
|
| $ | 12.61 |
|
Diluted weighted average number of common shares |
|
| 36,093,754 |
|
|
| 37,691,351 |
|
|
| 39,640,791 |
|
Earnings per common share – diluted |
| $ | 12.53 |
|
| $ | 13.54 |
|
| $ | 12.39 |
|
2019 | 2018 | 2017 | ||||||||||
Net income available to common stockholders – basic and diluted | $ | 400,709 | $ | 361,972 | $ | 277,905 | ||||||
Weighted average number of common shares | 40,766,362 | 41,856,017 | 45,954,659 | |||||||||
Earnings per common share – basic | $ | 9.83 | $ | 8.65 | $ | 6.05 | ||||||
Diluted weighted average number of common shares | 41,923,062 | 43,331,278 | 47,677,834 | |||||||||
Earnings per common share – diluted | $ | 9.56 | $ | 8.35 | $ | 5.83 |
The denominators used in calculating diluted earnings per share for common stock for 2022, 2021 and 2020 do not include 160,980 options to purchase common stock in 2019, 76,686 options to purchase common stock in 2018 and 145,860 options to purchase common stock in 2017, as the effect of including these options would be anti-dilutive. The denominator used in calculating diluted earnings per share for common stock does not include 28,570 shares subject to restricted stock awards in 2018, asfollowing because the effect of including these shares would have been anti-dilutive. The denominators used in calculating diluted earnings per share for common stock do not include 82,647 restricted performance shares in 2019, 81,545 restricted performance shares in 2018 and 110,274 restricted performance shares in 2017 asbe anti-dilutive or because the performance targets for these awards had not yet been met.met:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Anti-dilutive shares underlying stock-based awards |
|
|
|
|
|
|
|
|
| |||
Stock options |
|
| 115,187 |
|
|
| 41,215 |
|
|
| 52,330 |
|
Restricted stock awards and units |
|
| 1,470 |
|
|
| 1,010 |
|
|
| — |
|
Performance condition not met |
|
|
|
|
|
|
|
|
| |||
Restricted stock awards and units |
|
| 22,353 |
|
|
| 29,704 |
|
|
| 68,159 |
|
The 2021 Notes, 2019 Notes, 2018 Notes, 2017 Notes and 2015 Notes (each, as defined below) are collectively referred to as the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values.“Notes.” The Company classifiesmade payments of $51.5 million, $907.0 million and discloses assets$42.0 million in 2022, 2021 and liabilities carried at fair value2020, respectively on the Notes. The Company borrowed and repaid $120.0 million under its 2021 Variable Funding Notes (as defined below) in one of the following three categories:
At December 29, 2019 | ||||||||||||||||
Carrying Amount | Fair Value Estimated Using | |||||||||||||||
Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | ||||||||||||||
Cash equivalents | $ | 180,459 | $ | 180,459 | $ | — | $ | — | ||||||||
Restricted cash equivalents | 126,963 | 126,963 | — | — | ||||||||||||
Investments in marketable securities | 11,982 | 11,982 | — | — | ||||||||||||
Advertising fund cash equivalents, restricted | 67,851 | 67,851 | — | — |
At December 30, 2018 | ||||||||||||||||
Carrying Amount | Fair Value Estimated Using | |||||||||||||||
Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | ||||||||||||||
Cash equivalents | $ | 11,877 | $ | 11,877 | $ | — | $ | — | ||||||||
Restricted cash equivalents | 112,272 | 112,272 | — | — | ||||||||||||
Investments in marketable securities | 8,718 | 8,718 | — | — | ||||||||||||
Advertising fund cash equivalents, restricted | 31,547 | 31,547 | — | — | ||||||||||||
Advertising fund investments, restricted | 50,152 | 50,152 | — | — |
2021 Recapitalization
On November 19, 2019,April 16, 2021, the Company completed a recapitalization transaction (the “2019“2021 Recapitalization”) in which certain of the Company’s subsidiaries issued $675.0notes pursuant to an asset-backed securitization. The notes consist of $850.0 million Series 2019-1 3.668% 2021-1 2.662% Fixed Rate Senior Secured Notes, Class A-210 7.5 years (the “2019 Ten-Year“2021 7.5-Year Notes”) and $1.0 billion Series 2021-1 3.151% Fixed Rate Senior Secured Notes, Class A-2-II with an anticipated term of 10 years (the “2021 Ten-Year Notes”, and, collectively with the 2021 7.5-Year Notes, the “2021 Notes”) pursuant to an asset-backed securitization. The Company. Gross proceeds from the issuance of the 2021 Notes were $1.85 billion.
Concurrently, certain of the Company’s subsidiaries also entered intoissued a revolving financingnew variable funding note facility on the Closing Date, which allows for the issuanceadvances of up to $200.0$200.0 million of Series2019-1(the “2019 Variable Funding Notes”) Notes and certain other credit instruments, including letters of credit. The 2019Ten-YearFixed Ratecredit (the “2021 Variable Funding Notes”). In connection with the issuance of the 2021 Variable Funding Notes, and the Company’s 2019 Variable Funding Notes are referred to collectively as the “2019 Notes.” Gross proceeds from the issuance of the 2019 Notes(as defined below) were $675.0 million.
The proceeds from the 20192021 Recapitalization were used topre-fundprincipal and interest payable on the 20192021 Notes, pay transaction fees and expenses and repurchase and retire shares of the Company’s common stock. In connectionstock (Note 10).
64
2019 Recapitalization
On November 19, 2019, the Company completed a recapitalization transaction (the “2019 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist of $675.0 million Series 2019-1 3.668% Fixed Rate Senior Secured Notes, Class A-2 with an anticipated term of 10 years (the “2019 Notes”). The Company also entered into a variable funding note facility, which allowed for the issuance of up to $200.0 million Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019 Variable Funding Notes”) and certain other credit instruments, including letters of credit. Gross proceeds from the issuance of the 2019 Variable Funding Notes, the Company permanently reduced to zero the commitment to fund the 2017 Variable Funding Notes and the 2017 Variable Funding Notes were cancelled. Additionally, in connection with the 2019 Recapitalization, the Company capitalized $8.1 million of debt issuance costs, which are being amortized into interest expense over the expected term of the 2019Ten-YearFixed Rate Notes.
2018 Recapitalization
On April 24, 2018, the Company completed a recapitalization transaction (the “2018 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist of $425.0$425.0 million Series 4.116%4.116% Fixed Rate Senior Secured Notes, Class Fixed Rate Notes”), and $ 4.328%4.328% Fixed Rate Senior Secured Notes, ClassFixed Rate Notes” and, collectively with the 2018 7.5-Year Fixed Rate Notes, the “2018 Notes”). Gross proceeds from the issuance of the 2018 Notes were $825.0$825.0 million.
2017 Recapitalization
On July 24, 2017, the Company completed a recapitalization transaction (the “2017 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consistconsisted of $300.0$300.0 million Series(the (the “2017 Floating Rate Notes”), $600.0$600.0 million Series3.082%3.082% Fixed Rate Senior Secured Notes, ClassFixed Rate Notes”) and $1.0$1.0 billion Series4.118%4.118% Fixed Rate Senior Secured Notes, ClassFixed Rate Notes” and, collectively with the 2017 Floating Rate Notes and the 2017 Five-Year Fixed Rate Notes, the “2017 Fixed and Floating Rate Notes”). The interest rate on the 2017 Floating Rate Notes iswas payable at a rate equal to LIBOR plus 125 basis points. Concurrently, the Company also issued a variable funding note facility which allowedfor advances of up to $175.0 million of Series2017-1Variable Funding Senior Secured Notes, Class A-1(the “2017 Variable Funding Notes”) and certain other credit instruments, including letters of credit. The 2017 Fixed and Floating Rate Notes and the 2017 Variable Funding Notes are collectively referred to as the “2017 Notes.” The 2017 Variable Funding Notes were undrawn on the closing date. Gross proceeds from the issuance of the 2017 Notes were $1.9$1.9 billion.
2015 Recapitalization
On October 21, 2015, the Company completed a recapitalization transaction (the “2015 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. In connection with the 2015 Recapitalization, the Company issued $1.3 billion aggregate principal amountThe notes consisted of fixed rate notes consisting of $500.0$500.0 million Series3.484%3.484% Fixed Rate Senior Secured Notes, Class(the (the “2015 Five-Year Fixed Rate Notes”) and $800.0$800.0 million Series4.474%4.474% Fixed Rate Senior Secured Notes, Class(the (the “2015Fixed Rate Notes” and, together with the 2015 Five-Year Fixed Rate Notes, the “2015The 2019 Notes, 2018 Notes, 2017 Notes andGross proceeds from the issuance of the 2015 Notes are collectively referred to as the “Notes.”
2022 Variable Funding Notes allow
On September 16, 2022, certain of the Company’s subsidiaries issued a new variable funding note facility which allows for advances of up to $200.0$120.0 million and issuance of certain other credit instruments, including letters of credit.Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 Notes (the “2022 Variable Funding Notes”). The facility was undrawn at closing. Interest on the 20192022 Variable Funding Notes is payable at a per year rate equal to LIBORadjusted Term SOFR plus 150 basis points. The 2019 Variable Funding Notes were undrawn at closing. The unused portion of the 20192022 Variable Funding Notes is subject to a commitment fee ranging from of 50 to 100 basis points depending on utilization.points. It is anticipated that any amounts outstanding on the 20192022 Variable Funding Notes will be repaid in full on or prior to October 2024,April 2026, subject to two additional20192022 Variable Funding Notes equal to 5%5% per annum.
As of December 29, 2019,January 1, 2023, the Company had no outstanding borrowings and $158.6$120.0 million of available borrowing capacity under its 20192022 Variable Funding Notes.
65
2021 Notes
The 2021 Notes have remaining scheduled principal payments of $18.5 million in each of 2023 through 2027, $804.8 million in 2028, $10.0 million in each of 2029 and 2030 and $905.0 million in 2031.
The legal final maturity date of the 2021 Notes is April 2051, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2021 7.5-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October 2028, and the 2021 Ten-Year Notes will be repaid on or prior to the anticipated repayment date occurring in April 2031. If the Company has not repaid or refinanced the 2021 Notes prior to the applicable anticipated repayment dates, additional interest of at least 5% per annum will accrue, as defined in the related agreements.
The 2021 Variable Funding Notes allow for advances of up to $200.0 million and issuance of certain other credit instruments, including letters of credit. The letters of credit are primarily related to our casualty insurance programs and certain supply chain center leases. Interest on the 2021 Variable Funding Notes is payable at a per year rate equal to LIBOR plus 150 basis points. The 2021 Variable Funding Notes were undrawn at closing of the 2021 Recapitalization. The unused portion of the 2021 Variable Funding Notes is subject to a commitment fee ranging from 50 to 100 basis points depending on utilization. It is anticipated that any amounts outstanding on the 2021 Variable Funding Notes will be repaid in full on or prior to April 2026, subject to two additional one-year extensions at the option of the Company, subject to certain conditions. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue on the 2021 Variable Funding Notes equal to 5% per annum.
As of January 1, 2023, the Company had no outstanding borrowings and $157.8 million of available borrowing capacity under its 2021 Variable Funding Notes, net of letters of credit issued of $41.4$42.2 million.
2019 Notes
The 2019 Notes have remaining scheduled principal payments of $6.8 million in each of 2023 through 2028 and $615.9 million in 2029.
The legal final maturity date of the 2019 Notes is October 2049, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2019 Notes will be repaid on or prior to the anticipated repayment date occurring in October 2029. If the Company has not repaid or refinanced the 2019 Notes prior to the applicable anticipated repayment dates, additional interest of at least 5% per annum will accrue, as defined in the related agreements.
The 2019 Variable Funding Notes allowed for advances of up to $200.0 million and issuance of certain other credit instruments, including letters of credit. The letters of credit are primarily related to our casualty insurance programs and certain supply chain center leases. Interest on the 2019 Variable Funding Notes was payable at a per year rate equal to LIBOR plus 150 basis points. The 2019 Variable Funding Notes were cancelled in connection with the 2021 Recapitalization.
2018 Notes
The 2018 Notes have remaining scheduled principal payments of $8.3$8.3 million in each of 2020 through2023 and 2024, $402.4$403.5 million in 2025, $4.0$4.0 million in 2026 and $367.0$368.0 million in 2027. During 2019, the Company made principal payments of approximately $6.2 million on the 2018 Notes.
The legal final maturity date of the 2018 Notes is July 2048, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 20187.5-YearFixed Rate7.5-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October 2025, and the 2018Fixed Rate Notes will be repaid on or prior to the anticipated repayment date occurring in July 2027. If the Company has not repaid or refinanced the 2018 Notes prior to the applicable anticipated repayment dates, additional interest of at least 5%5% per annum will accrue, as defined in the related agreements.
66
2017 Notes
The 2017 FixedFive-Year Notes and the 2017 Floating Rate Notes were repaid in connection with the 2021 Recapitalization. The 2017 Ten-Year Notes have remaining scheduled principal payments of $19.0 million in each of 2020and2021, $874.0 million in 2022, $10.0$10.0 million in each of 2023 through 2026 and $910.0$912.5 million in 2027. During 2019, the Company made principal payments of approximately $14.3 million on the 2017 Fixed and Floating Rate Notes.
The legal final maturity date of the 2017 Fixed and Floating RateTen-Year Notes is October 2047, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2017 Floating Rate Notes and 2017 Five-Year Fixed Rate Notes will be repaid on or prior to the anticipated repayment date occurring in July 2022, and the 2017Fixed Rate Notes will be repaid on or prior to the anticipated repayment date occurring in July 2027. If the Company has not repaid or refinanced the 2017 Fixed and Floating RateTen-Year Notes prior to the applicable anticipated repayment dates, additional interest of at least 5%5% per annum will accrue, as defined in the related agreements.
2015 Notes
The 2015 Five-Year Fixed Rate Notes were repaid in connection with the 2018 Recapitalization. The 2015Fixed Rate Notes have original remaining scheduled principal payments of $8.0$8.0 million in 2020 through2023 and 2024 and $734.0$736.0 million in 2025. During 2019, the Company made principal payments of approximately $6.0 million on the 2015Ten-YearFixed Rate Notes.
The legal final maturity date of the 2015Fixed Rate Notes is in October 2045, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2015Fixed Rate Notes will be repaid on or prior to the anticipated repayment date occurring in October 2025. If the Company has not repaid or refinanced the 2015Fixed Rate Notes prior to the applicable anticipated repayment date, additional interest will accrue of at least 5%5% per annum will accrue, as defined in the related agreements.
Debt Issuance Costs and Transaction-Related Expenses
During 20192022 and in connection with the 2019issuance of the 2022 Variable Funding Notes, the Company capitalized $1.6 million of financing costs, which are recorded in long-term other assets in the Company’s consolidated balance sheets and are being amortized into interest expense over the remaining term of the 2022 Variable Funding Notes.
During 2021 and in connection with the 2021 Recapitalization, the Company incurred $0.5approximately $2.8 million of net pre-tax 2019expenses, primarily related to $2.0 million in expense related to the write-off of debt issuance costs associated with the repayment of the 2017 Five-Year Notes and 2017 Floating Rate Notes. The Company also incurred approximately $0.3 million of interest expense on the 2017 Five-Year Notes and the 2017 Floating Rate Notes subsequent to the closing of the Company’s 2021 Recapitalization, but prior to the repayment of the 2017 Five-Year Notes and the 2017 Floating Rate Notes, resulting in the payment of interest on both the 2017 Five-Year Notes and the 2017 Floating Rate Notes as well as the 2021 Notes for a short period of time. Further, the Company incurred $0.5 million of 2021 Recapitalization-related general and administrative expenses, including legal and professional fees. In connection with the 20192021 Recapitalization, the Company recorded $8.1$14.9 million of debt issuance costs, which are being amortized into interest expense over theten-yearexpected term of the 2019Ten-YearFixed Rate Notes.
Guarantees and Covenants of the Notes
The Notes are guaranteed by certain subsidiaries of DPLLC and secured by a security interest in substantially all of the assets of the Company, including royalty and certain other income from all U.S. and international stores, U.S. supply chain income and intellectual property. The restrictions placed on the Company’s subsidiaries require that the Company’s principal and interest obligations have first priority and amounts are segregated weekly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of weekly cash flow that exceeds the required weekly principal and interest reserve is generally remitted to the Company in the form of a dividend. However, once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the subsidiaries.
The Notes are subject to certain financial andcalculation,calculation. The covenant requires a minimum coverage ratio of 1.75x total debt service to securitized net cash flow, as defined in the related agreements. The covenants, among other things, may limit the ability of certain of the Company’s subsidiaries to declare dividends, make loans or advances or enter into transactions with affiliates. In the event that certain covenants are not met, the Notes may become partially or fully due and payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Notes at any time, subject to certain make-whole interest obligations.
67
While the Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis. The payment of principal of the 2019Ten-YearFixed Rate Notes 2018 Notes, the 2017 Fixed and Floating Rate Notes and the 2015 Notes shallmay be suspended if the leverage ratio for the Company is less than or equal to 5.0x5.0x total debt, as defined, to adjusted EBITDA, as defined.defined in the related agreements. Scheduled principal payments will resume upon failure to satisfy the aforementioned leverage ratio on an ongoing basis and no
As of the remaining principal and interest under the 2012 Fixed Rate Notes, the payment of principal of the 2012 Fixed Rate Notes and 2015 Notes was to be suspended if the leverage ratios for the Company were less than or equal to 4.5x total debt to adjusted EBITDA, as defined, and there were no scheduled principalcatch-upamounts outstanding; provided, that during any such suspension, principal payments would continue to accrue and were subject tocatch-upupon failure to satisfy the aforementioned leverage ratios on an ongoing basis.
Consolidated Long-Term Debt
At December 29, 2019January 1, 2023 and December 30, 2018,January 2, 2022, consolidated long-term debt consisted of the following (in thousands):following:
|
| January 1, |
|
| January 2, |
| ||
2015 Ten-Year Notes |
| $ | 752,000 |
|
| $ | 760,000 |
|
2017 Ten-Year Notes |
|
| 952,500 |
|
|
| 962,500 |
|
2018 7.5-Year Notes |
|
| 408,000 |
|
|
| 412,250 |
|
2018 9.25-Year Notes |
|
| 384,000 |
|
|
| 388,000 |
|
2019 Ten-Year Notes |
|
| 656,438 |
|
|
| 663,188 |
|
2021 7.5-Year Notes |
|
| 837,250 |
|
|
| 845,750 |
|
2021 Ten-Year Notes |
|
| 985,000 |
|
|
| 995,000 |
|
Finance lease obligations |
|
| 74,199 |
|
|
| 76,338 |
|
Debt issuance costs, net of accumulated amortization |
|
| (27,154 | ) |
|
| (32,800 | ) |
Total debt |
|
| 5,022,233 |
|
|
| 5,070,226 |
|
Current portion of long-term debt |
|
| (54,813 | ) |
|
| (55,588 | ) |
Long-term debt, less current portion |
| $ | 4,967,420 |
|
| $ | 5,014,638 |
|
2019 | 2018 | |||||||
2015 Ten-Year Fixed Rate Notes | $ | 774,000 | $ | 780,000 | ||||
2017 Five-Year Fixed Rate Notes | 588,000 | 592,500 | ||||||
2017 Ten-Year Fixed Rate Notes | 980,000 | 987,500 | ||||||
2017 Five-Year Floating Rate Notes | 294,000 | 296,250 | ||||||
2018 7.5-Year Fixed Rate Notes | 419,688 | 422,875 | ||||||
2018 9.25-Year Fixed Rate Notes | 395,000 | 398,000 | ||||||
2019 Ten-Year Fixed Rate Notes | 675,000 | — | ||||||
2017 Variable Funding Notes | — | 65,000 | ||||||
2019 Variable Funding Notes | — | — | ||||||
Finance lease obligations | 19,657 | 17,006 | ||||||
Debt issuance costs, net of accumulated amortization of $12.9 million in 2019 and $8.2 million in 2018 | (30,896 | ) | (27,547 | ) | ||||
Total debt | 4,114,449 | 3,531,584 | ||||||
Less – current portion | 43,394 | 35,893 | ||||||
Consolidated long-term debt, net of debt issuance c osts | $ | 4,071,055 | $ | 3,495,691 | ||||
At December 29, 2019,January 1, 2023, maturities of long-term debt and finance lease obligations arewere as follows (in thousands):follows:
2023 |
| $ | 54,813 |
|
2024 |
|
| 55,527 |
|
2025 |
|
| 1,178,812 |
|
2026 |
|
| 44,225 |
|
2027 |
|
| 1,310,446 |
|
Thereafter |
|
| 2,405,564 |
|
|
| $ | 5,049,387 |
|
2020 | $ | 43,394 | ||
2021 | 42,842 | |||
2022 | 897,930 | |||
2023 | 34,030 | |||
2024 | 34,144 | |||
Thereafter | 3,093,005 | |||
$ | 4,145,345 | |||
Fair value measurements enable the approximatereader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Fair Value of Cash Equivalents and Investments
The fair values of the 2019 Ten-Year Fixed Rate Notes, 2018 Notes, 2017 FixedCompany’s cash equivalents and Floating Rate Notes and 2015 Notes as follows (in thousands):
December 29, 2019 | December 30, 2018 | |||||||||||||||
Principal Amount | Fair Value | Principal Amount | Fair Value | |||||||||||||
2015 Ten-Year Fixed Rate Notes | $ | 774,000 | $ | 804,960 | $ | 780,000 | $ | 783,120 | ||||||||
2017 Five-Year Fixed Rate Notes | 588,000 | 588,588 | 592,500 | 575,910 | ||||||||||||
2017 Ten-Year Fixed Rate Notes | 980,000 | 1,017,240 | 987,500 | 956,888 | ||||||||||||
2017 Five-Year Floating Rate Notes | 294,000 | 294,000 | 296,250 | 295,065 | ||||||||||||
2018 7.5-Year Fixed Rate Notes | 419,688 | 431,439 | 422,875 | 416,955 | ||||||||||||
2018 9.25-Year Fixed Rate Notes | 395,000 | 414,355 | 398,000 | 396,010 | ||||||||||||
2019 Ten-Year Fixed Rate Notes | 675,000 | 675,675 | �� | — | — |
68
The following table summarizes the carrying amounts and fair values of certain assets at January 1, 2023:
|
| At January 1, 2023 |
| |||||||||||||
|
|
|
|
| Fair Value Estimated Using |
| ||||||||||
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
| ||||
Cash equivalents |
| $ | 23,779 |
|
| $ | 23,779 |
|
| $ | — |
|
| $ | — |
|
Restricted cash equivalents |
|
| 117,212 |
|
|
| 117,212 |
|
|
| — |
|
|
| — |
|
Investments in marketable securities |
|
| 13,395 |
|
|
| 13,395 |
|
|
| — |
|
|
| — |
|
Advertising fund cash equivalents, restricted |
|
| 124,496 |
|
|
| 124,496 |
|
|
| — |
|
|
| — |
|
Investments |
|
| 125,840 |
|
|
| — |
|
|
| — |
|
|
| 125,840 |
|
The following table summarizes the carrying amounts and fair values of certain assets at January 2, measurement2022:
|
| At January 2, 2022 |
| |||||||||||||
|
|
|
|
| Fair Value Estimated Using |
| ||||||||||
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
| ||||
Cash equivalents |
| $ | 87,384 |
|
| $ | 87,384 |
|
| $ | — |
|
| $ | — |
|
Restricted cash equivalents |
|
| 115,185 |
|
|
| 115,185 |
|
|
| — |
|
|
| — |
|
Investments in marketable securities |
|
| 15,433 |
|
|
| 15,433 |
|
|
| — |
|
|
| — |
|
Advertising fund cash equivalents, restricted |
|
| 140,115 |
|
|
| 140,115 |
|
|
| — |
|
|
| — |
|
Investments |
|
| 125,840 |
|
|
| — |
|
|
| — |
|
|
| 125,840 |
|
During the second quarter of 2020, a subsidiary of the Company acquired a non-controlling interest in DPC Dash Ltd, a privately-held company limited by shares incorporated with limited liability under the laws of the British Virgin Islands (“DPC Dash”), for $40.0 million. Through its subsidiaries, DPC Dash serves as the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. The Company’s investment in DPC Dash’s senior ordinary shares, which are not in-substance common stock, represents an equity investment without a readily determinable fair value and is recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments.
During the first quarter of 2021, the Company invested an additional $40.0 million in DPC Dash based on DPC Dash’s achievement of certain pre-established performance conditions and recorded a positive adjustment of $2.5 million to the original carrying amount of $40.0 million resulting from the observable change in price from the valuation of the additional investment, resulting in a net carrying amount of $82.5 million as of the end of the first quarter of 2021. During the fourth quarter of 2021, the Company invested an additional $9.1 million in DPC Dash and recorded a positive adjustment of $34.3 million to the carrying amount of $82.5 million resulting from the observable change in price from the valuation of the additional investment. These amounts were recorded in other income in the Company’s consolidated statements of income. The Company did not record any adjustments to the carrying amount of $125.8 million in fiscal 2022.
The following table summarizes the reconciliation of the carrying amount of the Company’s investment in DPC Dash from the opening balance at January 3, 2021 to the closing balance at January 2, 2022.
|
| Fiscal 2021 |
| |||||||||||||
|
| Carrying Amount |
|
|
|
|
|
|
|
| Carrying Amount |
| ||||
|
| January 3, |
|
|
|
|
| Unrealized |
|
| January 2, |
| ||||
|
| 2021 |
|
| Purchases |
|
| Gain |
|
| 2022 |
| ||||
Investments |
| $ | 40,000 |
|
| $ | 49,082 |
|
| $ | 36,758 |
|
| $ | 125,840 |
|
The following table summarizes the reconciliation of the carrying amount of the Company’s investment in DPC Dash from the opening balance at December 29, 2019 to the closing balance at January 3, 2021.
|
| Fiscal 2020 |
| |||||||||||||
|
| Carrying Amount |
|
|
|
|
|
|
|
| Carrying Amount |
| ||||
|
| December 29, |
|
|
|
|
| Unrealized |
|
| January 3, |
| ||||
|
| 2019 |
|
| Purchases |
|
| Gain |
|
| 2021 |
| ||||
Investments |
| $ | — |
|
| $ | 40,000 |
|
| $ | — |
|
| $ | 40,000 |
|
69
Fair Value of Debt
The estimated fair values of the Company’s Notes (Note 3).
Management estimated the approximate fair values of the Notes as follows:
|
| January 1, 2023 |
|
| January 2, 2022 |
| ||||||||||
|
| Principal |
|
| Fair Value |
|
| Principal |
|
| Fair Value |
| ||||
2015 Ten-Year Notes |
| $ | 752,000 |
|
| $ | 717,408 |
|
| $ | 760,000 |
|
| $ | 777,480 |
|
2017 Ten-Year Notes |
|
| 952,500 |
|
|
| 875,348 |
|
|
| 962,500 |
|
|
| 1,000,038 |
|
2018 7.5-Year Notes |
|
| 408,000 |
|
|
| 385,968 |
|
|
| 412,250 |
|
|
| 420,907 |
|
2018 9.25-Year Notes |
|
| 384,000 |
|
|
| 355,584 |
|
|
| 388,000 |
|
|
| 407,788 |
|
2019 Ten-Year Notes |
|
| 656,438 |
|
|
| 564,536 |
|
|
| 663,188 |
|
|
| 693,031 |
|
2021 7.5-Year Notes |
|
| 837,250 |
|
|
| 695,755 |
|
|
| 845,750 |
|
|
| 849,133 |
|
2021 Ten-Year Notes |
|
| 985,000 |
|
|
| 792,925 |
|
|
| 995,000 |
|
|
| 1,017,885 |
|
The Company did not have any outstanding borrowings under its variable funding notes at January 1, 2023 or January 2, 2022.
The Company leases certain retail store and supply chain center locations, supply chain vehicles, equipment and its corporate headquarters with expiration dates through 2041.
The components of operating and finance lease cost for 20192022, 2021 and 2020 were as follows (in thousands):follows:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Operating lease cost |
| $ | 47,039 |
|
| $ | 44,913 |
|
| $ | 44,679 |
|
|
|
|
|
|
|
|
|
|
| |||
Finance lease cost: |
|
|
|
|
|
|
|
|
| |||
Amortization of right-of-use assets |
|
| 5,235 |
|
|
| 4,373 |
|
|
| 2,186 |
|
Interest on lease liabilities |
|
| 4,369 |
|
|
| 4,233 |
|
|
| 3,340 |
|
Total finance lease cost |
| $ | 9,604 |
|
| $ | 8,606 |
|
| $ | 5,526 |
|
Fiscal Year Ended December 29, 2019 | ||||
Operating lease cost | $ | 42,903 | ||
Finance lease cost: | ||||
Amortization of right-of-use assets | 1,167 | |||
Interest on lease liabilities | 1,952 | |||
Total finance lease cost | $ | 3,119 | ||
Rent expense totaled $69.7$79.6 million, $67.4$78.6 million and $62.0$73.7 million in 2019, 20182022, 2021 and 2017,2020, respectively. Rent expense includes operating lease cost, as well as expense forThe inclusion of the variable rate per mile drivenRent expense for the Company’scertain short-term supply chain center tractorstractor andtrailers in rent expense followingthe adoption of ASC 842 resulted in the inclusion of an additional trailer rentals was $4.94.1rent expense in 20182022, 2021 and 2017, respectively, for comparability purposes.2020, respectively. Variable rent expense and rent expense for other short-term leases were immaterial for 2019.
70
Supplemental balance sheet information related to the Company’s finance leases as of December 29, 2019January 1, 2023 and December 30, 2018January 2, 2022 was as follows (in thousands):
December 29, 2019 | December 30, 2018 | |||||||
Land and buildings | $ | 25,476 | $ | 22,171 | ||||
Accumulated depreciation and amortization | (7,846 | ) | (6,678 | ) | ||||
Finance lease assets, net | $ | 17,630 | $ | 15,493 | ||||
Current portion of long-term debt | $ | 1,394 | $ | 643 | ||||
Long-term debt, less current portion | 18,263 | 16,363 | ||||||
Total principal payable on finance leases | $ | 19,657 | $ | 17,006 | ||||
|
| January 1, |
|
| January 2, |
| ||
Land and buildings |
| $ | 83,902 |
|
| $ | 86,965 |
|
Equipment |
|
| 1,606 |
|
|
| — |
|
Finance lease assets |
|
| 85,508 |
|
|
| 86,965 |
|
Accumulated depreciation and amortization |
|
| (19,405 | ) |
|
| (14,423 | ) |
Finance lease assets, net |
| $ | 66,103 |
|
| $ | 72,542 |
|
|
|
|
|
|
|
| ||
Current portion of long-term debt |
| $ | 3,313 |
|
| $ | 4,088 |
|
Long-term debt, less current portion |
|
| 70,886 |
|
|
| 72,250 |
|
Total principal payable on finance leases |
| $ | 74,199 |
|
| $ | 76,338 |
|
As of December 29, 2019,January 1, 2023 and January 2, 2022, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:
|
| 2022 |
|
| 2021 |
| ||||||||||
|
| Operating |
|
| Finance |
|
| Operating |
|
| Finance |
| ||||
|
| Leases |
|
| Leases |
|
| Leases |
|
| Leases |
| ||||
Weighted average remaining lease term |
| 7 years |
|
| 14 years |
|
| 7 years |
|
| 15 years |
| ||||
Weighted average discount rate |
|
| 3.9 | % |
|
| 6.0 | % |
|
| 3.5 | % |
|
| 5.8 | % |
Operating Leases | Finance Leases | |||||||
Weighted average remaining lease term | 8 years | 14 years | ||||||
Weighted average discount rate | 3.8 | % | 11.7 | % |
Supplemental cash flow information related to leases for 20192022, 2021 and 2020 was as follows (in thousands):follows:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
| |||
Operating cash flows from operating leases |
| $ | 45,082 |
|
| $ | 44,176 |
|
| $ | 43,679 |
|
Operating cash flows from finance leases |
|
| 4,369 |
|
|
| 4,233 |
|
|
| 3,340 |
|
Financing cash flows from finance leases |
|
| 4,176 |
|
|
| 3,212 |
|
|
| 2,058 |
|
Right-of-use assets obtained in exchange for new lease obligations: |
|
|
|
|
|
|
|
|
| |||
Operating leases |
|
| 64,660 |
|
|
| 29,549 |
|
|
| 37,375 |
|
Finance leases |
|
| 478 |
|
|
| 18,991 |
|
|
| 42,894 |
|
Fiscal Year Ended December 29, 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 43,608 | ||
Operating cash flows from finance leases | 1,952 | |||
Financing cash flows from finance leases | 647 | |||
Right-of-use assets obtained in exchange for new lease obligations: | ||||
Operating leases | 63,685 | |||
Finance leases | 3,255 |
Maturities of lease liabilities as of December 29, 2019January 1, 2023 were as follows (in thousands):follows:
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
2023 |
| $ | 44,066 |
|
| $ | 7,471 |
|
2024 |
|
| 42,298 |
|
|
| 8,007 |
|
2025 |
|
| 37,360 |
|
|
| 7,823 |
|
2026 |
|
| 35,556 |
|
|
| 8,489 |
|
2027 |
|
| 29,074 |
|
|
| 7,930 |
|
Thereafter |
|
| 81,025 |
|
|
| 68,701 |
|
Total future minimum rental commitments |
|
| 269,379 |
|
|
| 108,421 |
|
Less, amounts representing interest |
|
| (39,258 | ) |
|
| (34,222 | ) |
Total lease liabilities |
| $ | 230,121 |
|
| $ | 74,199 |
|
Operating Leases | Finance Leases | |||||||
2020 | $ | 39,925 | $ | 3,302 | ||||
2021 | 40,070 | 2,816 | ||||||
2022 | 36,928 | 2,834 | ||||||
2023 | 34,381 | 2,858 | ||||||
2024 | 29,987 | 2,882 | ||||||
Thereafter | 92,849 | 25,813 | ||||||
Total future minimum rental commitments | 274,140 | 40,505 | ||||||
Less – amounts representing interest | (38,091 | ) | (20,848 | ) | ||||
Total lease liabilities | $ | 236,049 | $ | 19,657 | ||||
Operating Leases | Finance Leases | |||||||
2019 | $ | 40,752 | $ | 2,396 | ||||
2020 | 37,519 | 2,415 | ||||||
2021 | 34,538 | 2,433 | ||||||
2022 | 30,763 | 2,451 | ||||||
2023 | 27,388 | 2,474 | ||||||
Thereafter | 100,310 | 23,781 | ||||||
Total future minimum rental commitments | $ | 271,270 | 35,950 | |||||
Less – amounts representing interest | (18,944 | ) | ||||||
Total principal payable on finance leases | $ | 17,006 | ||||||
As of December 29, 2019,January 1, 2023, the Company hashad additional leases for 2 supply chain centersone storage warehouse facility and certain supply chain tractors and trailersU.S. Company-owned store vehicles that had not yet commenced with estimated future minimum rental commitments of approximately $76.2$48.6 million. These leases are expected to commence in 20202023 with lease terms of up to 21 years.11 years. These undiscounted amounts are not included in the tablestable above.
The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guaranteeswas $16.7 was $24.5 million and $2.4$9.1 million as of December 29, 2019January 1, 2023 and December 30, 2018,January 2, 2022, respectively. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues or expenses, capital expenditures or liquidity.
71
The Company is a party to lawsuits, revenue agent reviews by taxing authorities and legal proceedings, of which the majority involve workers’ compensation, employment practices liability, general liability and automobile and franchisee claims arising in the ordinary course of business. The Company records legal fees associated with loss contingencies when they are probable and reasonably estimable.
Income before provision for income taxes in 2019, 20182022, 2021 and 2017 consists2020 consisted of the following (in thousands):following:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
U.S. |
| $ | 560,115 |
|
| $ | 611,267 |
|
| $ | 541,646 |
|
Foreign |
|
| 12,718 |
|
|
| 14,438 |
|
|
| 13,484 |
|
Income before provision for income taxes |
| $ | 572,833 |
|
| $ | 625,705 |
|
| $ | 555,130 |
|
2019 | 2018 | 2017 | ||||||||||
U.S. | $ | 468,467 | $ | 414,804 | $ | 386,989 | ||||||
Foreign | 14,170 | 13,874 | 13,164 | |||||||||
Income before provision for income taxes | $ | 482,637 | $ | 428,678 | $ | 400,153 | ||||||
The differences between the U.S. Federal statutory income tax provision (using the statutory rate of 21% in 2019 and 2018 and the statutory rate of35 in 2017)) and the Company’s consolidated provision for income taxes for 2019, 20182022, 2021 and 20172020 are summarized as follows (in thousands):follows:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Federal income tax provision based on the statutory rate |
| $ | 120,295 |
|
| $ | 131,398 |
|
| $ | 116,577 |
|
State and local income taxes, net of related Federal income taxes |
|
| 15,978 |
|
|
| 15,108 |
|
|
| 16,660 |
|
Non-resident withholding and foreign income taxes |
|
| 23,276 |
|
|
| 21,833 |
|
|
| 18,741 |
|
Foreign tax and other tax credits |
|
| (19,849 | ) |
|
| (23,509 | ) |
|
| (19,506 | ) |
Foreign derived intangible income |
|
| (15,068 | ) |
|
| (16,800 | ) |
|
| (12,390 | ) |
Excess tax benefits from equity-based compensation |
|
| (2,169 | ) |
|
| (18,911 | ) |
|
| (60,364 | ) |
Non-deductible expenses, net |
|
| 3,322 |
|
|
| 4,501 |
|
|
| 4,359 |
|
Unrecognized tax (benefit) provision, net of related Federal income taxes |
|
| (3,788 | ) |
|
| 4,372 |
|
|
| 516 |
|
Other |
|
| (1,427 | ) |
|
| (2,754 | ) |
|
| (759 | ) |
Provision for income taxes |
| $ | 120,570 |
|
| $ | 115,238 |
|
| $ | 63,834 |
|
2019 | 2018 | 2017 | ||||||||||
Federal income tax provision based on the statutory rate | $ | 101,354 | $ | 90,022 | $ | 140,054 | ||||||
State and local income taxes, net of related Federal income taxes | 15,141 | 14,233 | 11,520 | |||||||||
Non-resident withholding and foreign income taxes | 20,351 | 21,369 | 20,210 | |||||||||
Foreign tax and other tax credits | (20,090 | ) | (25,301 | ) | (23,324 | ) | ||||||
Foreign derived intangible income | (12,810 | ) | (11,760 | ) | — | |||||||
Excess tax benefits from equity-based compensation | (25,735 | ) | (23,786 | ) | (27,227 | ) | ||||||
Non-deductible expenses, net | 3,090 | 1,999 | 1,794 | |||||||||
Unrecognized tax provision (benefit), net of related Federal income taxes | 694 | 301 | (173 | ) | ||||||||
Other | (67 | ) | (371 | ) | (606 | ) | ||||||
Provision for income taxes | $ | 81,928 | $ | 66,706 | $ | 122,248 | ||||||
Excess tax benefits
The components of the 2019, 20182022, 2021 and 20172020 consolidated provision for income taxes arewere as follows (in thousands):follows:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Provision for Federal income taxes |
|
|
|
|
|
|
|
|
| |||
Current provision |
| $ | 76,552 |
|
| $ | 74,910 |
|
| $ | 19,894 |
|
Deferred provision (benefit) |
|
| 4,125 |
|
|
| (2,051 | ) |
|
| 14,301 |
|
Total provision for Federal income taxes |
|
| 80,677 |
|
|
| 72,859 |
|
|
| 34,195 |
|
Provision for state and local income taxes |
|
|
|
|
|
|
|
|
| |||
Current provision |
|
| 20,489 |
|
|
| 16,507 |
|
|
| 10,775 |
|
Deferred provision (benefit) |
|
| 577 |
|
|
| (461 | ) |
|
| 123 |
|
Total provision for state and local income taxes |
|
| 21,066 |
|
|
| 16,046 |
|
|
| 10,898 |
|
Provision for non-resident withholding and foreign income taxes |
|
|
|
|
|
|
|
|
| |||
Current provision |
|
| 23,276 |
|
|
| 21,833 |
|
|
| 18,741 |
|
Deferred (benefit) provision |
|
| (4,449 | ) |
|
| 4,500 |
|
|
| — |
|
Total provision for non-resident withholding and foreign income taxes |
|
| 18,827 |
|
|
| 26,333 |
|
|
| 18,741 |
|
Provision for income taxes |
| $ | 120,570 |
|
| $ | 115,238 |
|
| $ | 63,834 |
|
2019 | 2018 | 2017 | ||||||||||
Provision for Federal income taxes | ||||||||||||
Current provision | $ | 49,539 | $ | 33,558 | $ | 81,747 | ||||||
Deferred (benefit) provision | (2,862 | ) | (1,543 | ) | 6,732 | |||||||
Total provision for Federal income taxes | 46,677 | 32,015 | 88,479 | |||||||||
Provision for state and local income taxes | ||||||||||||
Current provision | 15,335 | 12,651 | 14,131 | |||||||||
Deferred (benefit) provision | (435 | ) | 671 | (572 | ) | |||||||
Total provision for state and local income taxes | 14,900 | 13,322 | 13,559 | |||||||||
Provision for non-resident withholding and foreign income taxes | 20,351 | 21,369 | 20,210 | |||||||||
Provision for income taxes | $ | 81,928 | $ | 66,706 | $ | 122,248 | ||||||
72
As of December 29, 2019January 1, 2023 and December 30, 2018,January 2, 2022, the significant components of net deferred income taxes arewere as follows (in thousands):follows:
|
| January 1, |
|
| January 2, |
| ||
Deferred income tax assets |
|
|
|
|
|
| ||
Operating lease liabilities |
| $ | 56,750 |
|
| $ | 54,478 |
|
Accruals and reserves |
|
| 11,330 |
|
|
| 15,207 |
|
Insurance reserves |
|
| 13,039 |
|
|
| 12,867 |
|
Non-cash equity-based compensation expense |
|
| 8,849 |
|
|
| 7,861 |
|
Foreign tax credit |
|
| 13,464 |
|
|
| 10,206 |
|
Other |
|
| 12,150 |
|
|
| 8,158 |
|
Deferred income tax assets before valuation allowance |
|
| 115,582 |
|
|
| 108,777 |
|
Less, valuation allowance |
|
| (15,001 | ) |
|
| (11,364 | ) |
Deferred income tax assets, net |
|
| 100,581 |
|
|
| 97,413 |
|
Deferred income tax liabilities |
|
|
|
|
|
| ||
Operating lease right-of-use assets |
|
| 54,057 |
|
|
| 51,793 |
|
Capitalized software |
|
| 27,443 |
|
|
| 19,828 |
|
Depreciation, amortization and asset basis differences |
|
| 15,851 |
|
|
| 18,570 |
|
Unrealized gain on investments |
|
| 9,065 |
|
|
| 9,035 |
|
Deferred income tax liabilities |
|
| 106,416 |
|
|
| 99,226 |
|
Net deferred income taxes |
| $ | (5,835 | ) |
| $ | (1,813 | ) |
2019 | 2018 | |||||||
Deferred income tax assets | ||||||||
Other accruals and reserves | $ | 11,874 | $ | 10,636 | ||||
Insurance reserves | 11,256 | 10,253 | ||||||
Equity compensation | 10,357 | 9,705 | ||||||
Foreign tax credit | 9,333 | 4,600 | ||||||
Other | 6,980 | 6,029 | ||||||
Deferred income tax assets before valuation allowance | 49,800 | 41,223 | ||||||
Less: Valuation allowance | (4,280 | ) | — | |||||
Total deferred income tax assets | 45,520 | 41,223 | ||||||
Deferred income tax liabilities | ||||||||
Depreciation, amortization and asset basis differences | 8,117 | 10,505 | ||||||
Capitalized software | 27,330 | 25,192 | ||||||
Total deferred income tax liabilities | 35,447 | 35,697 | ||||||
Net deferred income tax assets | $ | 10,073 | $ | 5,526 | ||||
Realization of the Company’sCompany’s deferred tax assets is dependent upon many factors, including, but not limited to, the Company’sCompany’s ability to generate sufficient taxable income. Although realization of the Company’s netCompany’s deferred tax assets is not assured, on an ongoing basis, management assesses whether it remains more likely than not the net deferred tax assets will be realized.
AsDecember 29, 2019, January 1, 2023 and January 2, 2022, the Company had total foreign tax credits of $9.3ofand $10.2 million, respectively, which $5.6million can be carried back one year to bewere fully utilized.offset with a corresponding valuation allowance. As of December 29, 2019,January 1, 2023 and January 2, 2022, the Company also had a total valuation allowance of $4.3million,allowances related to expected limitations on foreign tax credits and interest deductibility in separately filed states.states of $1.5 million and $1.2 million, respectively. Management believes the remaining net deferred tax assets will be realized.
For financial reporting purposes, the Company’sCompany’s investment in foreign subsidiaries does not exceed its tax basis. Therefore, no deferred income taxes have been provided.
The Company recognizes the financial statement benefit of a tax position if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authorities widely understood administrative practices and precedents. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and recognizes penalties in income tax expense.
A reconciliation of the beginning and ending amount of unrecognized tax benefits as of January 1, 2023, January 2, 2022 and January 3, 2021 is as follows (in thousands):follows:
|
| January 1, |
|
| January 2, |
|
| January 3, |
| |||
|
|
|
|
|
|
|
|
|
| |||
Unrecognized tax benefits at beginning of period |
| $ | 7,690 |
|
| $ | 3,318 |
|
| $ | 2,802 |
|
Additions for tax positions of current year |
|
| 887 |
|
|
| 2,611 |
|
|
| 494 |
|
Additions for tax positions of prior years |
|
| 958 |
|
|
| 2624 |
|
|
| 506 |
|
Reductions for changes in prior year tax positions |
|
| (4,521 | ) |
|
| (379 | ) |
|
| (178 | ) |
Reductions for lapses of applicable statute of limitations |
|
| (1,112 | ) |
|
| (484 | ) |
|
| (306 | ) |
Unrecognized tax benefits at end of period |
| $ | 3,902 |
|
| $ | 7,690 |
|
| $ | 3,318 |
|
2019 | 2018 | 2017 | ||||||||||
Unrecognized tax benefits at beginning of period | $ | 1,964 | $ | 1,837 | $ | 1,954 | ||||||
Additions for tax positions of current year | 468 | 425 | 224 | |||||||||
Additions for tax positions of prior years | 789 | 115 | 42 | |||||||||
Reductions for changes in prior year tax positions | (284 | ) | (64 | ) | (10 | ) | ||||||
Reductions for lapses of applicable statute of limitations | (135 | ) | (349 | ) | (373 | ) | ||||||
Unrecognized tax benefits at end of period | $ | 2,802 | $ | 1,964 | $ | 1,837 | ||||||
73
As of December 29, 2019,January 1, 2023, the amount of unrecognized tax benefits was $2.82.2Company’sCompany’s effective tax rate. As of December 29, 2019,January 1, 2023, the Company had $0.1$0.2million ofno accrued penalties.
As of December 30, 2018,January 2, 2022, the amount of unrecognized tax benefits was $2.01.8Company’sCompany’s effective tax rate. As of December 30, 2018,January 2, 2022, the Company had less than $0.10no accrued penalties.
There are currently no Internal Revenue Service (“IRS”) income tax auditaudits in progress for the 2015 tax year that did not result in any tax adjustments. There are no further IRS income tax audits scheduled.Company. The Company continues to be under examination by certain states. The Company’sCompany’s Federal statute of limitation has expired for years prior to 2016 (with the conclusion of the audit),2019, but it varies for state and foreign locations. The Company believes appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
The Company has a retirement savings plan which qualifies under Internal Revenue Code Section 401(k). All employees of the Company who have completed 1,000 hours of service and are at least 18 years of age are eligible to participate in the plan.
The Company has established anotnot contribute to this plan during 2019, 2018 or 2017.
The Company has an employee stock payroll deduction plan (the “ESPDP”). Under the ESPDP, eligible employees may deduct up to 15%15% of their eligible wages to purchase common stock at 85%85% of the market price of the stock at the purchase date. The ESPDP requires employees to hold their purchased common stock for at least one year. The Company purchases common stock on the open market for the ESPDP at the current market price. There were 20,22217,378 shares, 19,49416,382 shares and 21,74416,017 shares of common stock in 2019, 20182022, 2021 and 2017,2020, respectively, purchased on the open market for participating employees at a weighted-average price of $257.12$391.23 in 2019, $249.572022, $424.90 in 20182021 and $188.57$357.54 in 2017.2020. The expenses incurred under the ESPDP were approximately $0.8 million, $0.7 million and $0.7$1.0 million in 2019, 2018each of 2022, 2021 and 2017,2020, respectively.
The Company’s current equity incentive plan, named the Domino’s Pizza, Inc. and Subsidiaries
The cost of all employee stock options, as well as other equity-based compensation arrangements, is reflected in the consolidated statements of income based on the estimated fair value of the awards and is amortized over the requisite service period of each award.
The Company recorded total non-cash compensation expense of $28.7 million, $28.7 million and $24.2 million in 2022, 2021 and 2020, respectively. The Company recorded a deferred tax benefit related toapproximately $3.8$4.9 million, $4.3 million and $3.6 million in 20192022, 2021 and $4.0 million in 2018.
74
Stock Options
As of December 29, 2019,January 1, 2023, the number of stock options granted and outstanding under the 2004 Equity Incentive Plan was 1,546,411672,142 options. Stock options granted in fiscal 201020122020 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over four years from the date of grant, generally subject to the holder’s continued employment. Stock options granted in fiscal 2021 and 2022 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over three years from the date of grant. Stock options granted in fiscal 2013 through fiscal 2019 were granted with an exercise price equalgrant, generally subject to the market price at the date of the grant, expire ten years from the date of grant and generally vest over four years from the date of grant.holder’s continued employment. Additionally, all stock options granted become fully exercisable upon vesting. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements.
Stock option activity related to the 2004 Equity Incentive Plan is summarized as follows:
|
| Common Stock Options |
| |||||||||||||
|
| Outstanding |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
|
|
|
|
|
|
|
| (Years) |
|
| (In thousands) |
| ||||
Stock options at December 29, 2019 |
|
| 1,546,411 |
|
| $ | 94.21 |
|
|
|
|
|
|
| ||
Stock options granted |
|
| 52,730 |
|
|
| 413.80 |
|
|
|
|
|
|
| ||
Stock options forfeited |
|
| (9,792 | ) |
|
| 268.94 |
|
|
|
|
|
|
| ||
Stock options exercised |
|
| (756,683 | ) |
|
| 40.93 |
|
|
|
|
|
|
| ||
Stock options at January 3, 2021 |
|
| 832,666 |
|
| $ | 160.82 |
|
|
|
|
|
|
| ||
Stock options granted |
|
| 42,742 |
|
|
| 367.79 |
|
|
|
|
|
|
| ||
Stock options forfeited |
|
| (11,990 | ) |
|
| 333.61 |
|
|
|
|
|
|
| ||
Stock options exercised |
|
| (199,301 | ) |
|
| 98.76 |
|
|
|
|
|
|
| ||
Stock options at January 2, 2022 |
|
| 664,117 |
|
| $ | 189.64 |
|
|
|
|
|
|
| ||
Stock options granted |
|
| 49,716 |
|
|
| 393.44 |
|
|
|
|
|
|
| ||
Stock options forfeited or expired |
|
| (8,712 | ) |
|
| 375.23 |
|
|
|
|
|
|
| ||
Stock options exercised |
|
| (32,979 | ) |
|
| 100.44 |
|
|
|
|
|
|
| ||
Stock options at January 1, 2023 |
|
| 672,142 |
|
| $ | 206.69 |
|
|
| 4.6 |
|
| $ | 99,869 |
|
Exercisable at January 1, 2023 |
|
| 584,860 |
|
| $ | 181.20 |
|
|
| 4.0 |
|
| $ | 99,098 |
|
Common Stock Options | ||||||||||||||||
Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Life | Aggregate Intrinsic Value | |||||||||||||
(Years) | (In thousands) | |||||||||||||||
Stock options at January 1, 2017 | 2,498,310 | $ | 43.54 | |||||||||||||
Stock options granted | 126,720 | 201.19 | ||||||||||||||
Stock options cancelled | (28,991 | ) | 101.97 | |||||||||||||
Stock options exercised | (357,925 | ) | 17.05 | |||||||||||||
Stock options at December 31, 2017 | 2,238,114 | $ | 55.94 | |||||||||||||
Stock options granted | 96,580 | 266.11 | ||||||||||||||
Stock options cancelled | (11,193 | ) | 174.63 | |||||||||||||
Stock options exercised | (414,102 | ) | 23.74 | |||||||||||||
Stock options at December 30, 2018 | 1,909,399 | $ | 72.86 | |||||||||||||
Stock options granted | 96,280 | 272.64 | ||||||||||||||
Stock options cancelled | (33,667 | ) | 196.47 | |||||||||||||
Stock options exercised | (425,601 | ) | 30.70 | |||||||||||||
Stock options at December 29, 2019 | 1,546,411 | $ | 94.21 | 4.4 | $ | 306,340 | ||||||||||
Exercisable at December 29, 2019 | 1,350,200 | $ | 71.59 | 3.8 | $ | 298,015 | ||||||||||
The total intrinsic value of stock options
The Company recorded total$4.0$4.2 million, $6.3$5.7 million and $6.8$6.3 million in 2019, 20182022, 2021 and 2017,2020, respectively, related to stock option awards. As of December 29, 2019,January 1, 2023, there was $8.4$5.8 million of total unrecognized compensation cost related to unvested stock options granted under the 2004 Equity Incentive Plan which generally will be recognized on a straight-line basis over the related vesting period. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.61.9 years.
Management estimated the fair value of each option grant made during 2019, 20182022, 2021 and 20172020 as of the date of the grant using the Black-Scholes option pricing method. Weighted average assumptions are presented in the following table. The risk-free interest rate is based on the estimated effectiveexpected life and is estimated based on U.S. Treasury Bond rates as of the grant date. The expected life is based on several factors, including, among other things, the vesting term and contractual term as well as historical experience. The expected volatility is based principally on the historical volatility of the Company’s share price.
2019 | 2018 | 2017 | ||||||||||
Risk-free interest rate | 1.9 | % | 2.7 | % | 2.0 | % | ||||||
Expected life (years) | 5.5 | 5.5 | 5.5 | |||||||||
Expected volatility | 25.0 | % | 24.2 | % | 25.8 | % | ||||||
Expected dividend yield | 0.9 | % | 0.8 | % | 0.9 | % | ||||||
Weighted average fair value per stock option | $ | 64.66 | $ | 67.65 | $ | 49.57 |
The weighted average assumptions used in estimating the fair value of each stock option granted in 2022, 2021 and 2020 using the Black-Scholes option pricing method are presented in the following table:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Risk-free interest rate |
|
| 2.0 | % |
|
| 1.0 | % |
|
| 0.3 | % |
Expected life |
| 5.25 years |
|
| 5.25 years |
|
| 5.5 years |
| |||
Expected volatility |
|
| 31.0 | % |
|
| 30.0 | % |
|
| 30.0 | % |
Expected dividend yield |
|
| 1.1 | % |
|
| 1.0 | % |
|
| 0.8 | % |
Weighted average fair value per stock option |
| $ | 109.05 |
|
| $ | 93.46 |
|
| $ | 105.76 |
|
75
Other Equity-Based Compensation Arrangements
The Company granted 3,7803,792 shares, 3,7903,292 shares and 4,4103,630 shares of restricted stock in 2019, 20182022, 2021 and 2017,2020, respectively, to members of its Board of Directors. These grants generally vest one year from the dateRestricted stock awards granted to members of the grant and haveCompany’s Board of Directors were granted with a fair value equal to the market price of the Company’s common stock on the grant date.date and generally vest one year from the date of grant, generally subject to the director’s continued service. These awards also contain provisions for accelerated vesting upon the retirement eligibility of holders that have achieved specificspecified service and age requirements. The Company recorded total$1.0$1.4 million, $0.8$1.4 million and $0.8$1.2 million in 2019, 20182022, 2021 and 2017,2020, respectively, related to these restricted stock awards. As of December 29, 2019,January 1, 2023, there was less than $0.1$0.2 million of total unrecognized compensation cost related to these restricted stock grants.
The Company granted 28,570 shares of81,739 and 49,963 restricted stock units in 2022 and 2021, respectively, to two executivescertain employees of the Company. These grants will vest four years from the date of the grant and haverestricted stock units were granted with a fair value equal to the market price of the Company’s common stock on the grant date. These restricted stock units are generally separated into three tranches and have time-based vesting conditions with the last tranche of the award vesting three years from the grant date, generally subject to the holder’s continued employment. These awards generally also contain provisions for accelerated vesting upon the retirement eligibility of holders that have achieved specificspecified service and age requirements. The Company recorded total$2.1$11.1 million and $5.4 million in 20192022 and $1.1 million in 20182021, respectively, related to these restricted stock awards.units. As of December 29, 2019,January 1, 2023, there was $4.9$22.5 million of total unrecognized compensation cost related to these restricted stock grants.
The Company granted 63,790 shares, 59,070 shares8,921 and 67,8406,546 performance-based restricted stock units in 2022 and 2021, respectively, to certain employees of the Company. These restricted stock units were granted with a fair value equal to the market price of the Company’s common stock on the grant date, adjusted for the estimated fair value of the market condition included in the award. These performance-based restricted stock units may vest three years from the date of grant, generally subject to the holder’s continued employment, and have time and performance-based vesting conditions which provide for potential payouts of the target award amount between zero percent and two hundred percent, based on the Company’s three-year cumulative achievement as compared to the specified target performance conditions. The performance-based restricted stock units also include provisions for a potential modifier (upward or downward) based on the Company’s cumulative three-year common stock total shareholder return performance relative to that of a pre-established peer group. These awards also contain provisions for accelerated vesting of the time-based vesting condition upon the retirement eligibility of holders that have achieved specified service and age requirements. Management estimated the fair value of each performance-based restricted stock unit using a Monte-Carlo simulation pricing method. The risk-free interest rate is based on the estimated expected life and is estimated based on U.S. Treasury Bond rates as of the grant date. The Monte-Carlo simulation also includes assumptions for expected volatility based principally on the historical volatility of the Company’s share price, as well as the correlation of the Company’s share price as compared to that of the pre-established peer group. The Company recorded total non-cash equity-based compensation expense of $3.4 million and $1.4 million in 2022 and 2021, respectively, related to these performance-based restricted stock units. As of January 1, 2023, there was $5.5 million of total estimated unrecognized compensation cost based on current attainment projections related to these performance-based restricted stock units.
The weighted average assumptions used in estimating the fair value of each performance-based restricted stock unit granted in 2022 and 2021 using the Monte-Carlo simulation pricing method are presented in the following table:
|
| 2022 |
|
| 2021 |
| ||
Risk-free interest rate |
|
| 1.9 | % |
|
| 0.3 | % |
Expected life |
| 2.81 years |
|
| 2.75 years |
| ||
Expected volatility |
|
| 33.2 | % |
|
| 33.9 | % |
Weighted average fair value per performance-based restricted stock unit |
| $ | 396.87 |
|
| $ | 375.85 |
|
76
The Company granted 39,150 shares of performance-based restricted stock in 2019, 2018 and 2017, respectively,2020 to certain employees of the Company. These performance-based restricted stock awards are separated into four tranches and have time-based and performance-based vesting conditions with the last tranche vesting four years from the issuance date.date, generally subject to the holder’s continued employment. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. These awards are considered granted for accounting purposes when the performance target is established, which is generally in the fourth quarter of each year. The Company recorded total$13.2$8.0 million, $14.6$12.7 million and $13.1$14.6 million in 2019, 20182022, 2021 and 2017,2020, respectively, related to these awards. As of December 29, 2019,January 1, 2023, there was an estimated $27.7$4.2 million of total unrecognized compensation cost related to performance-based restricted stock.
Activity related to restricted stock awards and units and performance-based restricted stock activity related toawards and units awarded under the 2004 Equity Incentive Plan is summarized as follows:follows in the table below. The unrecognized compensation cost related to restricted stock awards and units and performance-based restricted stock awards and units is expected to be recognized over a weighted average period of 2.1 years.
|
| Shares |
|
| Weighted |
| ||
Nonvested at December 29, 2019 |
|
| 171,070 |
|
| $ | 251.29 |
|
Shares granted |
|
| 42,780 |
|
|
| 398.08 |
|
Shares forfeited |
|
| (8,345 | ) |
|
| 273.70 |
|
Shares vested |
|
| (58,743 | ) |
|
| 221.58 |
|
Nonvested at January 3, 2021 |
|
| 146,762 |
|
| $ | 304.69 |
|
Shares granted |
|
| 59,801 |
|
|
| 382.79 |
|
Shares forfeited |
|
| (12,924 | ) |
|
| 340.94 |
|
Shares vested |
|
| (48,378 | ) |
|
| 287.41 |
|
Nonvested at January 2, 2022 |
|
| 145,261 |
|
| $ | 339.37 |
|
Shares granted |
|
| 94,452 |
|
|
| 389.49 |
|
Shares forfeited |
|
| (18,563 | ) |
|
| 375.36 |
|
Shares vested |
|
| (75,506 | ) |
|
| 312.90 |
|
Nonvested at January 1, 2023 |
|
| 145,644 |
|
| $ | 381.00 |
|
Shares | Weighted Average Grant Date Fair Value (1) | |||||||
Nonvested at January 1, 2017 | 276,220 | $ | 97.48 | |||||
Shares granted | 72,250 | 205.21 | ||||||
Shares cancelled | (16,109 | ) | 115.71 | |||||
Shares vested | (137,757 | ) | 80.55 | |||||
Nonvested at December 31, 2017 | 194,604 | $ | 147.94 | |||||
Shares granted | 91,430 | 271.33 | ||||||
Shares cancelled | (12,692 | ) | 178.06 | |||||
Shares vested | (82,963 | ) | 128.57 | |||||
Nonvested at December 30, 2018 | 190,379 | $ | 213.57 | |||||
Shares granted | 67,570 | 275.06 | ||||||
Shares cancelled | (17,923 | ) | 230.60 | |||||
Shares vested | (68,956 | ) | 175.84 | |||||
Nonvested at December 29, 2019 | 171,070 | $ | 251.29 | |||||
On October 4, 2019, the Company’s Board of Directors approvedauthorized a
During 2022, 2021 and 2020, the Company repurchased 739,847 shares, 2,912,558 shares and retired an additional 271,064838,871 shares of the Company’s common stock for a total of approximately $79.6 million.
77
On August 2, 2017,April 30, 2021, the Company entered intothe2017 ASR Agreementaccelerated share repurchase agreement (the “ASR Agreement”) with a counterparty. Pursuant to the terms of the 2017 ASR Agreement, on AugustMay 3, 2017, as part of its Board of Directors-approved share repurchase program,2021, the Company used a portion of the proceeds from the 20172021 Recapitalization to pay the counterparty $1.0$1.0 billion in cash to repurchaseand received and retired 2,012,596 shares of the Company’sits common stock. Final settlement of the 2017 ASR Agreement occurred on October 11, 2017.July 21, 2021. In connection with the 2017 ASR Agreement, the Company received and retired a total of 5,218,6702,250,786 shares of its common stock.
As of December 29, 2019,January 1, 2023, authorized common stock consists of 160,000,000 voting shares and 10,000,000December 29, 2019January 1, 2023 and December 30, 2018 areJanuary 2, 2022 were as follows:
|
| January 1, |
|
| January 2, |
| ||
Voting |
|
| 35,416,526 |
|
|
| 36,135,081 |
|
Non-Voting |
|
| 3,192 |
|
|
| 3,192 |
|
Total Common Stock |
|
| 35,419,718 |
|
|
| 36,138,273 |
|
2019 | 2018 | |||||||
Voting | 38,930,646 | 40,974,200 | ||||||
Non-Voting | 3,363 | 3,361 | ||||||
Total Common Stock | 38,934,009 | 40,977,561 | ||||||
The Company has 3three reportable segments: (i) U.S. Stores;stores; (ii) Supply Chain;supply chain; and (iii) International Franchise.
The Company’s operations are organized by management on the combined basis of line of business and geography. The U.S. Storesstores segment includes operations with respect to all franchised and Company-owned stores throughout the U.S. The Supply Chainsupply chain segment primarily includes the distribution of food, equipment and supplies to stores from the Company’s supply chain center operations in the U.S. and Canada. Over 90% of the Company's supply chain revenues are attributable to the U.S. The International Franchiseinternational franchise segment primarily includes operations related to the Company’s franchising business in foreign markets.
The tables below summarize the financial information concerning the Company’s reportable segments for fiscal 2019, 20182022, 2021 and 2017.2020. Intersegment Revenuesrevenues are comprised of sales of food, equipment and supplies from the Supply Chainsupply chain segment to the Company-owned stores in the U.S. Storesstores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income and income from operations information below primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs. The “Other” column as it relates to capital expenditures primarily includes capitalized software, certain equipment and leasehold improvements. Tabular amounts presented below are in thousands.improvements for the Company's corporate offices.
|
| U.S. |
|
| Supply |
|
| International |
|
| Intersegment |
|
| Other |
|
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2022 |
| $ | 1,487,409 |
|
| $ | 2,898,069 |
|
| $ | 295,007 |
|
| $ | (143,327 | ) |
| $ | — |
|
| $ | 4,537,158 |
|
2021 |
|
| 1,498,360 |
|
|
| 2,699,863 |
|
|
| 298,036 |
|
|
| (138,886 | ) |
|
| — |
|
|
| 4,357,373 |
|
2020 |
|
| 1,451,003 |
|
|
| 2,552,795 |
|
|
| 249,757 |
|
|
| (136,144 | ) |
|
| — |
|
|
| 4,117,411 |
|
Segment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2022 |
| $ | 438,604 |
|
| $ | 208,799 |
|
| $ | 236,144 |
|
| N/A |
|
| $ | (26,022 | ) |
| $ | 857,525 |
| |
2021 |
|
| 454,875 |
|
|
| 229,877 |
|
|
| 241,873 |
|
| N/A |
|
|
| (42,926 | ) |
|
| 883,699 |
| |
2020 |
|
| 435,089 |
|
|
| 238,420 |
|
|
| 197,602 |
|
| N/A |
|
|
| (53,265 | ) |
|
| 817,846 |
| |
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2022 |
| $ | 9,830 |
|
| $ | 34,625 |
|
| $ | — |
|
| N/A |
|
| $ | 44,384 |
|
| $ | 88,839 |
| |
2021 |
|
| 13,680 |
|
|
| 37,063 |
|
|
| — |
|
| N/A |
|
|
| 44,894 |
|
|
| 95,637 |
| |
2020 |
|
| 15,319 |
|
|
| 36,229 |
|
|
| — |
|
| N/A |
|
|
| 35,371 |
|
|
| 86,919 |
|
78
U.S. Stores (1) | Supply Chain | International Franchise (2) | Intersegment Revenues | Other | Total | |||||||||||||||||||
Revenues- | ||||||||||||||||||||||||
2019 | $ | 1,272,863 | $ | 2,231,838 | $ | 240,975 | $ | (126,902 | ) | — | $ | 3,618,774 | ||||||||||||
2018 | 1,264,823 | 2,087,408 | 224,747 | (144,111 | ) | — | 3,432,867 | |||||||||||||||||
2017 | 842,233 | 1,874,943 | 206,708 | (135,905 | ) | — | 2,787,979 | |||||||||||||||||
Segment Income- | ||||||||||||||||||||||||
2019 | $ | 361,673 | $ | 199,844 | $ | 187,318 | N/A | $ | (36,701 | ) | $ | 712,134 | ||||||||||||
2018 | 335,989 | 176,714 | 174,700 | N/A | (43,462 | ) | 643,941 | |||||||||||||||||
2017 | 306,406 | 163,077 | 161,263 | N/A | (46,958 | ) | 583,788 | |||||||||||||||||
Income from Operations- | ||||||||||||||||||||||||
2019 | $ | 349,740 | $ | 181,964 | $ | 187,097 | N/A | $ | (89,394 | ) | $ | 629,407 | ||||||||||||
2018 | 329,044 | 162,392 | 174,503 | N/A | (94,250 | ) | 571,689 | |||||||||||||||||
2017 | 298,852 | 151,622 | 161,066 | N/A | (90,308 | ) | 521,232 | |||||||||||||||||
Capital Expenditures- | ||||||||||||||||||||||||
2019 | $ | 11,793 | $ | 33,440 | $ | 131 | N/A | $ | 43,304 | $ | 88,668 | |||||||||||||
2018 | 15,717 | 61,652 | 134 | N/A | 42,171 | 119,674 | ||||||||||||||||||
2017 | 20,579 | 34,123 | 28 | N/A | 35,527 | 90,257 |
The following table reconciles total Segment Income to income before provision for income taxes (in thousands):taxes:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Total Segment Income |
| $ | 857,525 |
|
| $ | 883,699 |
|
| $ | 817,846 |
|
Depreciation and amortization |
|
| (80,251 | ) |
|
| (72,923 | ) |
|
| (65,038 | ) |
Refranchising gain |
|
| 21,173 |
|
|
| — |
|
|
| — |
|
Loss on sale/disposal of assets |
|
| (1,813 | ) |
|
| (1,189 | ) |
|
| (2,922 | ) |
Non-cash equity-based compensation expense |
|
| (28,709 | ) |
|
| (28,670 | ) |
|
| (24,244 | ) |
Recapitalization-related expenses |
|
| — |
|
|
| (509 | ) |
|
| — |
|
Income from operations |
|
| 767,925 |
|
|
| 780,408 |
|
|
| 725,642 |
|
Other income |
|
| — |
|
|
| 36,758 |
|
|
| — |
|
Interest income |
|
| 3,162 |
|
|
| 345 |
|
|
| 1,654 |
|
Interest expense |
|
| (198,254 | ) |
|
| (191,806 | ) |
|
| (172,166 | ) |
Income before provision for income taxes |
| $ | 572,833 |
|
| $ | 625,705 |
|
| $ | 555,130 |
|
2019 | 2018 | 2017 | ||||||||||
Total Segment Income | $ | 712,134 | $ | 643,941 | $ | 583,788 | ||||||
Depreciation and amortization | (59,930 | ) | (53,665 | ) | (44,369 | ) | ||||||
(Loss) gain on sale/disposal of assets | (2,023 | ) | 4,737 | 3,148 | ||||||||
Non-cash compensation expense | (20,265 | ) | (22,792 | ) | (20,713 | ) | ||||||
Recapitalization-related expenses | (509 | ) | (532 | ) | (622 | ) | ||||||
Income from operations | 629,407 | 571,689 | 521,232 | |||||||||
Interest income | 4,048 | 3,334 | 1,462 | |||||||||
Interest expense | (150,818 | ) | (146,345 | ) | (122,541 | ) | ||||||
Income before provision for income taxes | $ | 482,637 | $ | 428,678 | $ | 400,153 | ||||||
The following table summarizes the Company’s identifiable asset information by reportable segment as of January 1, January 2, U.S. stores $ 288,149 $ 340,984 Supply chain 614,168 558,251 International franchise 36,874 41,279 Unallocated 663,030 731,302 Total assets $ 1,602,221 $ 1,671,816 December 29, 2019January 1, 2023 and December 30,
2023
2022
2019 (1) | 2018 | |||||||
U.S. Stores | $ | 251,844 | $ | 211,554 | ||||
U.S. supply chain | 408,919 | 283,351 | ||||||
Total U.S. assets | 660,763 | 494,905 | ||||||
International franchise | 23,396 | 21,094 | ||||||
International supply chain | 35,745 | 24,049 | ||||||
Total international assets | 59,141 | 45,143 | ||||||
Unallocated | 662,188 | 367,337 | ||||||
Total assets | $ | 1,382,092 | $ | 907,385 | ||||
Unallocated assets primarily include cash and cash equivalents, restricted cash and cash equivalents, certain accounts receivable and prepaid expenses, investments in equity securities without readily determinable fair values and marketable securities, certain long-lived assets including certain property, plant and equipment, capitalized software and the operating lease
The following table summarizes the Company’s goodwill balance by reportable segment as of December 29, 2019January 1, 2023 and December 30, 2018 (in thousands):January 2, 2022:
|
| January 1, |
|
| January 2, |
| ||
U.S. stores |
| $ | 10,696 |
|
| $ | 13,967 |
|
Supply chain |
|
| 1,067 |
|
|
| 1,067 |
|
Consolidated goodwill |
| $ | 11,763 |
|
| $ | 15,034 |
|
2019 | 2018 | |||||||
U.S. Stores | $ | 14,026 | $ | 13,852 | ||||
Supply Chain | 1,067 | 1,067 | ||||||
Consolidated goodwill | $ | 15,093 | $ | 14,919 | ||||
During 2019,2022, the Company sold 62purchased 23 U.S. Company-ownedfranchised stores toin Michigan from certain of itsthe Company’s existing U.S. franchisees for proceeds$6.8 million, which included $4.0 million of $12.3intangibles, $1.7 million (including 59of equipment and leasehold improvements and $1.1 million of goodwill.
Also during 2022, the Company refranchised 114 U.S. Company-owned stores sold in the second quarterArizona and Utah for proceeds of 2019 as previously disclosed).$41.1 million. In connection with the salerefranchising of the stores, the Company recorded a $0.3$21.2 millionloss gain on the sale of the related assets and liabilities, whichwasnet ofincluding a1.54.3 million reduction in goodwill. The net lossgain on the sale of these store sales wasgeneral and administrative expenserefranchising gain in the Company’s consolidated statements of income. During 2019, the Company also purchased 3 U.S. franchised stores from a U.S. franchisee for $3.4 million, which included $1.7 million
79
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
For the Fiscal Quarter Ended | For the Fiscal Year Ended | |||||||||||||||||||
March 24, 2019 | June 16, 2019 | September 8, 2019 | December 29, 2019 | December 29, 2019 | ||||||||||||||||
Total revenues | $ | 835,963 | $ | 811,647 | $ | 820,812 | $ | 1,150,352 | $ | 3,618,774 | ||||||||||
Operating margin | 322,289 | 316,671 | 316,251 | 447,288 | 1,402,499 | |||||||||||||||
Income before provision for income taxes | 109,143 | 105,979 | 110,245 | 157,270 | 482,637 | |||||||||||||||
Net income | 92,650 | 92,359 | 86,373 | 129,327 | 400,709 | |||||||||||||||
Earnings per common share – basic (1) | $ | 2.27 | $ | 2.25 | $ | 2.11 | $ | 3.20 | $ | 9.83 | ||||||||||
Earnings per common share – diluted (1) | $ | 2.20 | $ | 2.19 | $ | 2.05 | $ | 3.12 | $ | 9.56 | ||||||||||
Common stock dividends declared per share | $ | 0.65 | $ | 0.65 | $ | 0.65 | $ | 0.65 | $ | 2.60 |
For the Fiscal Quarter Ended | For the Fiscal Year Ended | |||||||||||||||||||
March 25, 2018 | June 17, 2018 | September 9, 2018 | December 30, 2018 | December 30, 2018 | ||||||||||||||||
Total revenues | $ | 785,371 | $ | 779,396 | $ | 785,965 | $ | 1,082,135 | $ | 3,432,867 | ||||||||||
Operating margin | 299,865 | 293,580 | 295,279 | 413,955 | 1,302,679 | |||||||||||||||
Income before provision for income taxes | 103,670 | 91,197 | 99,248 | 134,563 | 428,678 | |||||||||||||||
Net income | 88,827 | 77,408 | 84,095 | 111,642 | 361,972 | |||||||||||||||
Earnings per common share – basic (1) | $ | 2.07 | $ | 1.84 | $ | 2.02 | $ | 2.71 | $ | 8.65 | ||||||||||
Earnings per common share – diluted (1) | $ | 2.00 | $ | 1.78 | $ | 1.95 | $ | 2.62 | $ | 8.35 | ||||||||||
Common stock dividends declared per share | $ | 0.55 | $ | 0.55 | $ | 0.55 | $ | 0.55 | $ | 2.20 |
The Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules
There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The management of Domino’s Pizza, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in RuleDecember 29, 2019January 1, 2023 based on the framework inDecember 29, 2019.January 1, 2023. The effectiveness of the Company’s internal control over financial reporting as of December 29, 2019,January 1, 2023, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
80
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth information about our executive officers and directors.
Name | Age | Position | ||||
Russell J. Weiner | 54 | |||||
Chief Executive Officer | ||||||
Joseph H. Jordan | 49 | President, U.S. and Global Services | ||||
Sandeep Reddy | 52 | Executive Vice President, Chief Financial Officer | ||||
Arthur P. D’Elia | 45 | |||||
Executive Vice President, International | ||||||
Kelly E. Garcia | 47 | Executive Vice President, Chief Technology Officer | ||||
Frank R. Garrido | 52 | Executive Vice President, U.S. Operations and Support | ||||
Cynthia A. | 54 | Executive Vice President, Supply Chain Services | ||||
Kevin S. Morris | 62 | Executive Vice President, General Counsel | ||||
Lisa V. Price | 50 | Executive Vice President, Chief Human Resources Officer | ||||
Russell J. Weinerhas served as Domino’s Executive Vice President and Chief FinancialExecutive Officer since August 2015. He previouslyMay 2022. Prior to becoming CEO, Mr. Weiner served as ViceChief Operating Officer and President, – Finance and TreasurerDomino’s U.S. from January 2014July 2020 to August 2015, and as Vice President of International Finance, Strategy & Insights and Administration from 2008 to January 2014. Prior to joining the International team, Mr. Lawrence served as Vice President and Corporate Controller from 2002 to 2008. Mr. Lawrence began his career at Domino’s in 2000. Prior to joining Domino’s, Mr. Lawrence was a Manager of Audit and Business Advisory Services in the Detroit office of Arthur Andersen LLP.
Joseph H. Jordanhas served as Domino’s Executive Vice President, Corporate Operations (which represents our Company-owned store division) since July 2018. Prior to his appointment, Mr. Curtis served as Vice President of Franchise Relations and Operations Innovation from March 2017 to July 2018, after serving as Vice President of Operations Support from August 2016 to March 2017 and as West Region Vice President from November 2012 to August 2016. Mr. Curtis joined Domino’s in 2006, after being a Domino’s franchisee since 1987. Effective March 1, 2020, Mr. Curtis will serve as Domino’s Executive Vice President, U.S. Operations and Support.
Sandeep Reddy has served as Domino’s Executive Vice President, Chief Financial Officer since April 2022. Prior to joining Domino’s, Mr. Reddy served as Executive Vice President and Chief Financial Officer of Six Flags Entertainment from July 2020 to March 2022, and as Chief Financial Officer of Guess?, Inc. from July 2013 to December 2019, after joining Guess?, Inc. in 2010 as the Vice President and European CFO. From 1997 to 2010, Mr. Reddy held a variety of positions with increasing responsibility for Mattel Inc.
Arthur P. D’Elia has served as Domino’s Executive Vice President, International since May 2022. Mr. D’Elia served as Executive Vice President, Chief Marketing Officer from July 2020 to April 2022 and as Senior Vice President, Chief Marketing Officer from February 2020 to July 2020. Mr. D'Elia joined Domino’s in January 2018 as Senior Vice President, Chief Brand and Innovation Officer. Prior to Domino’s, Mr. D'Elia served as Chief Marketing Officer for Danone Dairy’s UBN business unit from July 2017 to January 2018 after joining Danone U.S. in April 2010, and worked at PepsiCo in corporate strategy, development and marketing for the North American beverage business from June 2003 to March 2010.
Kelly E. Garcia has served as Domino’s Executive Vice President, Chief Technology Officer since October 2020. Prior to his current role, Mr. Garcia served as Senior Vice President, Chief Technology Officer from April 2019 to October 2020. Mr. Garcia joined Domino’s in July 2012 as Vice President, eCommerce Development. Prior to Domino’s, Mr. Garcia was with R.L. Polk & Co. from 2004 to 2012, most recently as Vice President of Business Intelligence and North American Operations. Mr. Garcia also serves on the Board of Directors of Ulta Beauty, Inc.
Frank R. Garrido has served as Domino’s Executive Vice President, U.S. Operations and Support since March 2021. Prior to this role, Mr. Garrido served as Senior Vice President, Team USA from June 2020 to March 2021 after joining Domino’s in March 2017 as Vice President, Franchise Operations for the East region. Prior to joining Domino’s, Mr. Garrido was Vice President of Operations of Focus Brands from March 2015 to March 2017. From July 2013 to March 2015, he served as Executive Vice President of Operations, Training and Concept Development for Edible Arrangements International.
81
Cynthia A. Levy
Kevin S. Morris
Lisa V. Price
The remaining information required by this item is incorporated by reference from Domino’s Pizza, Inc.’s's definitive proxy statement, which will be filed within 120 days of December 29, 2019.
Item 11. Executive Compensation.
Information regarding executive compensation is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of December 29, 2019.January 1, 2023. However, no information set forth in the proxy statement regarding the Audit Committee Report shall be deemed incorporated by reference into this Form
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of December 29, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of December 29, 2019.
Item 14. Principal Accountant Fees and Services.
Information regarding principal accountant fees and services is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of December 29, 2019.
82
Part IV
Item 15. Exhibits, Financial Statement Schedules.
(a)1. Financial Statements: The following financial statements for Domino’s Pizza, Inc. and subsidiaries are included in Item 8, “Financial Statements and Supplementary Data”:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 29, 2019January 1, 2023 and December 30, 2018
Consolidated Statements of Income for the Years Ended December 29, 2019, December 30, 2018January 1, 2023, January 2, 2022 and December 31, 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 29, 2019, December 30, 2018January 1, 2023, January 2, 2022 and December 31, 2017
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 29, 2019, December 30, 2018January 1, 2023, January 2, 2022 and December 31, 2017
Consolidated Statements of Cash Flows for the Years Ended December 29, 2019, December 30, 2018January 1, 2023, January 2, 2022 and December 31, 2017
Notes to Consolidated Financial Statements
Schedule I – Condensed Financial Information of the Registrant
All other schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or the notes thereto.
Exhibit | Description | |||
3.1 | ||||
3.2 | ||||
3.3 | ||||
4.1 | ||||
10.1 | ||||
10.2 | ||||
10.3 | ||||
10.4 | ||||
10.5 | ||||
10.6 | ||||
10.7 | ||||
10.8 | ||||
83
10.9 | ||||
10.10 | ||||
10.11 | ||||
10.12 | ||||
10.13 | ||||
10.14 | ||||
10.15* | ||||
10.16* | ||||
10.17* | ||||
10.18* | Third Amendment to the Domino’s Pizza Deferred Compensation Plan effective as of October 11, 2022. | |||
10.19* | ||||
10.20* | ||||
10.21* | ||||
10.22* | ||||
10.23* | ||||
10.24* | ||||
10.25* | ||||
10.26* | ||||
10.27* | ||||
10.28* | ||||
10.29* | ||||
10.30* | ||||
84
10.31* | ||||
10.32* | ||||
10.33* | ||||
10.34* | ||||
10.35* | ||||
10.36* | ||||
10.37* | ||||
10.38* | ||||
10.39* | ||||
10.40* | ||||
10.41* | ||||
10.42* | ||||
10.43* | ||||
10.44* | ||||
10.45* | ||||
10.46* | ||||
10.47* | ||||
10.48* | ||||
10.49* | ||||
10.50* | ||||
10.51* | ||||
85
10.52* | ||||
10.53* | ||||
10.54* | ||||
10.55 | ||||
10.56 | ||||
10.57 | ||||
10.58 | ||||
10.59 | ||||
10.60 | ||||
10.61 | ||||
10.62 | ||||
10.63 | ||||
10.64 | ||||
10.65 | ||||
10.66 | ||||
10.67 | ||||
86
10.68 | ||||
10.69 | ||||
10.70 | ||||
10.71 | ||||
10.72 | ||||
10.73 | ||||
10.74 | ||||
10.75 | ||||
10.76 |
87
88
10.89 | ||||
10.90 | ||||
21.1 | ||||
23.1 | ||||
31.1 | ||||
31.2 | ||||
32.1 | ||||
32.2 | ||||
101.INS | ||||
XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
101.SCH | ||||
Inline XBRL Taxonomy Extension Schema Document. | ||||
101.CAL | ||||
Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.LAB | ||||
Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
101.PRE | ||||
Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
101.DEF | ||||
Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
104 | ||||
Cover page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101). |
* A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(b) |
89
SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
Domino’s Pizza, Inc.
PARENT COMPANY CONDENSED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 29, 2019 | December 30, 2018 | |||||||
ASSETS | ||||||||
ASSETS: | ||||||||
Cash | $ | 6 | $ | 6 | ||||
Total assets | $ | 6 | $ | 6 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
LIABILITIES: | ||||||||
Equity in net deficit of subsidiaries | $ | 3,415,759 | $ | 3,039,921 | ||||
Due to subsidiary | 6 | 6 | ||||||
Total liabilities | 3,415,765 | 3,039,927 | ||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Common stock, par value $0.01 per share; 170,000,000 shares authorized; 38,934,009 in 2019 and 40,977,561 in 2018 issued and outstanding | 389 | 410 | ||||||
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, NaN issued | — | — | ||||||
Additional paid-in capital | 243 | 569 | ||||||
Retained deficit | (3,412,649 | ) | (3,036,471 | ) | ||||
Accumulated other comprehensive loss | (3,742 | ) | (4,429 | ) | ||||
Total stockholders’ deficit | (3,415,759 | ) | (3,039,921 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 6 | $ | 6 | ||||
|
| January 1, |
|
| January 2, |
| ||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
|
|
|
|
|
| ||
ASSETS: |
|
|
|
|
|
| ||
Cash |
| $ | 6 |
|
| $ | 6 |
|
Total assets |
| $ | 6 |
|
| $ | 6 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
|
| ||
Equity in net deficit of subsidiaries |
| $ | 4,189,065 |
|
| $ | 4,209,536 |
|
Due to subsidiary |
|
| 6 |
|
|
| 6 |
|
Total liabilities |
|
| 4,189,071 |
|
|
| 4,209,542 |
|
STOCKHOLDERS’ DEFICIT: |
|
|
|
|
|
| ||
Common stock, par value $0.01 per share; 170,000,000 shares authorized; |
|
| 354 |
|
|
| 361 |
|
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, none issued |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 9,693 |
|
|
| 840 |
|
Retained deficit |
|
| (4,194,418 | ) |
|
| (4,207,917 | ) |
Accumulated other comprehensive loss |
|
| (4,694 | ) |
|
| (2,820 | ) |
Total stockholders’ deficit |
|
| (4,189,065 | ) |
|
| (4,209,536 | ) |
Total liabilities and stockholders’ deficit |
| $ | 6 |
|
| $ | 6 |
|
See accompanying notes to the Schedule I.
Domino’s Pizza, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except share and per share amounts)
For the Years Ended | ||||||||||||
December 29, 2019 | December 30, 2018 | December 31, 2017 | ||||||||||
REVENUES | $ | — | $ | — | $ | — | ||||||
Total revenues | — | — | — | |||||||||
OPERATING EXPENSES | — | — | — | |||||||||
Total operating expenses | — | — | — | |||||||||
INCOME FROM OPERATIONS | — | — | — | |||||||||
Equity earnings in subsidiaries | 400,709 | 361,972 | 277,905 | |||||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 400,709 | 361,972 | 277,905 | |||||||||
PROVISION FOR INCOME TAXES | — | — | — | |||||||||
NET INCOME | $ | 400,709 | $ | 361,972 | $ | 277,905 | ||||||
COMPREHENSIVE INCOME | $ | 401,396 | $ | 359,924 | $ | 278,985 | ||||||
EARNINGS PER SHARE: | ||||||||||||
Common Stock – basic | $ | 9.83 | $ | 8.65 | $ | 6.05 | ||||||
Common Stock – diluted | $ | 9.56 | $ | 8.35 | $ | 5.83 |
|
| For the Years Ended |
| |||||||||
|
| January 1, |
|
| January 2, |
|
| January 3, |
| |||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
REVENUES |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Total revenues |
|
| — |
|
|
| — |
|
|
| — |
|
OPERATING EXPENSES |
|
| — |
|
|
| — |
|
|
| — |
|
Total operating expenses |
|
| — |
|
|
| — |
|
|
| — |
|
INCOME FROM OPERATIONS |
|
| — |
|
|
| — |
|
|
| — |
|
Equity earnings in subsidiaries |
|
| 452,263 |
|
|
| 510,467 |
|
|
| 491,296 |
|
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
| 452,263 |
|
|
| 510,467 |
|
|
| 491,296 |
|
PROVISION FOR INCOME TAXES |
|
| — |
|
|
| — |
|
|
| — |
|
NET INCOME |
| $ | 452,263 |
|
| $ | 510,467 |
|
| $ | 491,296 |
|
COMPREHENSIVE INCOME |
| $ | 450,389 |
|
| $ | 510,071 |
|
| $ | 492,614 |
|
EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
| |||
Common Stock – basic |
| $ | 12.66 |
|
| $ | 13.72 |
|
| $ | 12.61 |
|
Common Stock – diluted |
| $ | 12.53 |
|
| $ | 13.54 |
|
| $ | 12.39 |
|
See accompanying notes to the Schedule I.
Domino’s Pizza, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
|
| For the Years Ended |
| |||||||||
|
| January 1, |
|
| January 2, |
|
| January 3, |
| |||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net cash provided by operating activities |
| $ | 458,679 |
|
| $ | 538,741 |
|
| $ | 402,348 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Dividends from subsidiaries |
|
| — |
|
|
| 908,698 |
|
|
| — |
|
Net cash provided by investing activities |
|
| — |
|
|
| 908,698 |
|
|
| — |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Payments of common stock dividends and equivalents |
|
| (157,531 | ) |
|
| (139,399 | ) |
|
| (121,925 | ) |
Purchases of common stock |
|
| (293,740 | ) |
|
| (1,320,902 | ) |
|
| (304,590 | ) |
Other |
|
| (7,408 | ) |
|
| 12,862 |
|
|
| 24,167 |
|
Net cash used in financing activities |
|
| (458,679 | ) |
|
| (1,447,439 | ) |
|
| (402,348 | ) |
CHANGE IN CASH |
|
| — |
|
|
| — |
|
|
| — |
|
CASH, AT BEGINNING OF PERIOD |
|
| 6 |
|
|
| 6 |
|
|
| 6 |
|
CASH, AT END OF PERIOD |
| $ | 6 |
|
| $ | 6 |
|
| $ | 6 |
|
For the Years Ended | ||||||||||||
December 29, 2019 | December 30, 2018 | December 31, 2017 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net cash provided by operating activities | $ | 421,661 | $ | 382,716 | $ | 299,576 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Dividends from subsidiaries | 375,948 | 297,792 | 852,325 | |||||||||
Net cash provided by investing activities | 375,948 | 297,792 | 852,325 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Payments of common stock dividends | (105,715 | ) | (92,166 | ) | (84,298 | ) | ||||||
Purchase of common stock | (699,007 | ) | (591,212 | ) | (1,064,253 | ) | ||||||
Other | 7,113 | 2,870 | (3,350 | ) | ||||||||
Net cash used in financing activities | (797,609 | ) | (680,508 | ) | (1,151,901 | ) | ||||||
CHANGE IN CASH | — | — | — | |||||||||
CASH, AT BEGINNING OF PERIOD | 6 | 6 | 6 | |||||||||
CASH, AT END OF PERIOD | $ | 6 | $ | 6 | $ | 6 | ||||||
See accompanying notes to the Schedule I.
Domino’s Pizza, Inc.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
Domino’s Pizza, Inc., on a stand-alone basis, (the “Parent Company”) has accounted for majority-owned subsidiaries using the equity method of accounting. The accompanying condensed financial statements of the Parent Company should be read in conjunction with the consolidated financial statements of Domino’s Pizza, Inc. and its subsidiaries (the “Company”) and the notes thereto included in Item 8 of this Form
Use of Estimates
The use of estimates is inherent in the preparation of financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates.
New Accounting Pronouncements
The Company has adopted the below new accounting pronouncements that impacted the Parent Company financial statements.
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 606)
In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with CustomersASU 2016-13, Financial Instruments – Credit Losses (Topic 606)has since issued various amendments which provide additional clarificationrequires a consideration of a broader range of reasonable and implementation guidance. This standard has been codified as ASC 606. This guidance outlines a single, comprehensive model for entitiessupportable information to use in accounting for revenue arising from contracts with customers and superseded most revenue recognition guidance issued by the FASB, including industry specific guidance.inform credit loss estimates. On January 1, 2018,December 30, 2019, the Company adopted ASC 606326 using the modified retrospective method.
During 2022, 2021 and Jobs Act of 2017. The Parent Company adopted this standard in 2018 and, as a result, recorded a $0.4 million reclassification from accumulated other comprehensive loss to the beginning balance of retained deficit in 2018.
(in thousands) | Balance Beginning of Year | Provision (Benefit) | Deductions from Reserves * | Balance End of Year | ||||||||||||
Allowance for doubtful accounts receivable: | ||||||||||||||||
2019 | $ | 1,879 | $ | 1,195 | $ | (218 | ) | $ | 2,856 | |||||||
2018 | 1,424 | 903 | (448 | ) | 1,879 | |||||||||||
2017 | 2,342 | (88 | ) | (830 | ) | 1,424 |
Item 16. Form 10-K Summary.
Not applicable.
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
DOMINO’S PIZZA, INC. |
/s/ |
Sandeep Reddy |
Executive Vice President, Chief Financial Officer |
February |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the dates indicated.
/s/ Russell J. Weiner | ||
Russell J. Weiner | Chief Executive Officer and Director | |
February 23, 2023 | (Principal Executive Officer) | |
/s/ | ||
Sandeep Reddy | Executive Vice President, Chief Financial Officer | |
February 23, 2023 | (Principal Financial | |
/s/ Jessica L. Parrish | ||
Jessica L. Parrish | Vice President, Corporate Controller and Treasurer | |
February 23, 2023 | ||
/s/ David A. Brandon | ||
David A. Brandon | Executive Chairman of the Board of Directors | |
February 23, 2023 | ||
/s/ C. Andrew Ballard | ||
C. Andrew Ballard | Director | |
February 23, 2023 | ||
/s/ Andrew B. Balson | ||
Andrew B. Balson | Director | |
February 23, 2023 | ||
/s/ Corie S. Barry | ||
Corie S. Barry | Director | |
February 23, 2023 | ||
/s/ Diana F. Cantor | ||
Diana F. Cantor | Director | |
February 23, 2023 | ||
/s/ Richard L. Federico | ||
Richard L. Federico | Director | |
February 23, 2023 | ||
/s/ James A. Goldman | ||
James A. Goldman | Director | |
February 23, 2023 | ||
/s/ Patricia E. Lopez | ||
Patricia E. Lopez | Director | |
February |
95