UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 6, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number: 001-32242
Domino’s Pizza, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 38-2511577 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
30 Frank Lloyd Wright Drive Ann Arbor, Michigan | 48105 | |
(Address of Principal Executive Offices) | (Zip Code) |
(734) 930-3030
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Domino’s Pizza, Inc. Common Stock, $0.01 par value | DPZ | New York Stock Exchange |
Indicate by check mark whether 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 ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | |||||
Smaller reporting company | ☐ | |||||
Emerging growth company | ☐ |
If an 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule
As of October 1, 2020,7, 2021, Domino’s Pizza, Inc. had39,399,906
Domino’s Pizza, Inc.
TABLE OF CONTENTS
Page No. | ||||||
PART I. | ||||||
Item 1. | 3 | |||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||||
Item 3. | 27 | |||||
Item 4. | 27 | |||||
PART II. | ||||||
Item 1. | 28 | |||||
Item 1A. | 28 | |||||
Item 2. | 28 | |||||
Item 3. | 28 | |||||
Item 4. | 28 | |||||
Item 5. | 28 | |||||
Item 6. | 29 | |||||
30 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) | September 6, 2020 | December 29, 2019 (1) | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 330,719 | $ | 190,615 | ||||
Restricted cash and cash equivalents | 160,330 | 209,269 | ||||||
Accounts receivable, net | 229,403 | 210,260 | ||||||
Inventories | 65,499 | 52,955 | ||||||
Prepaid expenses and other | 26,288 | 19,129 | ||||||
Advertising fund assets, restricted | 144,282 | 105,389 | ||||||
Total current assets | 956,521 | 787,617 | ||||||
Property, plant and equipment: | ||||||||
Land and buildings | 65,581 | 44,845 | ||||||
Leasehold and other improvements | 181,556 | 164,071 | ||||||
Equipment | 274,337 | 243,708 | ||||||
Construction in progress | 14,784 | 42,705 | ||||||
536,258 | 495,329 | |||||||
Accumulated depreciation and amortization | (273,994 | ) | (252,448 | ) | ||||
Property, plant and equipment, net | 262,264 | 242,881 | ||||||
Other assets: | ||||||||
Operating lease right-of-use | 229,653 | 228,785 | ||||||
Goodwill | 15,061 | 15,093 | ||||||
Capitalized software, net | 78,632 | 73,140 | ||||||
Other assets | 72,787 | 24,503 | ||||||
Deferred income taxes | 6,030 | 10,073 | ||||||
Total other assets | 402,163 | 351,594 | ||||||
Total assets | $ | 1,620,948 | $ | 1,382,092 | ||||
Liabilities and stockholders’ deficit | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 43,662 | $ | 43,394 | ||||
Accounts payable | 88,188 | 111,101 | ||||||
Operating lease liabilities | 36,508 | 33,318 | ||||||
Insurance reserves | 23,816 | 23,735 | ||||||
Dividends payable | 31,258 | 471 | ||||||
Advertising fund liabilities | 138,348 | 101,921 | ||||||
Other accrued liabilities | 126,745 | 139,891 | ||||||
Total current liabilities | 488,525 | 453,831 | ||||||
Long-term liabilities: | ||||||||
Long-term debt, less current portion | 4,062,175 | 4,071,055 | ||||||
Operating lease liabilities | 201,981 | 202,731 | ||||||
Insurance reserves | 37,428 | 34,675 | ||||||
Other accrued liabilities | 42,370 | 35,559 | ||||||
Total long-term liabilities | 4,343,954 | 4,344,020 | ||||||
Stockholders’ deficit: | ||||||||
Common stock | 394 | 389 | ||||||
Additional paid-in capital | 34,124 | 243 | ||||||
Retained deficit | (3,242,627 | ) | (3,412,649 | ) | ||||
Accumulated other comprehensive loss | (3,422 | ) | (3,742 | ) | ||||
Total stockholders’ deficit | (3,211,531 | ) | (3,415,759 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,620,948 | $ | 1,382,092 | ||||
(In thousands) |
| September 12, 2021 |
|
| January 3, 2021 (1) |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 295,352 |
|
| $ | 168,821 |
|
Restricted cash and cash equivalents |
|
| 206,274 |
|
|
| 217,453 |
|
Accounts receivable, net |
|
| 238,906 |
|
|
| 244,560 |
|
Inventories |
|
| 64,563 |
|
|
| 66,683 |
|
Prepaid expenses and other |
|
| 34,094 |
|
|
| 24,169 |
|
Advertising fund assets, restricted |
|
| 186,807 |
|
|
| 147,698 |
|
Total current assets |
|
| 1,025,996 |
|
|
| 869,384 |
|
Property, plant and equipment: |
|
|
|
|
|
| ||
Land and buildings |
|
| 95,111 |
|
|
| 88,063 |
|
Leasehold and other improvements |
|
| 189,499 |
|
|
| 186,456 |
|
Equipment |
|
| 309,811 |
|
|
| 292,456 |
|
Construction in progress |
|
| 10,289 |
|
|
| 13,014 |
|
|
|
| 604,710 |
|
|
| 579,989 |
|
Accumulated depreciation and amortization |
|
| (311,335 | ) |
|
| (282,625 | ) |
Property, plant and equipment, net |
|
| 293,375 |
|
|
| 297,364 |
|
Other assets: |
|
|
|
|
|
| ||
Operating lease right-of-use assets |
|
| 218,172 |
|
|
| 228,268 |
|
Goodwill |
|
| 15,034 |
|
|
| 15,061 |
|
Capitalized software, net |
|
| 91,371 |
|
|
| 81,306 |
|
Investments |
|
| 82,500 |
|
|
| 40,000 |
|
Other assets |
|
| 36,324 |
|
|
| 33,881 |
|
Deferred income taxes |
|
| 1,584 |
|
|
| 1,904 |
|
Total other assets |
|
| 444,985 |
|
|
| 400,420 |
|
Total assets |
| $ | 1,764,356 |
|
| $ | 1,567,168 |
|
Liabilities and stockholders' deficit |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Current portion of long-term debt |
| $ | 54,846 |
|
| $ | 2,855 |
|
Accounts payable |
|
| 111,780 |
|
|
| 94,499 |
|
Operating lease liabilities |
|
| 37,093 |
|
|
| 35,861 |
|
Insurance reserves |
|
| 27,900 |
|
|
| 26,377 |
|
Dividends payable |
|
| 35,066 |
|
|
| 729 |
|
Advertising fund liabilities |
|
| 178,539 |
|
|
| 141,175 |
|
Other accrued liabilities |
|
| 151,130 |
|
|
| 169,323 |
|
Total current liabilities |
|
| 596,354 |
|
|
| 470,819 |
|
Long-term liabilities: |
|
|
|
|
|
| ||
Long-term debt, less current portion |
|
| 5,014,705 |
|
|
| 4,116,018 |
|
Operating lease liabilities |
|
| 193,024 |
|
|
| 202,268 |
|
Insurance reserves |
|
| 40,218 |
|
|
| 37,125 |
|
Other accrued liabilities |
|
| 36,958 |
|
|
| 35,244 |
|
Deferred income taxes |
|
| 10,610 |
|
|
| 6,099 |
|
Total long-term liabilities |
|
| 5,295,515 |
|
|
| 4,396,754 |
|
Stockholders' deficit: |
|
|
|
|
|
| ||
Common stock |
|
| 366 |
|
|
| 389 |
|
Additional paid-in capital |
|
| 115 |
|
|
| 5,122 |
|
Retained deficit |
|
| (4,125,582 | ) |
|
| (3,303,492 | ) |
Accumulated other comprehensive loss |
|
| (2,412 | ) |
|
| (2,424 | ) |
Total stockholders' deficit |
|
| (4,127,513 | ) |
|
| (3,300,405 | ) |
Total liabilities and stockholders' deficit |
| $ | 1,764,356 |
|
| $ | 1,567,168 |
|
(1) The condensed consolidated balance sheet at December 29, 2019January 3, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
The accompanying notes are an integral part of these condensed consolidated statements.
3
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended | Three Fiscal Quarters Ended | |||||||||||||||
(In thousands, except per share data) | September 6, 2020 | September 8, 2019 | September 6, 2020 | September 8, 2019 | ||||||||||||
Revenues: | ||||||||||||||||
U.S. Company-owned stores | $ | 113,254 | $ | 94,575 | $ | 329,820 | $ | 323,026 | ||||||||
U.S. franchise royalties and fees | 118,054 | 97,047 | 335,898 | 289,349 | ||||||||||||
Supply chain | 573,661 | 485,110 | 1,625,502 | 1,424,787 | ||||||||||||
International franchise royalties and fees | 54,602 | 54,586 | 160,202 | 164,145 | ||||||||||||
U.S. franchise advertising | 108,148 | 89,494 | 309,422 | 267,115 | ||||||||||||
Total revenues | 967,719 | 820,812 | 2,760,844 | 2,468,422 | ||||||||||||
Cost of sales: | ||||||||||||||||
U.S. Company-owned stores | 90,788 | 71,610 | 258,007 | 247,516 | ||||||||||||
Supply chain | 514,950 | 432,951 | 1,443,608 | 1,265,695 | ||||||||||||
Total cost of sales | 605,738 | 504,561 | 1,701,615 | 1,513,211 | ||||||||||||
Operating margin | 361,981 | 316,251 | 1,059,229 | 955,211 | ||||||||||||
General and administrative | 91,652 | 83,728 | 268,209 | 262,640 | ||||||||||||
U.S. franchise advertising | 108,148 | 89,494 | 309,422 | 267,115 | ||||||||||||
Income from operations | 162,181 | 143,029 | 481,598 | 425,456 | ||||||||||||
Interest income | 197 | 968 | 1,769 | 2,583 | ||||||||||||
Interest expense | (38,605 | ) | (33,752 | ) | (117,802 | ) | (102,672 | ) | ||||||||
Income before provision for income taxes | 123,773 | 110,245 | 365,565 | 325,367 | ||||||||||||
Provision for income taxes | 24,644 | 23,872 | 26,166 | 53,985 | ||||||||||||
Net income | $ | 99,129 | $ | 86,373 | $ | 339,399 | $ | 271,382 | ||||||||
Earnings per share: | ||||||||||||||||
Common stock - basic | $ | 2.53 | $ | 2.11 | $ | 8.70 | $ | 6.63 | ||||||||
Common stock - diluted | 2.49 | 2.05 | 8.54 | 6.44 |
|
| Fiscal Quarter Ended |
|
| Three Fiscal Quarters Ended |
| ||||||||||
|
| September 12, |
|
| September 6, |
|
| September 12, |
|
| September 6, |
| ||||
(In thousands, except per share data) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Company-owned stores |
| $ | 108,416 |
|
| $ | 113,254 |
|
| $ | 337,749 |
|
| $ | 329,820 |
|
U.S. franchise royalties and fees |
|
| 121,624 |
|
|
| 118,054 |
|
|
| 372,946 |
|
|
| 335,898 |
|
Supply chain |
|
| 588,819 |
|
|
| 573,661 |
|
|
| 1,760,119 |
|
|
| 1,625,502 |
|
International franchise royalties and fees |
|
| 70,553 |
|
|
| 54,602 |
|
|
| 207,068 |
|
|
| 160,202 |
|
U.S. franchise advertising |
|
| 108,578 |
|
|
| 108,148 |
|
|
| 336,278 |
|
|
| 309,422 |
|
Total revenues |
|
| 997,990 |
|
|
| 967,719 |
|
|
| 3,014,160 |
|
|
| 2,760,844 |
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Company-owned stores |
|
| 86,932 |
|
|
| 90,788 |
|
|
| 260,693 |
|
|
| 258,007 |
|
Supply chain |
|
| 525,858 |
|
|
| 514,950 |
|
|
| 1,571,426 |
|
|
| 1,443,608 |
|
Total cost of sales |
|
| 612,790 |
|
|
| 605,738 |
|
|
| 1,832,119 |
|
|
| 1,701,615 |
|
Operating margin |
|
| 385,200 |
|
|
| 361,981 |
|
|
| 1,182,041 |
|
|
| 1,059,229 |
|
General and administrative |
|
| 96,342 |
|
|
| 91,652 |
|
|
| 288,043 |
|
|
| 268,209 |
|
U.S. franchise advertising |
|
| 108,578 |
|
|
| 108,148 |
|
|
| 336,278 |
|
|
| 309,422 |
|
Income from operations |
|
| 180,280 |
|
|
| 162,181 |
|
|
| 557,720 |
|
|
| 481,598 |
|
Other income |
|
| 0 |
|
|
| 0 |
|
|
| 2,500 |
|
|
| 0 |
|
Interest income |
|
| 48 |
|
|
| 197 |
|
|
| 138 |
|
|
| 1,769 |
|
Interest expense |
|
| (45,523 | ) |
|
| (38,605 | ) |
|
| (130,822 | ) |
|
| (117,802 | ) |
Income before provision for income taxes |
|
| 134,805 |
|
|
| 123,773 |
|
|
| 429,536 |
|
|
| 365,565 |
|
Provision for income taxes |
|
| 14,403 |
|
|
| 24,644 |
|
|
| 74,754 |
|
|
| 26,166 |
|
Net income |
| $ | 120,402 |
|
| $ | 99,129 |
|
| $ | 354,782 |
|
| $ | 339,399 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock - basic |
| $ | 3.29 |
|
| $ | 2.53 |
|
| $ | 9.43 |
|
| $ | 8.70 |
|
Common stock - diluted |
|
| 3.24 |
|
|
| 2.49 |
|
|
| 9.30 |
|
|
| 8.54 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
4
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Fiscal Quarter Ended | Three Fiscal Quarters Ended | |||||||||||||||
(In thousands) | September 6, 2020 | September 8, 2019 | September 6, 2020 | September 8, 2019 | ||||||||||||
Net income | $ | 99,129 | $ | 86,373 | $ | 339,399 | $ | 271,382 | ||||||||
Currency translation adjustment | 1,113 | 270 | 320 | 491 | ||||||||||||
Comprehensive income | $ | 100,242 | $ | 86,643 | $ | 339,719 | $ | 271,873 | ||||||||
|
| Fiscal Quarter Ended |
|
| Three Fiscal Quarters Ended |
| ||||||||||
|
| September 12, |
|
| September 6, |
|
| September 12, |
|
| September 6, |
| ||||
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income |
| $ | 120,402 |
|
| $ | 99,129 |
|
| $ | 354,782 |
|
| $ | 339,399 |
|
Currency translation adjustment |
|
| (404 | ) |
|
| 1,113 |
|
|
| 12 |
|
|
| 320 |
|
Comprehensive income |
| $ | 119,998 |
|
| $ | 100,242 |
|
| $ | 354,794 |
|
| $ | 339,719 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
5
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Fiscal Quarters Ended | ||||||||
(In thousands) | September 6, 2020 | September 8, 2019 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 339,399 | $ | 271,382 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 44,116 | 40,982 | ||||||
Loss on sale/disposal of assets | 1,530 | 3,141 | ||||||
Amortization of debt issuance costs | 3,853 | 3,288 | ||||||
Provision for deferred income taxes | 3,681 | 1,627 | ||||||
Non-cash equity-based compensation expense | 14,934 | 13,269 | ||||||
Excess tax benefits from equity-based compensation | (56,862 | ) | (19,670 | ) | ||||
Provision for losses on accounts and notes receivable | 1,536 | 774 | ||||||
Changes in operating assets and liabilities | (14,146 | ) | 16,214 | |||||
Changes in advertising fund assets and liabilities, restricted | 32,358 | (6,411 | ) | |||||
Net cash provided by operating activities | 370,399 | 324,596 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (51,163 | ) | (42,676 | ) | ||||
Purchase of investments (Note 9) | (40,000 | ) | – | |||||
Proceeds from sale of assets | 11 | 9,738 | ||||||
Maturities of advertising fund investments, restricted | – | 30,152 | ||||||
Other | 83 | (351 | ) | |||||
Net cash used in investing activities | (91,069 | ) | (3,137 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of long-term debt | 158,000 | – | ||||||
Repayments of long-term debt and finance lease obligations | (190,843 | ) | (91,860 | ) | ||||
Proceeds from exercise of stock options | 26,526 | 10,122 | ||||||
Purchases of common stock | (79,590 | ) | (105,149 | ) | ||||
Tax payments for restricted stock upon vesting | (6,584 | ) | (5,820 | ) | ||||
Payments of common stock dividends and equivalents | (61,093 | ) | (53,598 | ) | ||||
Net cash used in financing activities | (153,584 | ) | (246,305 | ) | ||||
Effect of exchange rate changes on cash | 243 | 139 | ||||||
Change in cash and cash equivalents, restricted cash and cash equivalents | 125,989 | 75,293 | ||||||
Cash and cash equivalents, beginning of period | 190,615 | 25,438 | ||||||
Restricted cash and cash equivalents, beginning of period | 209,269 | 166,993 | ||||||
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 84,040 | 44,988 | ||||||
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 483,924 | 237,419 | ||||||
Cash and cash equivalents, end of period | 330,719 | 66,706 | ||||||
Restricted cash and cash equivalents, end of period | 160,330 | 177,292 | ||||||
Cash and cash equivalents included in advertising fund assets, restricted, end of period | 118,864 | 68,714 | ||||||
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period | $ | 609,913 | $ | 312,712 | ||||
|
| Three Fiscal Quarters Ended |
| |||||
|
| September 12, |
|
| September 6, |
| ||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 354,782 |
|
| $ | 339,399 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 50,219 |
|
|
| 44,116 |
|
Loss on sale/disposal of assets |
|
| 493 |
|
|
| 1,530 |
|
Amortization of debt issuance costs |
|
| 5,770 |
|
|
| 3,853 |
|
Provision for deferred income taxes |
|
| 4,831 |
|
|
| 3,681 |
|
Non-cash equity-based compensation expense |
|
| 19,453 |
|
|
| 14,934 |
|
Excess tax benefits from equity-based compensation |
|
| (18,258 | ) |
|
| (56,862 | ) |
Provision for losses on accounts and notes receivable |
|
| 532 |
|
|
| 1,536 |
|
Unrealized gain on investments |
|
| (2,500 | ) |
|
| — |
|
Changes in operating assets and liabilities |
|
| 20,212 |
|
|
| (14,146 | ) |
Changes in advertising fund assets and liabilities, restricted |
|
| 49,067 |
|
|
| 32,358 |
|
Net cash provided by operating activities |
|
| 484,601 |
|
|
| 370,399 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (50,652 | ) |
|
| (51,163 | ) |
Purchase of investments |
|
| (40,000 | ) |
|
| (40,000 | ) |
Other |
|
| 306 |
|
|
| 94 |
|
Net cash used in investing activities |
|
| (90,346 | ) |
|
| (91,069 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from issuance of long-term debt |
|
| 1,850,000 |
|
|
| 158,000 |
|
Repayments of long-term debt and finance lease obligations |
|
| (896,193 | ) |
|
| (190,843 | ) |
Proceeds from exercise of stock options |
|
| 15,948 |
|
|
| 26,526 |
|
Purchases of common stock |
|
| (1,104,687 | ) |
|
| (79,590 | ) |
Tax payments for restricted stock upon vesting |
|
| (6,817 | ) |
|
| (6,584 | ) |
Payments of common stock dividends and equivalents |
|
| (71,218 | ) |
|
| (61,093 | ) |
Cash paid for financing costs |
|
| (14,938 | ) |
|
| — |
|
Other |
|
| (244 | ) |
|
| — |
|
Net cash used in financing activities |
|
| (228,149 | ) |
|
| (153,584 | ) |
Effect of exchange rate changes on cash |
|
| 58 |
|
|
| 243 |
|
Change in cash and cash equivalents, restricted cash and cash equivalents |
|
| 166,164 |
|
|
| 125,989 |
|
|
|
|
|
|
|
| ||
Cash and cash equivalents, beginning of period |
|
| 168,821 |
|
|
| 190,615 |
|
Restricted cash and cash equivalents, beginning of period |
|
| 217,453 |
|
|
| 209,269 |
|
Cash and cash equivalents included in advertising fund assets, restricted, |
|
| 115,872 |
|
|
| 84,040 |
|
Cash and cash equivalents, restricted cash and cash equivalents and cash and |
|
| 502,146 |
|
|
| 483,924 |
|
|
|
|
|
|
|
| ||
Cash and cash equivalents, end of period |
|
| 295,352 |
|
|
| 330,719 |
|
Restricted cash and cash equivalents, end of period |
|
| 206,274 |
|
|
| 160,330 |
|
Cash and cash equivalents included in advertising fund assets, restricted, |
|
| 166,684 |
|
|
| 118,864 |
|
Cash and cash equivalents, restricted cash and cash equivalents and cash and |
| $ | 668,310 |
|
| $ | 609,913 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
6
Domino’s Pizza, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)
September 6, 2020
1. Basis of Presentation and Updates to Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to FormDecember 29, 2019January 3, 2021 included in the Company’s 20192020 Annual Report on Form20, 202025, 2021 (the “2019“2020 Form
In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter ended September 6, 202012, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3, 2021.2, 2022.
2. Segment Information
The following table summarizestables summarize revenues income from operations and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income, for each of its reportable segments. Intersegment revenues are comprised of sales of food, equipment and supplies from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income 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.
|
| Fiscal Quarters Ended September 12, 2021 and September 6, 2020 |
| |||||||||||||||||||||
|
| U.S. |
|
| Supply |
|
| International |
|
| Intersegment |
|
|
|
|
|
|
| ||||||
|
| Stores |
|
| Chain |
|
| Franchise |
|
| Revenues |
|
| Other |
|
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2021 |
| $ | 338,618 |
|
| $ | 619,840 |
|
| $ | 70,553 |
|
| $ | (31,021 | ) |
| $ | — |
|
| $ | 997,990 |
|
2020 |
|
| 339,456 |
|
|
| 605,481 |
|
|
| 54,602 |
|
|
| (31,820 | ) |
|
| — |
|
|
| 967,719 |
|
Segment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2021 |
| $ | 101,968 |
|
| $ | 53,579 |
|
| $ | 57,311 |
|
| N/A |
|
| $ | (10,010 | ) |
| $ | 202,848 |
| |
2020 |
|
| 101,513 |
|
|
| 51,114 |
|
|
| 44,461 |
|
| N/A |
|
|
| (13,689 | ) |
|
| 183,399 |
|
|
| Three Fiscal Quarters Ended September 12, 2021 and September 6, 2020 |
| |||||||||||||||||||||
|
| U.S. |
|
| Supply |
|
| International |
|
| Intersegment |
|
|
|
|
|
|
| ||||||
|
| Stores |
|
| Chain |
|
| Franchise |
|
| Revenues |
|
| Other |
|
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2021 |
| $ | 1,046,973 |
|
| $ | 1,854,609 |
|
| $ | 207,068 |
|
| $ | (94,490 | ) |
| $ | — |
|
| $ | 3,014,160 |
|
2020 |
|
| 975,140 |
|
|
| 1,717,225 |
|
|
| 160,202 |
|
|
| (91,723 | ) |
|
| — |
|
|
| 2,760,844 |
|
Segment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2021 |
| $ | 321,252 |
|
| $ | 164,723 |
|
| $ | 168,145 |
|
| N/A |
|
| $ | (25,726 | ) |
| $ | 628,394 |
| |
2020 |
|
| 292,724 |
|
|
| 159,455 |
|
|
| 124,375 |
|
| N/A |
|
|
| (34,376 | ) |
|
| 542,178 |
|
Fiscal Quarters Ended September 6, 2020 and September 8, 2019 | ||||||||||||||||||||||||
U.S. Stores | Supply Chain | International Franchise | Intersegment Revenues | Other | Total | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
2020 | $ | 339,456 | $ | 605,481 | $ | 54,602 | $ | (31,820 | ) | $ | — | $ | 967,719 | |||||||||||
2019 | 281,116 | 511,709 | 54,586 | (26,599 | ) | — | 820,812 | |||||||||||||||||
Income from operations | ||||||||||||||||||||||||
2020 | $ | 98,743 | $ | 46,356 | $ | 44,420 | N/A | $ | (27,338 | ) | $ | 162,181 | ||||||||||||
2019 | 80,188 | 40,513 | 42,281 | N/A | (19,953 | ) | 143,029 | |||||||||||||||||
Segment Income | ||||||||||||||||||||||||
2020 | $ | 101,513 | $ | 51,114 | $ | 44,461 | N/A | $ | (13,689 | ) | $ | 183,399 | ||||||||||||
2019 | 82,556 | 44,432 | 42,337 | N/A | (8,172 | ) | 161,153 |
Three Fiscal Quarters Ended September 6, 2020 and September 8, 2019 | ||||||||||||||||||||||||
U.S. Stores | Supply Chain | International Franchise | Intersegment Revenues | Other | Total | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
2020 | $ | 975,140 | $ | 1,717,225 | $ | 160,202 | $ | (91,723 | ) | $ | — | $ | 2,760,844 | |||||||||||
2019 | 879,490 | 1,513,380 | 164,145 | (88,593 | ) | — | 2,468,422 | |||||||||||||||||
Income from operations | ||||||||||||||||||||||||
2020 | $ | 284,324 | $ | 146,193 | $ | 124,252 | N/A | $ | (73,171 | ) | $ | 481,598 | ||||||||||||
2019 | 237,852 | 123,840 | 126,467 | N/A | (62,703 | ) | 425,456 | |||||||||||||||||
Segment Income | ||||||||||||||||||||||||
2020 | $ | 292,724 | $ | 159,455 | $ | 124,375 | N/A | $ | (34,376 | ) | $ | 542,178 | ||||||||||||
2019 | 248,160 | 135,861 | 126,628 | N/A | (27,801 | ) | 482,848 |
The following table reconciles Total Segment Income to consolidated income before provision for income taxes.
|
| Fiscal Quarter Ended |
|
| Three Fiscal Quarters Ended |
| ||||||||||
|
| September 12, |
|
| September 6, |
|
| September 12, |
|
| September 6, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Total Segment Income |
| $ | 202,848 |
|
| $ | 183,399 |
|
| $ | 628,394 |
|
| $ | 542,178 |
|
Depreciation and amortization |
|
| (16,578 | ) |
|
| (15,327 | ) |
|
| (50,219 | ) |
|
| (44,116 | ) |
Loss on sale/disposal of assets |
|
| (37 | ) |
|
| (986 | ) |
|
| (493 | ) |
|
| (1,530 | ) |
Non-cash equity-based compensation expense |
|
| (5,953 | ) |
|
| (4,905 | ) |
|
| (19,453 | ) |
|
| (14,934 | ) |
Recapitalization-related expenses |
|
| — |
|
|
| — |
|
|
| (509 | ) |
|
| — |
|
Income from operations |
|
| 180,280 |
|
|
| 162,181 |
|
|
| 557,720 |
|
|
| 481,598 |
|
Other income |
|
| — |
|
|
| — |
|
|
| 2,500 |
|
|
| — |
|
Interest income |
|
| 48 |
|
|
| 197 |
|
|
| 138 |
|
|
| 1,769 |
|
Interest expense |
|
| (45,523 | ) |
|
| (38,605 | ) |
|
| (130,822 | ) |
|
| (117,802 | ) |
Income before provision for income taxes |
| $ | 134,805 |
|
| $ | 123,773 |
|
| $ | 429,536 |
|
| $ | 365,565 |
|
7
Fiscal Quarter Ended | Three Fiscal Quarters Ended | |||||||||||||||
September 6, 2020 | September 8, 2019 | September 6, 2020 | September 8, 2019 | |||||||||||||
Total Segment Income | $ | 183,399 | $ | 161,153 | $ | 542,178 | $ | 482,848 | ||||||||
Depreciation and amortization | (15,327 | ) | (13,132 | ) | (44,116 | ) | (40,982 | ) | ||||||||
Loss on sale/disposal of assets | (986 | ) | (312 | ) | (1,530 | ) | (3,141 | ) | ||||||||
Non-cash equity-based compensation expense | (4,905 | ) | (4,680 | ) | (14,934 | ) | (13,269 | ) | ||||||||
Income from operations | 162,181 | 143,029 | 481,598 | 425,456 | ||||||||||||
Interest income | 197 | 968 | 1,769 | 2,583 | ||||||||||||
Interest expense | (38,605 | ) | (33,752 | ) | (117,802 | ) | (102,672 | ) | ||||||||
Income before provision for income taxes | $ | 123,773 | $ | 110,245 | $ | 365,565 | $ | 325,367 | ||||||||
3. Earnings Per Share
|
| Fiscal Quarter Ended |
|
| Three Fiscal Quarters Ended |
| ||||||||||
|
| September 12, |
|
| September 6, |
|
| September 12, |
|
| September 6, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income available to common stockholders - basic and diluted |
| $ | 120,402 |
|
| $ | 99,129 |
|
| $ | 354,782 |
|
| $ | 339,399 |
|
Basic weighted average number of shares |
|
| 36,627,660 |
|
|
| 39,246,231 |
|
|
| 37,639,418 |
|
|
| 38,990,149 |
|
Earnings per share – basic |
| $ | 3.29 |
|
| $ | 2.53 |
|
| $ | 9.43 |
|
| $ | 8.70 |
|
Diluted weighted average number of shares |
|
| 37,130,209 |
|
|
| 39,791,805 |
|
|
| 38,144,509 |
|
|
| 39,724,289 |
|
Earnings per share – diluted |
| $ | 3.24 |
|
| $ | 2.49 |
|
| $ | 9.30 |
|
| $ | 8.54 |
|
Fiscal Quarter Ended | Three Fiscal Quarters Ended | |||||||||||||||
September 6, 2020 | September 8, 2019 | September 6, 2020 | September 8, 2019 | |||||||||||||
Net income available to common stockholders - basic and diluted | $ | 99,129 | $ | 86,373 | $ | 339,399 | $ | 271,382 | ||||||||
Basic weighted average number of shares | 39,246,231 | 40,954,279 | 38,990,149 | 40,947,693 | ||||||||||||
Earnings per share – basic | $ | 2.53 | $ | 2.11 | $ | 8.70 | $ | 6.63 | ||||||||
Diluted weighted average number of shares | 39,791,805 | 42,040,291 | 39,724,289 | 42,158,447 | ||||||||||||
Earnings per share – diluted | $ | 2.49 | $ | 2.05 | $ | 8.54 | $ | 6.44 |
The denominators used in calculating diluted earnings per share for the third quarter and three fiscal quarters of 2020 did not include 52,390 and 53,130 options to purchase common stock, respectively, as the effect of including these options would have been anti-dilutive. The denominators used in calculating diluted earnings per share for the third quarter and three fiscal quarters of 2020 each did not include 118,518 restricted performance shares, as the performance targets for these awards had not yet been met.
4. Changes in Stockholders’ Deficit
The following table summarizes changes in stockholders’ deficit for the third quarter of 2020.
Additional Paid-in Capital | Retained Deficit | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Common Stock | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at June 14, 2020 | 39,347,213 | $ | 393 | $ | 32,251 | $ | (3,311,015 | ) | $ | (4,535 | ) | |||||||||
Net income | — | — | — | 99,129 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($ 0.78per share) | — | — | — | (30,741 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 32,676 | 1 | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (12,195 | ) | — | (4,757 | ) | — | — | |||||||||||||
Exercise of stock options | 24,781 | — | 1,725 | — | — | |||||||||||||||
Non-cash equity-based compensation expense | — | — | 4,905 | — | — | |||||||||||||||
Currency translation adjustment | — | — | — | — | 1,113 | |||||||||||||||
Balance at September 6, 2020 | 39,392,475 | $ | 394 | $ | 34,124 | $ | (3,242,627 | ) | $ | (3,422 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| |||||
Balance at June 20, 2021 |
|
| 36,853,571 |
|
| $ | 369 |
|
| $ | 7,771 |
|
| $ | (4,146,702 | ) |
| $ | (2,008 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120,402 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,400 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 938 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (11,918 | ) |
|
| — |
|
|
| (5,730 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (391,007 | ) |
|
| (4 | ) |
|
| (14,801 | ) |
|
| (64,882 | ) |
|
| — |
|
Exercise of stock options |
|
| 113,903 |
|
|
| 1 |
|
|
| 6,922 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 5,953 |
|
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (404 | ) |
Balance at September 12, 2021 |
|
| 36,565,487 |
|
| $ | 366 |
|
| $ | 115 |
|
| $ | (4,125,582 | ) |
| $ | (2,412 | ) |
The following table summarizes changes in stockholders’ deficit for the three fiscal quarters of 2020.2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| |||||
Balance at January 3, 2021 |
|
| 38,868,350 |
|
| $ | 389 |
|
| $ | 5,122 |
|
| $ | (3,303,492 | ) |
| $ | (2,424 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 354,782 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (105,555 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| (980 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (14,819 | ) |
|
| — |
|
|
| (6,817 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (2,469,473 | ) |
|
| (25 | ) |
|
| (33,345 | ) |
|
| (1,071,317 | ) |
|
| — |
|
Exercise of stock options |
|
| 182,409 |
|
|
| 2 |
|
|
| 15,946 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 19,453 |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Balance at September 12, 2021 |
|
| 36,565,487 |
|
| $ | 366 |
|
| $ | 115 |
|
| $ | (4,125,582 | ) |
| $ | (2,412 | ) |
8
Additional Paid-in Capital | Retained Deficit | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Common Stock | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at December 29, 2019 | 38,934,009 | $ | 389 | $ | 243 | $ | (3,412,649 | ) | $ | (3,742 | ) | |||||||||
Net income | — | — | — | 339,399 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($2.34 per share) | — | — | — | (91,880 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 38,389 | 1 | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (18,215 | ) | — | (6,584 | ) | — | — | |||||||||||||
Purchases of common stock | (271,064 | ) | (3 | ) | (988 | ) | (78,599 | ) | — | |||||||||||
Exercise of stock options | 709,356 | 7 | 26,519 | — | — | |||||||||||||||
Non-cash equity-based compensation expense | — | — | 14,934 | — | — | |||||||||||||||
Adoption of ASC 326 (Note 10) | — | — | — | 1,102 | — | |||||||||||||||
Currency translation adjustment | — | — | — | — | 320 | |||||||||||||||
Balance at September 6, 2020 | 39,392,475 | $ | 394 | $ | 34,124 | $ | (3,242,627 | ) | $ | (3,422 | ) | |||||||||
On April 30, 2021, the Company entered into a $1.0 billion accelerated share repurchase agreement (the “ASR Agreement”) with a counterparty. Refer to Note 5 for additional information related to this transaction.
On July 20, 2021, the Company’s Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of the Company’s common stock. This repurchase program replaced the Company’s previously approved $1.0 billion share repurchase program, which was fully utilized in connection with the ASR Agreement. During the third quarter of 2021, the Company repurchased and retired 391,007 shares of its common stock, including 238,190 shares received at settlement of the ASR Agreement and 152,817 shares of its common stock under this Board of Directors-approved share repurchase program for a total of approximately $79.7 million. During the three fiscal quarters of 2021, the Company repurchased and retired 2,469,473 shares of its common stock, including the 2,250,786 shares of common stock repurchased under the ASR Agreement and 218,687 shares of common stock repurchased under the Company's Board of Directors-approved share repurchase program for a total of approximately $1.1 billion. As of September 12, 2021, the end of the third quarter, the Company had a total remaining authorized amount for share repurchases of approximately $920.3 million. Subsequent to the end of the third quarter and through October 12, 2021, the Company repurchased and retired an additional 205,145 shares of common stock for a total of approximately $100.1 million.
Subsequent to the end of the third quarter, on October 6, 2020,12, 2021, the Company’s Board of Directors declared a $0.78$0.94 per share quarterly dividend on its outstanding common stock for shareholders of record as of December 15, 20202021, to be paid on December 30, 2020.
The following table summarizes changes in stockholders’ deficit for the third quarter of 2019.
Additional Paid-in Capital | Retained Deficit | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Common Stock | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at June 16, 2019 | 41,232,358 | $ | 412 | $ | 10,788 | $ | (2,911,278 | ) | $ | (4,208 | ) | |||||||||
Net income | — | — | — | 86,373 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($0.65 per share) | — | — | — | (26,569 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 45,479 | — | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (12,603 | ) | — | (3,253 | ) | — | — | |||||||||||||
Purchases of common stock | (384,338 | ) | (3 | ) | (12,972 | ) | (80,721 | ) | — | |||||||||||
Exercise of stock options | 18,100 | — | 832 | — | — | |||||||||||||||
Non-cash equity-based compensation expense | — | — | 4,680 | — | — | |||||||||||||||
Currency translation adjustment | — | — | — | — | 270 | |||||||||||||||
Balance at September 8, 2019 | 40,898,996 | $ | 409 | $ | 75 | $ | (2,932,195 | ) | $ | (3,938 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| |||||
Balance at June 14, 2020 |
|
| 39,347,213 |
|
| $ | 393 |
|
| $ | 32,251 |
|
| $ | (3,311,015 | ) |
| $ | (4,535 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 99,129 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,741 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 32,676 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (12,195 | ) |
|
| — |
|
|
| (4,757 | ) |
|
| — |
|
|
| — |
|
Exercise of stock options |
|
| 24,781 |
|
|
| — |
|
|
| 1,725 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 4,905 |
|
|
| — |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,113 |
|
Balance at September 6, 2020 |
|
| 39,392,475 |
|
| $ | 394 |
|
| $ | 34,124 |
|
| $ | (3,242,627 | ) |
| $ | (3,422 | ) |
The following table summarizes changes in stockholders’ deficit for the three fiscal quarters of 2019.2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
| |||||
Balance at December 29, 2019 |
|
| 38,934,009 |
|
| $ | 389 |
|
| $ | 243 |
|
| $ | (3,412,649 | ) |
| $ | (3,742 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 339,399 |
|
|
| — |
|
Dividends declared on common stock and equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (91,880 | ) |
|
| — |
|
Issuance and cancellation of stock awards, net |
|
| 38,389 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax payments for restricted stock upon vesting |
|
| (18,215 | ) |
|
| — |
|
|
| (6,584 | ) |
|
| — |
|
|
| — |
|
Purchases of common stock |
|
| (271,064 | ) |
|
| (3 | ) |
|
| (988 | ) |
|
| (78,599 | ) |
|
| — |
|
Exercise of stock options |
|
| 709,356 |
|
|
| 7 |
|
|
| 26,519 |
|
|
| — |
|
|
| — |
|
Non-cash equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 14,934 |
|
|
| — |
|
|
| — |
|
Adoption of credit losses standard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102 |
|
|
| — |
|
Currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 320 |
|
Balance at September 6, 2020 |
|
| 39,392,475 |
|
| $ | 394 |
|
| $ | 34,124 |
|
| $ | (3,242,627 | ) |
| $ | (3,422 | ) |
9
5. Recapitalization
On April 16, 2021 (the “closing date”), the Company completed a recapitalization transaction (the “2021 Recapitalization”) in which certain of the Company’s subsidiaries issued new notes pursuant to an asset-backed securitization. The new 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 A-2-I Fixed Rate 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 (collectively with the 2021 A-2-I Fixed Rate Notes, the “2021 Notes”) in an offering exempt from registration under the Securities Act of 1933, as amended. As of September 12, 2021, the 2021 Notes had scheduled principal payments of $4.6 million in 2021, $18.5 million in each of 2022 through 2027, $804.8 million in 2028, $10.0 million in each of 2029 and 2030 and $905.0 million in 2031. Gross proceeds from the issuance of the 2021 Notes were $1.85 billion.
Concurrently, certain of the Company’s 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”). The 2021 Variable Funding Notes were undrawn on the closing date. In connection with the issuance of the 2021 Variable Funding Notes, the Company’s previous $200.0 million variable funding note facility was canceled.
A portion of proceeds from the 2021 Recapitalization was used to repay the remaining $291.0 million in outstanding principal under the Company’s 2017 five-year floating rate notes and $582.0 million in outstanding principal under the Company’s 2017 five-year fixed rate notes, prefund a portion of the interest payable on the 2021 Notes and pay transaction fees and expenses. In connection with the repayment of the 2017 five-year floating rate notes and 2017 five-year fixed rate notes, the Company expensed approximately $2.0 million for the remaining unamortized debt issuance costs associated with these notes. Additionally, in connection with the 2021 Recapitalization, the Company capitalized $14.9 million of debt issuance costs, which are being amortized into interest expense over the 7.5 and 10-year expected terms of the 2021 Notes.
As of the fourth quarter of 2020, the Company had a leverage ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payment for its then-outstanding notes beginning in the first quarter of 2021. Accordingly, all principal amounts of the Company’s outstanding notes were classified as long-term debt in the condensed consolidated balance sheet as of January 3, 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 on its notes in the second quarter of 2021.
On April 30, 2021, the Company entered into the $1.0 billion ASR Agreement. Pursuant to the terms of the ASR Agreement, on May 3, 2021, the Company 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 its common stock. Final settlement of the ASR Agreement occurred on July 21, 2021. In connection with the ASR Agreement, the Company received and retired a total of 2,250,786 shares of its common stock at an average price of $444.29.
10
Additional Paid-in Capital | Retained Deficit | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Common Stock | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at December 30, 2018 | 40,977,561 | $ | 410 | $ | 569 | $ | (3,036,471 | ) | $ | (4,429 | ) | |||||||||
Net income | — | — | — | 271,382 | — | |||||||||||||||
Dividends declared on common stock and equivalents ($1.95 per share) | — | — | — | (80,023 | ) | — | ||||||||||||||
Issuance and cancellation of stock awards, net | 50,640 | — | — | — | — | |||||||||||||||
Tax payments for restricted stock upon vesting | (22,044 | ) | — | (5,820 | ) | — | — | |||||||||||||
Purchases of common stock | (430,182 | ) | (4 | ) | (18,062 | ) | (87,083 | ) | — | |||||||||||
Exercise of stock options | 323,021 | 3 | 10,119 | — | — | |||||||||||||||
Non-cash equity-based compensation expense | — | — | 13,269 | — | — | |||||||||||||||
Currency translation adjustment | — | — | — | — | 491 | |||||||||||||||
Balance at September 8, 2019 | 40,898,996 | $ | 409 | $ | 75 | $ | (2,932,195 | ) | $ | (3,938 | ) | |||||||||
6. Fair Value Measurements
Fair value measurements enable 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. 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 Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets. The fair value of the Company’s Level 3 investment (Note 9) is not readily determinable. The fair value represents its 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.
The following tables summarize the carrying amounts and estimated fair values of certain assets at September 6,12, 2021 and January 3, 2021:
|
| At September 12, 2021 |
| |||||||||||||
|
|
|
|
| Fair Value Estimated Using |
| ||||||||||
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
| ||||
Cash equivalents |
| $ | 247,009 |
|
| $ | 247,009 |
|
| $ | — |
|
| $ | — |
|
Restricted cash equivalents |
|
| 131,725 |
|
|
| 131,725 |
|
|
| — |
|
|
| — |
|
Investments in marketable securities |
|
| 15,103 |
|
|
| 15,103 |
|
|
| — |
|
|
| — |
|
Advertising fund cash equivalents, restricted |
|
| 151,763 |
|
|
| 151,763 |
|
|
| — |
|
|
| — |
|
Investments |
|
| 82,500 |
|
|
| — |
|
|
| — |
|
|
| 82,500 |
|
|
| At January 3, 2021 |
| |||||||||||||
|
|
|
|
| Fair Value Estimated Using |
| ||||||||||
|
| Carrying |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
| Amount |
|
| Inputs |
|
| Inputs |
|
| Inputs |
| ||||
Cash equivalents |
| $ | 151,502 |
|
| $ | 151,502 |
|
| $ | — |
|
| $ | — |
|
Restricted cash equivalents |
|
| 126,595 |
|
|
| 126,595 |
|
|
| — |
|
|
| — |
|
Investments in marketable securities |
|
| 13,251 |
|
|
| 13,251 |
|
|
| — |
|
|
| — |
|
Advertising fund cash equivalents, restricted |
|
| 104,197 |
|
|
| 104,197 |
|
|
| — |
|
|
| — |
|
Investments |
|
| 40,000 |
|
|
| — |
|
|
| — |
|
|
| 40,000 |
|
During the second quarter of 2020, a subsidiary of the Company acquired a non-controlling interest in Dash Brands Ltd., a privately-held business company limited by shares incorporated with limited liability under the laws of the British Virgin Islands (“Dash Brands”), for $40.0 million. Through its subsidiaries, Dash Brands serves as the Company’s master franchisee in China that owns and December 29, 2019:
At September 6, 2020 | ||||||||||||||||
Fair Value Estimated Using | ||||||||||||||||
Carrying Amount | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | |||||||||||||
Cash equivalents | $ | 276,905 | $ | 276,905 | $ | — | $ | — | ||||||||
Restricted cash equivalents | 102,763 | 102,763 | — | — | ||||||||||||
Investments in marketable securities | 12,043 | 12,043 | — | — | ||||||||||||
Advertising fund cash equivalents, restricted | 97,190 | 97,190 | — | — | ||||||||||||
Investments (Note 9) | 40,000 | — | — | 40,000 |
At December 29, 2019 | ||||||||||||||||
Fair Value Estimated Using | ||||||||||||||||
Carrying Amount | 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 | — | — |
In the first quarter of 2021, the Company managementinvested an additional $40.0 million in Dash Brands based on Dash Brands’ achievement of certain pre-established performance conditions. In the first quarter of 2021, the Company 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. This amount was recorded in other income in the Company’s condensed consolidated statements of income. The Company did not record any adjustments to the carrying amount of $82.5 million in the second or third quarter of 2021.
The following table summarizes the reconciliation of the carrying amount of the Company’s investment in Dash Brands from the opening balance at January 3, 2021 to the closing balance at September 12, 2021.
|
| Three Fiscal Quarters of 2021 |
| |||||||||||||
|
| Carrying Amount |
|
|
|
|
|
|
|
| Carrying Amount |
| ||||
|
| January 3, |
|
|
|
|
| Unrealized |
|
| September 12, |
| ||||
|
| 2021 |
|
| Purchases |
|
| Gain |
|
| 2021 |
| ||||
Investments |
| $ | 40,000 |
|
| $ | 40,000 |
|
| $ | 2,500 |
|
| $ | 82,500 |
|
11
Fair Value of Debt
The estimated the approximate fair values of the 2015 fixed rate notes, the 2017 fixed and floating rate notes, the 2018 fixed rate notes and the 2019 fixed rate notes as follows:
September 6, 2020 | December 29, 2019 | |||||||||||||||
Principal Amount | Fair Value | Principal Amount | Fair Value | |||||||||||||
2015 Ten-Year Fixed Rate Notes | $ | 768,000 | $ | 821,760 | $ | 774,000 | $ | 804,960 | ||||||||
2017 Five-Year Fixed Rate Notes | 583,500 | 585,251 | 588,000 | 588,588 | ||||||||||||
2017 Ten-Year Fixed Rate Notes | 972,500 | 1,046,410 | 980,000 | 1,017,240 | ||||||||||||
2017 Five-Year Floating Rate Notes | 291,750 | 291,458 | 294,000 | 294,000 | ||||||||||||
2018 7.5-Year Fixed Rate Notes | 416,500 | 443,156 | 419,688 | 431,439 | ||||||||||||
2018 9.25-Year Fixed Rate Notes | 392,000 | 425,320 | 395,000 | 414,355 | ||||||||||||
2019 Ten-Year Fixed Rate Notes | 669,938 | 706,114 | 675,000 | 675,675 |
Management estimated the approximate fair values of the 2015 fixed rate notes, are a variablethe 2017 fixed and floating rate loannotes, the 2018 fixed rate notes, the 2019 fixed rate notes and the fair value of this loan approximates book value based on the borrowing rates currently available for variable2021 fixed rate loans obtained from third party lending institutions. This fair value represents a Level 2 measurement.notes as follows:
|
| September 12, 2021 |
|
| January 3, 2021 |
| ||||||||||
|
| Principal Amount |
|
| Fair Value |
|
| Principal Amount |
|
| Fair Value |
| ||||
2015 Ten-Year Fixed Rate Notes |
| $ | 762,000 |
|
| $ | 794,766 |
|
| $ | 766,000 |
|
| $ | 809,662 |
|
2017 Five-Year Fixed Rate Notes |
|
| — |
|
|
| — |
|
|
| 582,000 |
|
|
| 582,582 |
|
2017 Ten-Year Fixed Rate Notes |
|
| 965,000 |
|
|
| 1,028,690 |
|
|
| 970,000 |
|
|
| 1,035,960 |
|
2017 Five-Year Floating Rate Notes |
|
| — |
|
|
| — |
|
|
| 291,000 |
|
|
| 291,000 |
|
2018 7.5-Year Fixed Rate Notes |
|
| 413,313 |
|
|
| 429,018 |
|
|
| 415,438 |
|
|
| 437,456 |
|
2018 9.25-Year Fixed Rate Notes |
|
| 389,000 |
|
|
| 420,898 |
|
|
| 391,000 |
|
|
| 422,280 |
|
2019 Ten-Year Fixed Rate Notes |
|
| 664,875 |
|
|
| 715,406 |
|
|
| 668,250 |
|
|
| 712,355 |
|
2021 7.5-Year Fixed Rate Notes |
|
| 847,875 |
|
|
| 880,094 |
|
|
| — |
|
|
| — |
|
2021 Ten-Year Fixed Rate Notes |
|
| 997,500 |
|
|
| 1,053,360 |
|
|
| — |
|
|
| — |
|
The Company borrowed $158.0 million under its variable funding notes in the second quarter of 2020. The Company repaid $100.0 million of these borrowings in the second quarter of 2020 and
7. Revenue Disclosures
Contract Liabilities
Contract liabilities primarily consist of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $4.8 million and $4.1 million were included in current other accrued liabilities as of September 12, 2021 and January 3, 2021, respectively. Deferred franchise fees and deferred development fees of $15.1 million and $15.0 million were included in long-term other accrued liabilities as of September 12, 2021 and January 3, 2021, respectively.
Changes in deferred franchise fees and deferred development fees for the three fiscal quarters of 2021 and the three fiscal quarters of 2020 were as follows:
|
| Three Fiscal Quarters Ended |
| |||||
|
| September 12, |
|
| September 6, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Deferred franchise fees and deferred development fees at beginning of period |
| $ | 19,090 |
|
| $ | 20,463 |
|
Revenue recognized during the period |
|
| (3,944 | ) |
|
| (4,302 | ) |
New deferrals due to cash received and other |
|
| 4,784 |
|
|
| 3,937 |
|
Deferred franchise fees and deferred development fees at end of period |
| $ | 19,930 |
|
| $ | 20,098 |
|
Three Fiscal Quarters Ended | ||||||||
September 6, 2020 | September 8, 2019 | |||||||
Deferred franchise fees and deferred development fees at beginning of period | $ | 20,463 | $ | 19,900 | ||||
Revenue recognized during the period | (4,302 | ) | (3,923 | ) | ||||
New deferrals due to cash received and other | 3,937 | 4,613 | ||||||
Deferred franchise fees and deferred development fees at end of period | $ | 20,098 | $ | 20,590 | ||||
Advertising Fund Assets
As of September 6, 2020,12, 2021, advertising fund assets, restricted of $144.3$186.8 million consisted of $118.9$166.7 million of cash and cash equivalents, $20.5$18.7 million of accounts receivable and $4.9$1.4 million of prepaid expenses. As of September 6, 2020,12, 2021, advertising fund cash and cash equivalents included $6.0 million of cash contributed from Company-owned stores that had not yet been expended.
As of January 3, 2021, advertising fund assets, restricted of $147.7 million consisted of $115.9 million of cash and cash equivalents, $27.0 million of accounts receivable and $4.8 million of prepaid expenses. As of January 3, 2021, advertising fund cash and cash equivalents included $6.5 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
12
8. Leases
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 the third quarter and three fiscal quarters of 20202021 and the third quarter and three fiscal quarters of 20192020 were as follows:
|
| Fiscal Quarter Ended |
|
| Three Fiscal Quarters Ended |
| ||||||||||
|
| September 12, |
|
| September 6, |
|
| September 12, |
|
| September 6, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Operating lease cost |
| $ | 10,451 |
|
| $ | 10,267 |
|
| $ | 31,201 |
|
| $ | 30,099 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of right-of-use assets |
|
| 1,022 |
|
|
| 548 |
|
|
| 2,944 |
|
|
| 1,248 |
|
Interest on lease liabilities |
|
| 1,050 |
|
|
| 794 |
|
|
| 2,798 |
|
|
| 2,066 |
|
Total finance lease cost |
| $ | 2,072 |
|
| $ | 1,342 |
|
| $ | 5,742 |
|
| $ | 3,314 |
|
Fiscal Quarter Ended | Three Fiscal Quarters Ended | |||||||||||||||
September 6, 2020 | September 8, 2019 | September 6, 2020 | September 8, 2019 | |||||||||||||
Operating lease cost | $ | 10,267 | $ | 9,150 | $ | 30,099 | $ | 29,464 | ||||||||
Finance lease cost: | ||||||||||||||||
Amortization of right-of-use | 548 | 254 | 1,248 | 763 | ||||||||||||
Interest on lease liabilities | 794 | 473 | 2,066 | 1,269 | ||||||||||||
Total finance lease cost | $ | 1,342 | $ | 727 | $ | 3,314 | $ | 2,032 | ||||||||
Rent expense totaled $17.4$18.3 million and $50.0$54.4 million in the third quarter and three fiscal quarters of 2021, respectively. Rent expense totaled $17.4 million and $50.0 million in the third quarter and three fiscal quarters of 2020, respectively, and totaled $16.1 million and $48.4 million in the third quarter and three fiscal quarters of 2019, respectively. Rent expense includes operating lease cost, as well as expense forand 2019, respectively.
Supplemental balance sheet information related to the Company’s finance leases as of September 6, 202012, 2021 and December 29, 2019January 3, 2021 was as follows:
September 6, 2020 | December 29, 2019 | |||||||
Land and buildings | $ | 45,992 | $ | 25,476 | ||||
Accumulated depreciation and amortization | (9,208 | ) | (7,846 | ) | ||||
Finance lease assets, net | $ | 36,784 | $ | 17,630 | ||||
Current portion of long-term debt | $ | 1,662 | $ | 1,394 | ||||
Long-term debt, less current portion | 36,986 | 18,263 | ||||||
Total principal payable on finance leases | $ | 38,648 | $ | 19,657 | ||||
|
| September 12, |
|
| January 3, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Land and buildings |
| $ | 74,085 |
|
| $ | 68,084 |
|
Accumulated depreciation and amortization |
|
| (12,991 | ) |
|
| (10,049 | ) |
Finance lease assets, net |
| $ | 61,094 |
|
| $ | 58,035 |
|
|
|
|
|
|
|
| ||
Current portion of long-term debt |
| $ | 3,346 |
|
| $ | 2,855 |
|
Long-term debt, less current portion |
|
| 61,180 |
|
|
| 57,700 |
|
Total principal payable on finance leases |
| $ | 64,526 |
|
| $ | 60,555 |
|
As of September 6, 202012, 2021 and December 29, 2019,January 3, 2021, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:
|
| September 12, 2021 |
| January 3, 2021 | ||||
|
| Operating |
| Finance |
| Operating |
| Finance |
|
| Leases |
| Leases |
| Leases |
| Leases |
Weighted average remaining lease term |
| 7 years |
| 15 years |
| 7 years |
| 16 years |
Weighted average discount rate |
| 3.7% |
| 6.5% |
| 3.7% |
| 6.8% |
September 6, 2020 | December 29, 2019 | |||||||||||||||
Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
Weighted average remaining lease term | 7 years | 17 years | 8 years | 14 years | ||||||||||||
Weighted average discount rate | 3.8 | % | 8.9 | % | 3.8 | % | 11.7 | % |
Supplemental cash flow information related to leases for the third quarter and three fiscal quarters of 20202021 and the third quarter and three fiscal quarters of 2019 was2020 were as follows:
|
| Fiscal Quarter Ended |
|
| Three Fiscal Quarters Ended |
| ||||||||||
|
| September 12, |
|
| September 6, |
|
| September 12, |
|
| September 6, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating cash flows from operating leases |
| $ | 10,236 |
|
| $ | 9,288 |
|
| $ | 29,528 |
|
| $ | 29,455 |
|
Operating cash flows from finance leases |
|
| 1,050 |
|
|
| 794 |
|
|
| 2,798 |
|
|
| 2,066 |
|
Financing cash flows from finance leases |
|
| 771 |
|
|
| 348 |
|
|
| 2,068 |
|
|
| 1,388 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating leases |
|
| 7,785 |
|
|
| 10,719 |
|
|
| 19,138 |
|
|
| 26,297 |
|
Finance leases |
|
| 390 |
|
|
| 1,717 |
|
|
| 6,050 |
|
|
| 20,463 |
|
13
Fiscal Quarter Ended | Three Fiscal Quarters Ended | |||||||||||||||
September 6, | September 8, | September 6, | September 8, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flows from operating leases | $ | 9,288 | $ | 9,968 | $ | 29,455 | $ | 30,056 | ||||||||
Operating cash flows from finance leases | 794 | 473 | 2,066 | 1,269 | ||||||||||||
Financing cash flows from finance leases | 348 | 161 | 1,388 | 422 | ||||||||||||
Right-of-use | ||||||||||||||||
Operating leases | 10,719 | 23,434 | 26,297 | 49,802 | ||||||||||||
Finance leases | 1,717 | — | 20,463 | — |
Maturities of lease liabilities as of September 6, 202012, 2021 were as follows:
|
| Operating |
|
| Finance |
| ||
|
| Leases |
|
| Leases |
| ||
2021 |
| $ | 16,203 |
|
| $ | 2,394 |
|
2022 |
|
| 44,458 |
|
|
| 7,197 |
|
2023 |
|
| 39,019 |
|
|
| 6,759 |
|
2024 |
|
| 37,769 |
|
|
| 7,216 |
|
2025 |
|
| 31,375 |
|
|
| 7,018 |
|
Thereafter |
|
| 92,261 |
|
|
| 74,509 |
|
Total future minimum rental commitments |
|
| 261,085 |
|
|
| 105,093 |
|
Less – amounts representing interest |
|
| (30,968 | ) |
|
| (40,567 | ) |
Total lease liabilities |
| $ | 230,117 |
|
| $ | 64,526 |
|
Operating | Finance | |||||||
Leases | Leases | |||||||
2020 | $ | 15,170 | $ | 1,275 | ||||
2021 | 42,865 | 4,965 | ||||||
2022 | 40,942 | 5,016 | ||||||
2023 | 35,519 | 5,075 | ||||||
2024 | 34,148 | 4,870 | ||||||
Thereafter | 106,034 | 53,491 | ||||||
Total future minimum rental commitments | 274,678 | 74,692 | ||||||
Less – amounts representing interest | (36,189 | ) | (36,044 | ) | ||||
Total lease liabilities | $ | 238,489 | $ | 38,648 | ||||
As of September 6, 2020,12, 2021, the Company has additional leases for one supply chain center and certain supply chain tractors and trailers that had not yet commenced with estimated future minimum rental commitments of approximately $28.8$66.6 million. These leases are expected to commence in 20202021 and 2022 with lease terms of up to 15 years.16 years. These undiscounted amounts are not included in the table above.
The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guaranteeswas
9. Supplemental Disclosures of Cash Flow Information
The Company had$5.1$4.0 million at September 6, 202012, 2021 and $6.9December 29, 2019.
10. Equity Incentive Plans
The Company is contractually required to invest an additional $40.0 million in Dash Brands inCompany’s current equity incentive plan, named the first quarterDomino’s Pizza, Inc. 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan”), benefits certain of the Company’s employees and members of the Company’s Board of Directors. In the three fiscal quarters of 2021, assumingthe Company granted non-qualified stock options, restricted stock awards, restricted stock units and performance-based restricted stock units to certain performance conditions are satisfied. If such performance conditions are not satisfied,employees and members of its Board of Directors under the 2004 Equity Incentive Plan. As a result of the changes to the characteristics and types of awards granted to date in 2021 under the 2004 Equity Incentive Plan, the Company has included disclosure of the nature and terms of these awards granted in the three fiscal quarters of 2021, as well as the methods used to estimate their fair values below.
The cost of all employee stock options, as well as other equity-based compensation arrangements, is reflected in the condensed consolidated statements of income based on the estimated fair value of the awards and is amortized over the requisite service period of each award. All non-cash compensation expense amounts are recorded in general and administrative expense.
Stock Options
Stock options granted in fiscal 2021 were granted with an exercise price equal to the market price of the Company’s common stock 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, generally subject to the 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 eligibility of holders that have achieved specified service and age requirements. Management estimated the fair value of each option grant using the Black-Scholes option 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 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.
14
Other Equity-Based Compensation Arrangements
Restricted stock awards granted to make such additional investmentatits discretion.
Restricted stock units granted in fiscal 2021 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 separated into 2 or 3 tranches and have time-based ratable 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 specified service and age requirements.
Performance-based restricted stock units granted in fiscal 2021 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 0 percent and 200 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 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.
11. New Accounting Pronouncements
Recently Adopted Accounting Standard
Accounting Standards Update (“ASU”) 2019-12, Income Taxes – Credit LossesSimplifying the Accounting for Income Taxes (Topic 326)
In June 2016,December 2019, the Financial Accounting Standards Board (“FASB”) issuedStandard Updatefor Income Taxes (“ASU”ASU 2019-12”)2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASC 326 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates., which simplifies the accounting for income taxes. ASU 2019-12 was effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company adopted this accounting standard as of December 30, 2019,in the first dayquarter of its 2020 fiscal year, using the modified retrospective approach2021, and it did not have a material impact on its condensed consolidated financial statements.
Balance at December 29, 2019 | Adjustments Due to ASC 326 | Balance at December 30, 2019 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Accounts receivable, net | $ | 210,260 | $ | 1,435 | $ | 211,695 | ||||||
Prepaid expenses and other | 19,129 | 4 | 19,133 | |||||||||
Other assets: | ||||||||||||
Other assets | 12,521 | 27 | 12,548 | |||||||||
Deferred income taxes | 10,073 | (364 | ) | 9,709 | ||||||||
Liabilities and stockholders’ deficit | ||||||||||||
Stockholders’ deficit: | ||||||||||||
Retained deficit | (3,412,649 | ) | 1,102 | (3,411,547 | ) |
Accounting Standards Not Yet Adopted
The Company has considered all new accounting standards issued by the FASB. The Company has not yet completed its assessment of the following standards.
ASU2019-12,Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740)
In March 2020, the FASB issuedTheSubsequent to the closing of the 2021 Recapitalization, the Company’s floating rate notes and variable funding notes2021 Variable Funding Notes bear interest at fluctuating interest rates based on LIBOR. IfHowever, the associated loan documents contemplate a transition from LIBOR to secured overnight financing rate (“SOFR”) in the event that LIBOR ceases to exist,exist. If the Company may needfurther needs to renegotiate its loan documents, and the Company cannot predict what alternative index would be negotiated with its lenders. ASUis may currently effectivebe adopted and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Unaudited; tabular amounts in millions, except percentages and store data)
The 20202021 and 20192020 third quarters referenced herein represent the twelve-week periods ended September 12, 2021 and September 6, 2020, and September 8, 2019, respectively. The 20202021 and 20192020 three fiscal quarters referenced herein represent theSeptember 8, 2019, respectively.
Description of the Business
Domino’s is the largest pizza company in the world, based on global retail sales, with a significant business in both delivery and carryout, and more than 17,20018,300 locations in over 90 markets.markets around the world as of September 12, 2021. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. We are a highly recognized global brand, and we focus on serving neighborhoods locally through our large worldwide network of franchise owners and U.S. Company-owned stores. We are primarily a franchisor, with approximately 98% of Domino’s stores currently owned and operated by our independent franchisees. 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 with limited capital investment by us.
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 independent franchisees. The CompanyRoyalties are ongoing percent-of-sales fees for use of the Domino’s® brand marks. We 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 ownCompany-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 Pizzacanmay profit byingredientsfood and equipment to thosestores directly.stores. We believe that everyone in the system can benefit, including the end consumer, who can feed their familypurchase Domino’s menu items for themselves and their family conveniently and economically.
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. These factors emphasize our focus on our stakeholders, including our customers, team members, franchisees, communities and shareholders.
Third Quarter of 2021 Highlights
Third Quarter | Third Quarter | Three Fiscal | Three Fiscal | |||||||||||||||||||||||||||||
of 2020 | of 2019 | Quarters of 2020 | Quarters of 2019 | |||||||||||||||||||||||||||||
Global retail sales growth (versus prior year period, excluding foreign currency impact) | +14.8 | % | +7.5 | % | +9.6 | % | +8.1 | % | ||||||||||||||||||||||||
Same store sales growth (1): | ||||||||||||||||||||||||||||||||
U.S. Company-owned stores | +16.6 | % | +1.7 | % | +12.4 | % | +2.3 | % | ||||||||||||||||||||||||
U.S. franchise stores | +17.5 | % | +2.5 | % | +11.6 | % | +3.2 | % | ||||||||||||||||||||||||
U.S. stores | +17.5 | % | +2.4 | % | +11.7 | % | +3.1 | % | ||||||||||||||||||||||||
International stores (excluding foreign currency impact) | +6.2 | % | +1.7 | % | +3.0 | % | +2.0 | % | ||||||||||||||||||||||||
Store counts (at end of period): | ||||||||||||||||||||||||||||||||
U.S. Company-owned stores | 348 | 333 | ||||||||||||||||||||||||||||||
U.S. franchise stores | 5,891 | 5,652 | ||||||||||||||||||||||||||||||
U.S. stores | 6,239 | 5,985 | ||||||||||||||||||||||||||||||
International stores | 11,017 | 10,543 | ||||||||||||||||||||||||||||||
Total stores (2) | 17,256 | 16,528 | ||||||||||||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||||||
Total revenues | $ | 967.7 | 100.0 | % | $ | 820.8 | 100.0 | % | $ | 2,760.8 | 100.0 | % | $ | 2,468.4 | 100.0 | % | ||||||||||||||||
Cost of sales | 605.7 | 62.6 | % | 504.6 | 61.5 | % | 1,701.6 | 61.7 | % | 1,513.2 | 61.3 | % | ||||||||||||||||||||
General and administrative | 91.7 | 9.4 | % | 83.7 | 10.2 | % | 268.2 | 9.7 | % | 262.6 | 10.7 | % | ||||||||||||||||||||
U.S. franchise advertising | 108.1 | 11.2 | % | 89.5 | 10.9 | % | 309.4 | 11.2 | % | 267.1 | 10.8 | % | ||||||||||||||||||||
Income from operations | 162.2 | 16.8 | % | 143.0 | 17.4 | % | 481.6 | 17.4 | % | 425.5 | 17.2 | % | ||||||||||||||||||||
Interest expense, net | (38.4 | ) | (4.0 | )% | (32.8 | ) | (4.0 | )% | (116.0 | ) | (4.2 | )% | (100.1 | ) | (4.0 | )% | ||||||||||||||||
Income before provision for income taxes | 123.8 | 12.8 | % | 110.2 | 13.4 | % | 365.6 | 13.2 | % | 325.4 | 13.2 | % | ||||||||||||||||||||
Provision for income taxes | 24.6 | 2.6 | % | 23.9 | 2.9 | % | 26.2 | 0.9 | % | 54.0 | 2.2 | % | ||||||||||||||||||||
Net income | $ | 99.1 | 10.2 | % | $ | 86.4 | 10.5 | % | $ | 339.4 | 12.3 | % | $ | 271.4 | 11.0 | % | ||||||||||||||||
Three Fiscal Quarters of Contents2021 Highlights
16
Overview
Domino's experienced global retail sales growth during both the third quarter and three fiscal quarters of We Overall, we believe 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 refers to total worldwide retail sales at Company-owned and franchise 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, Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters U.S. stores +1.1% +21.3% +7.6% +15.3% International stores (excluding foreign currency impact) +16.5% +8.5% +19.2% +4.0% Total (excluding foreign currency impact) +8.5% +14.8% +13.1% +9.6% Same Store Sales Growth Same store sales growth Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters U.S. Company-owned stores (8.9)% +16.6% (2.0)% +12.4% U.S. franchise stores (1.5)% +17.5% +5.1% +11.6% U.S. stores (1.9)% +17.5% +4.6% +11.7% International stores (excluding foreign currency impact) +8.8% +6.2% +11.4% +3.0% 17 Store Growth Activity Store counts and net store growth are commonly used statistical measures in the quick-service restaurant industry that are important to understanding performance. U.S. U.S. Total International Stores Total Store count at June 20, 2021 366 6,060 6,426 11,631 18,057 Openings 1 45 46 287 333 Closings (1) — (1 ) (1 ) (9 ) (10 ) Store count at September 12, 2021 367 6,104 6,471 11,909 18,380 Third quarter 2021 net store growth 1 44 45 278 323 Trailing four quarters net store growth 19 213 232 892 1,124 (1) Temporary store closures are not treated as store closures and affected stores are included in Income Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters U.S. Company-owned stores $108.4 $113.3 $337.7 $329.8 U.S. franchise royalties and fees 121.6 118.1 372.9 335.9 Supply chain 588.8 573.7 1,760.1 1,625.5 International franchise royalties and fees 70.6 54.6 207.1 160.2 U.S. franchise advertising 108.6 108.1 336.3 309.4 Total revenues 998.0 100.0% 967.7 100.0% 3,014.2 100.0% 2,760.8 100.0% U.S. Company-owned stores 86.9 90.8 260.7 258.0 Supply chain 525.9 515.0 1,571.4 1,443.6 Total cost of sales 612.8 61.4% 605.7 62.6% 1,832.1 60.8% 1,701.6 61.7% Operating margin 385.2 38.6% 362.0 37.4% 1,182.0 39.2% 1,059.2 38.4% General and administrative 96.3 9.6% 91.7 9.4% 288.0 9.6% 268.2 9.7% U.S. franchise advertising 108.6 10.9% 108.1 11.2% 336.3 11.1% 309.4 11.2% Income from operations 180.3 18.1% 162.2 16.8% 557.7 18.5% 481.6 17.4% Other income — 0.0% — 0.0% 2.5 0.1% — 0.0% Interest expense, net (45.5) (4.6)% (38.4) (4.0)% (130.7) (4.3)% (116.0) (4.2)% Income before provision for income taxes 134.8 13.5% 123.8 12.8% 429.5 14.3% 365.6 13.2% Provision for income taxes 14.4 1.4% 24.6 2.6% 74.8 2.5% 26.2 0.9% Net income $120.4 12.1% $99.1 10.2% $354.80 11.8% $339.4 12.3% Revenues Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters U.S. Company-owned stores $ 108.4 10.8 % $ 113.3 11.7 % $ 337.7 11.2 % $ 329.8 11.9 % U.S. franchise royalties and fees 121.6 12.2 % 118.1 12.2 % 372.9 12.4 % 335.9 12.2 % Supply chain 588.8 59.0 % 573.7 59.3 % 1,760.1 58.4 % 1,625.5 58.9 % International franchise royalties and fees 70.6 7.1 % 54.6 5.6 % 207.1 6.9 % 160.2 5.8 % U.S. franchise advertising 108.6 10.9 % 108.1 11.2 % 336.3 11.1 % 309.4 11.2 % Total revenues $ 998.0 100.0 % $ 967.7 100.0 % $ 3,014.2 100.0 % $ 2,760.8 100.0 % Revenues primarily consist of retail sales from our Company-owned stores, royalties, advertising contributions 18 U.S. Stores Revenues Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters U.S. Company-owned stores $ 108.4 32.0 % $ 113.3 33.4 % $ 337.7 32.3 % $ 329.8 33.8 % U.S. franchise royalties and fees 121.6 35.9 % 118.1 34.8 % 372.9 35.6 % 335.9 34.5 % U.S. franchise advertising 108.6 32.1 % 108.1 31.8 % 336.3 32.1 % 309.4 31.7 % U.S. stores $ 338.6 100.0 % $ 339.5 100.0 % $ 1,047.0 100.0 % $ 975.1 100.0 % U.S. Revenues from U.S. Company-owned store operations decreased $4.8 million, or 4.3%, in the third quarter of 2021 due to a decrease in U.S. Company-owned same store sales. This decrease was partially offset by an increase in the average number of U.S. Company-owned stores open during the period resulting from net store growth. Revenues from U.S. Company-owned store operations increased U.S. Company-owned same store sales U.S. Franchise Royalties and Fees Revenues from U.S. franchise royalties and fees increased U.S. franchise same store sales decreased 1.5% in the third quarter of 2021 and increased 5.1% in the three fiscal quarters of 2021. U.S. franchise same store sales increased 17.5% in the third quarter of 2020 and increased 11.6% in the three fiscal quarters of 2020. U.S. Franchise Advertising Revenues from U.S. franchise advertising increased Supply Chain Supply chain revenues increased 19 International Franchise Royalties and Fee Revenues Revenues from international franchise royalties and fees Excluding the impact of foreign currency exchange rates, international franchise same store sales increased 8.8% in the third quarter of 2021, and increased 11.4% in the three fiscal quarters of Cost of Sales / Operating Margin Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters Consolidated revenues $ 998.0 100.0 % $ 967.7 100.0 % $ 3,014.2 100.0 % $ 2,760.8 100.0 % Consolidated cost of sales 612.8 61.4 % 605.7 62.6 % 1,832.1 60.8 % 1,701.6 61.6 % Consolidated operating margin $ 385.2 38.6 % $ 362.0 37.4 % $ 1,182.0 39.2 % $ 1,059.2 38.4 % 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. As a percentage of revenues, the consolidated operating margin U.S. Company-Owned Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters Revenues $ 108.4 100.0 % $ 113.3 100.0 % $ 337.7 100.0 % $ 329.8 100.0 % Cost of sales 86.9 80.2 % 90.8 80.2 % 260.7 77.2 % 258.0 78.2 % Store operating margin $ 21.5 19.8 % $ 22.5 19.8 % $ 77.0 22.8 % $ 71.8 21.8 % U.S. Company-owned store operating margin (which does not include certain store-level costs such as royalties and advertising) decreased 20 Supply Chain Operating Margin Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters Revenues $ 588.8 100.0 % $ 573.7 100.0 % $ 1,760.1 100.0 % $ 1,625.5 100.0 % Cost of sales 525.9 89.3 % 515.0 89.8 % 1,571.4 89.3 % 1,443.6 88.8 % Supply chain operating margin $ 62.9 10.7 % $ 58.7 10.2 % $ 188.7 10.7 % $ 181.9 11.2 % Supply chain operating margin increased General and Administrative Expenses General and administrative expenses increased U.S. Franchise Advertising Expenses U.S. franchise advertising expenses increased Other Income Other income was $2.5 million in the three fiscal quarters of 2021, representing the unrealized gain recorded on the Company’s investment in Dash Brands (Note 6) resulting from the observable change in price from the valuation of the additional $40.0 million investment made in the first quarter of 2021. Interest Expense, Net Interest expense, net increased The Company’s weighted average borrowing rate decreased to 21 Provision for Income Taxes Income tax expense decreased $10.2 million, or 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 Third Quarter Third Quarter Three Fiscal Quarters Three Fiscal Quarters U.S. Stores $ 102.0 $ 101.5 $ 321.3 $ 292.7 Supply Chain 53.6 51.1 164.7 159.5 International Franchise 57.3 44.5 168.1 124.4 Other (10.0 ) (13.7 ) (25.7 ) (34.4 ) U.S. Stores U.S. stores Segment Income increased $0.5 million, or 0.4%, in the third quarter of Supply Chain Supply chain Segment Income increased $2.5 million, International Franchise International franchise Segment Income increased $12.9 million or 28.9%, in the third quarter of 2021, due primarily to the $16.0 million increase in international franchise royalties and fees revenues discussed above. International franchise Segment Income increased $43.8 million or 35.2%, in the three fiscal quarters of 2021, due primarily to the $46.9 million increase in international franchise royalties and fees revenues discussed above. 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. The increases in international franchise Segment Income were partially offset by increased investments in technological initiatives in the third quarter and three fiscal quarters of 2021. Other Other Segment Income increased $3.7 million, or 26.9%, in the third quarter of 2021, and increased $8.7 million, or 25.2%, in the three fiscal quarters of 2021, due primarily to higher corporate administrative costs allocated to our segments as compared to 2020, 2020, we experienced global retail sales growth and U.S. and international same store sales growth. Our2021. We believe our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand. DuringWe continued our strong international same store sales performance with 111 straight quarters of positive international same store sales. Although U.S. same store sales were positive for the three fiscal quarters of 2021, U.S. same store sales declined 1.9% in the third quarter we launched three new products in the U.S., including chicken wings and two new specialty pizzas, each of which have been positively received by consumers. Beginning at the end of the first quarter of 2020 and through the date of this filing, customer ordering behavior during theCOVID-19pandemic has resulted in a significant2021, rolling over an increase in U.S. same store sales. We did not experience significant temporary closuressales of 17.5% in our U.S. business. Additionally, our supply chain experienced minimal disruptions due toCOVID-19and experienced higher volumes from the increases in store sales. TheCOVID-19pandemic negatively impacted our international franchise revenues during the secondthird quarter of 2020 due2020. This decrease in U.S. same store sales was attributable in part to temporarylabor shortages affecting store closureshours and staffing levels in certainmany of our markets, as well as changesa waning in operating procedures and store hours resulting from actions taken to increase social distancing across our international franchise markets. Inthe level of economic stimulus activity in the U.S in the third quarter of 2020, these negative impacts lessened due2021. Same store sales in the U.S. continue to be positively affected by changes in consumer ordering behavior observed since the onset of the COVID-19 pandemic. Internationally, we continued to experience sustained increases in retail sales during the third quarter and three fiscal quarters of 2021 resulting from evolving consumer trends, as well as the reopening and resumption of normal store hours and operating procedures at the majoritycertain of our international franchised stores that had been temporarily closed or affected by changes in operating procedures and store hours for portions of the prior quarter.second and third quarters of 2020 as a result of the COVID-19 pandemic. Our U.S. and international same store sales growth was also partially offsetresults continue to be pressured by our currentfortressing strategy, to increasewhich includes increasing store concentration in certain markets where we compete. also continued our global expansion with the opening of 83323 net new stores in the third quarter of 2020,2021, bringing our236.736 net store openings. We had 4445 net new stores open in the U.S. and 278 net stores open internationally during the third quarter of 2020. Although 162 gross new stores opened internationally, 123 stores closed, primarily in India. TheCOVID-19pandemic has had a negative impact on anticipated store openings in our international businessto-datedue to delays in approvals and government restrictions in certain of the markets that our master franchisees operate. 2021.thisour continued global store growth, along with our strong sales growth, emphasis on technology, operations, and marketing initiatives, have combined to strengthen our brand.which includes totalis calculated as the change of international local currency global retail sales at franchise and Company-owned stores worldwide, increased 14.8% inagainst the third quartercomparable period of 2020 and increased 9.6% in the three fiscal quarters of 2020. These increases were driven by U.S. and international sameprior year.
of 2021
of 2020
of 2021
of 2020as well as an increase in store counts during the trailing four quarters. The negative impact of changes in foreign currency exchange rates partially offset this increase, resulting fromis a generally stronger U.S. dollar when compared to the currenciescommonly used statistical measure in the international markets in which we compete. U.S. samequick-service restaurant industry that is important to understanding performance. Same store sales growth reflectedis calculated by including only sales from stores that also had sales in the sustained positive sales trends and the continued successcomparable weeks of our products, marketing and technology platforms, as well as shifts in consumer behavior across the restaurant industry toward delivery and larger order sizes throughout theCOVID-19pandemic.both years. International same store sales growth also reflected continued positive performance but has been adversely affected by temporaryis 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.
of 2021
of 2020
of 2021
of 2020
Company-
owned
Stores
Franchise
Stores
U.S.
Storescertain of our international markets as discussed above.the ending store count. Based on information reported to us by our master franchisees, we estimate that as of September 6, 2020,12, 2021, there were fewer than 400175 international stores temporarily closed.Total revenues increased $146.9 million, or 17.9%, in the third quarter of 2020 and increased $292.4 million, or 11.8%, in the three fiscal quarters of 2020. These increases were due primarily to higher U.S. retail sales, which resulted in higher supply chain and U.S. franchise revenues. U.S. Company-owned stores revenues increased in the third quarter of 2020 and three fiscal quarters of 2020 due to same store sales growth, but were partially offset in the three fiscal quarters of 2020 due to the sale of 59 Company-owned stores to certain of our existing U.S. franchisees during the second quarter of 2019 (the “2019 Store Sale”). International franchise revenues in the third quarter and three fiscal quarters of 2020 were pressured by the negative impact of changes in foreign currency exchange rates and targeted financial relief provided to certain of our master franchisees. These changes in revenues are described in more detail below.from operations increased $19.2 million, or 13.4%, in the third quarter of 2020 and increased $56.1 million, or 13.2%, in the three fiscal quarters of 2020. These increases were primarily driven by higher royalty revenues from our U.S. franchised stores, as well as higher supply chain margins. Higher general and administrative expenses partially offset these increases.Net income increased $12.8 million, or 14.8%, in the third quarter of 2020 and increased $68.0 million, or 25.1%, in the three fiscal quarters of 2020, driven by higher income from operations, partially offset by higher interest expense resulting from a higher average debt balance following our recapitalization transaction completed on November 19, 2019 (the “2019 Recapitalization”) and, to a lesser extent, borrowings under our variable funding notes in 2020. Net income in the three fiscal quarters of 2020 also benefited from lower tax expense resulting primarily from higher excess tax benefits from equity-based compensation.
of 2021
of 2020
of 2021
of 2020 $ 113.3 11.7 % $ 94.6 11.5 % $ 329.8 11.9 % $ 323.0 13.1 % 118.1 12.2 % 97.0 11.8 % 335.9 12.2 % 289.3 11.7 % 573.7 59.3 % 485.1 59.1 % 1,625.5 58.9 % 1,424.8 57.8 % 54.6 5.6 % 54.6 6.7 % 160.2 5.8 % 164.1 6.6 % 108.1 11.2 % 89.5 10.9 % 309.4 11.2 % 267.1 10.8 % $ 967.7 100.0 % $ 820.8 100.0 % $ 2,760.8 100.0 % $ 2,468.4 100.0 % 17
of 2021
of 2020
of 2021
of 2020 royalties 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 from period to period as a result of fluctuations in commodity prices as well as the mix of products we sell. $ 113.3 33.4 % $ 94.6 33.6 % $ 329.8 33.8 % $ 323.0 36.7 % 118.1 34.8 % 97.0 34.5 % 335.9 34.5 % 289.3 32.9 % 108.1 31.8 % 89.5 31.9 % 309.4 31.7 % 267.1 30.4 % $ 339.5 100.0 % $ 281.1 100.0 % $ 975.1 100.0 % $ 879.5 100.0 %
of 2021
of 2020
of 2021
of 2020Company-OwnedCompany-owned Stores$18.7$7.9 million, or 19.8%, in the third quarter of 2020 and increased $6.8 million, or 2.1%2.4%, in the three fiscal quarters of 20202021 due primarily to an increase in the average number of U.S. Company-owned stores open during the period resulting from net store growth, partially offset by a decrease in U.S. Company-owned same store sales.growth. The increasedecreased 8.9% in revenuesthe third quarter of 2021 and decreased 2.0% in the three fiscal quarters of 2020 was partially offset by lower revenues resulting from the 2019 Store Sale.2021. U.S. Company-owned same store sales increased 16.6% in the third quarter of 2020 and increased 12.4% in the three fiscal quarters of 2020. Company-owned same store sales increased 1.7% in the third quarter of 2019 and increased 2.3% in the three fiscal quarters of 2019.$21.1$3.6 million, or 21.6%3.0%, in the third quarter of 20202021 due primarily to an increase in the average number of U.S. franchised stores open during the period resulting from net store growth. The decrease in U.S. franchise same store sales partially offset the increase in U.S. franchise royalties and fee revenues. Revenues from U.S. franchise royalties and fees increased $46.6$37.0 million, or 16.1%11.0%, in the three fiscal quarters of 20202021 due primarily to higher same store sales and an increase in the average number of U.S. franchised stores open during the period due toresulting from net store growth. U.S. franchise royalties were also negatively impacted by $3.0 million in the three fiscal quarters of 2020 related toas a result of funding we provided to our franchisees foras part of an effort to donate 10 million slices of pizza to people and organizations at the frontlines of the U.S. franchise same store sales increased 2.5% in the third quarter of 2019 and increased 3.2% in the three fiscal quarters of 2019. U.S. franchise royalties and fees further benefited in both the third quarter and the three fiscal quarters of 2020 from an increase in revenues from fees paid by franchisees for the use of our technology platforms.$18.6$0.4 million, or 20.8%0.4%, in the third quarter of 2020 and2021 due primarily to an increase in the average number of U.S. franchised stores open during the period, resulting from net store growth. This increase was partially offset by a decrease in U.S. franchise same store sales as well as approximately $2.8 million in advertising incentives related to the Domino’s Surprise FreesTM promotion. Revenues from U.S. franchise advertising increased $42.3$26.9 million, or 15.8%8.7%, in the three fiscal quarters of 20202021, due primarily to higher same store sales growth and an increase in the average number of U.S. franchised stores open during the period, due toresulting from net store growth.$88.6$15.2 million, or 18.3%2.6%, in the third quarter of 20202021, due primarily to higher market basket pricing to stores and higher revenues from sales of equipment to U.S. franchised stores. Supply chain revenues increased $200.7$134.6 million, or 14.1%8.3%, in the three fiscal quarters of 2020. These increases were2021, due primarily due to higher volumes from increased orders resulting from U.S. franchise retail sales growth.and higher market basket pricing to stores. Our market basket pricing to stores increased 3.8%2.1% during the third quarter of 2020,2021, which resulted in an estimated $19.7$6.3 million increase in supply chain revenues. Our market basket pricing to stores increased 1.9%2.6% during the three fiscal quarters of 2020,2021, which resulted in an estimated $28.1$38.0 million increase in supply chain revenues.were flatincreased $16.0 million, or 29.2%, in the third quarter of 20202021, and decreased $3.9increased $46.9 million, or 2.4%29.3%, in the three fiscal quarters of 2020.2021 due primarily to higher retail sales resulting from same store sales growth and an increase in the average number of international franchised stores open during the period, resulting from net store growth. These increases in retail sales were benefited by the reopening and resumption of normal store hours and operating procedures at certain of the Company’s international franchised stores that had been temporarily closed or affected by changes in operating procedures and store hours for portions of the second and third quarters of 2020 as a result of the COVID-19 pandemic. The positive impact of changes in foreign currency exchange rates negatively impacted revenue from international royaltiesof $1.3 million and fees by $0.7$7.4 million in the third quarter of 20202021 and $4.3 millionthree fiscal quarters of 2021, respectively, also contributed to the increases in international franchise royalties and fees revenues.2020. Temporary store closures in certain markets and changes in operating procedures and store hours resulting from actions taken to increase social distancing across certain of the markets in which we operate, as well as targeted financial relief provided to certain of our master franchisees due to theCOVID-19pandemic, also had a negative impact on international franchise revenues in the third quarter and three fiscal quarters of 2020. These pressures were partially offset by same store sales growth.2021. Excluding the impact of changes in foreign currency exchange rates, international franchise same store sales increased 6.2% in the third quarter of 2020, and increased 3.0% in the three fiscal quarters of 2020. Excluding the impact of changes in foreign currency exchange rates, international franchise same store sales increased 1.7% in the third quarter of 2019 and increased 2.0% in the three fiscal quarters of 2019.18 $ 967.7 100.0 % $ 820.8 100.0 % $ 2,760.8 100.0 % $ 2,468.4 100.0 % 605.7 62.6 % 504.6 61.5 % 1,701.6 61.6 % 1,513.2 61.3 % $ 362.0 37.4 % $ 316.3 38.5 % $ 1,059.2 38.4 % $ 955.2 38.7 % Cost
of 2021
of 2020
of 2021
of 2020$45.7$23.2 million, or 14.5%6.4%, in the third quarter of 20202021, and increased $104.0$122.8 million, or 10.9%11.6%, in the three fiscal quarters of 20202021, due primarily to higher U.S.global franchise revenues and higher supply chain volumes.revenues. Franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on the operating margin.decreased 1.1increased 1.2 percentage points in the third quarter of 20202021 and decreased 0.3increased 0.8 percentage points in the three fiscal quarters of 2020.2021. U.S. Company-owned store operating margin decreased 4.5remained consistent in the third quarter of 2021 and increased 1.0 percentage point in the three fiscal quarters of 2021. Supply chain operating margin increased 0.5 percentage points in the third quarter of 20202021 and decreased 1.60.5 percentage points in the three fiscal quarters of 2020. Supply chain operating margin decreased 0.6 percentage points in the third quarter of 2020 and remained flat in the three fiscal quarters of 2020.2021. These changes in operating margin are more fully discusseddescribed below.StoresStore Operating Margin $ 113.3 100.0 % $ 94.6 100.0 % $ 329.8 100.0 % $ 323.0 100.0 % 90.8 80.2 % 71.6 75.7 % 258.0 78.2 % 247.5 76.6 % $ 22.5 19.8 % $ 23.0 24.3 % $ 71.8 21.8 % $ 75.5 23.4 % The
of 2021
of 2020
of 2021
of 2020$0.5$1.0 million, or 2.2%4.4%, in the third quarter of 20202021, due primarily to higher labor costs,lower same store sales, partially offset by higher same store sales. Thelower labor costs. U.S. Company-owned store operating margin decreased $3.7increased $5.2 million, or 4.9%7.3%, in the three fiscal quarters of 20202021, due primarily to the 2019 Store Salelower labor costs and higher retail sales due to a lesser extent, higher labor costs,net store growth, but these increases were partially offset by lower same store sales growth.sales. As a percentage of store revenues, the U.S. Company-owned store operating margin decreased 4.5 percentage pointsremained consistent in the third quarter of 20202021 and decreased 1.6increased 1.0 percentage pointspoint in the three fiscal quarters of 2020.2021. These changes in operating margin as a percentage of revenues are discussed in moreadditional detail below.0.10.9 percentage points to 27.5%28.4% in the third quarter of 2020 due to higher food prices, partially offset by the leveraging of higher same store sales. Food costs decreased 0.12021, and increased 0.6 percentage points to 27.0% in the first three fiscal quarters of 2020 due to the leveraging of higher same store sales.Labor costs increased 3.7 percentage points to 31.8% in the third quarter of 2020 and increased 1.4 percentage points to 31.0%27.6% in the three fiscal quarters of 2020 due primarily to additional compensation expense for frontline team members during theCOVID-19pandemic. In the three fiscal quarters of 2020, these increases were partially offset by reduced labor costs as a percentage of store revenues resulting from the 2019 Store Sale2021 due to the higher labor rates in the market in which the sold stores operated.food basket prices.OccupancyLabor costs decreased 0.81.9 percentage points to 7.5%29.9% in the third quarter of 20202021, and decreased 0.42.4 percentage points to 7.4%28.6% in the three fiscal quarters of 20202021, due primarily to additional bonus pay incurred during the leveragingsecond and third quarters of higher same store sales.Repairs2020 for frontline team members, as well as lower team member headcount in the third quarter and maintenance cost increased 0.9 percentage points to 1.8%three fiscal quarters of 2021. These decreases in labor costs were partially offset by continued investments in frontline team member wage rates in our U.S. Company-owned stores in the third quarter of 20202021.0.41.2 percentage points to 1.2%8.7% in the third quarter of 2021, and increased 0.5 percentage points to 7.9% in the three fiscal quarters of 20202021, due primarily to preventative maintenance in our stores.lower sales leverage. $ 573.7 100.0 % $ 485.1 100.0 % $ 1,625.5 100.0 % $ 1,424.8 100.0 % 515.0 89.8 % 433.0 89.2 % 1,443.6 88.8 % 1,265.7 88.8 % $ 58.7 10.2 % $ 52.2 10.8 % $ 181.9 11.2 % $ 159.1 11.2 % 19
of 2021
of 2020
of 2021
of 2020$6.5$4.2 million, or 12.6%7.2%, in the third quarter of 2021, primarily due to higher equipment revenues as well as lower supply cost. As a percentage of supply chain revenues, the supply chain operating margin increased 0.5 percentage points in the third quarter of 2021. While the market basket pricing to stores increased 2.1% during the third quarter of 2021, we incurred additional supply costs during the third quarter of 2020 as a result of certain expenses related to the provision of safety and cleaning equipment in connection with the COVID-19 pandemic. Higher labor cost as a percentage of revenues in the third quarter of 2021 partially offset the effect of the lower supply costs. Supply chain operating margin increased $22.8$6.8 million, or 14.3%3.6%, in the three fiscal quarters of 2020,2021, primarily driven bydue to higher equipment revenues as well as lower supply cost and higher volumes from increased store orders. As a percentage of supply chain revenues, the supply chain operating margin decreased 0.60.5 percentage points in the third quarter of 2020 and remained flat in the three fiscal quarters of 20202021 primarily due primarily to higher food costs, partially offset in the third quarter of 2020 and fully offset in the three fiscal quarters of 2020 by lower labor and delivery costs as a percentage of revenues.$8.0$4.7 million, or 9.5%5.1%, in the third quarter of 20202021, and increased $5.6$19.8 million, or 2.1%7.4%, in the three fiscal quarters of 2020,2021, driven primarily by higher variable performance-basedlabor costs, including non-cash equity-based compensation expense as well as higher travel expense.$18.6$0.4 million, or 20.8%0.4%, in the third quarter of 20202021, and increased $42.3$26.9 million, or 15.8%8.7%, in the three fiscal quarters of 2020 due to higher2021, consistent with the increase in U.S. franchise advertising revenues. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized, as our consolidated$5.6$7.1 million, or 17.2%18.4%, in the third quarter of 20202021, and increased $15.9$14.7 million, or 15.9%12.6%, in the three fiscal quarters of 20202021. These increases were driven primarily by higher average debt balancesborrowings resulting from our recapitalization transaction completed on April 16, 2021 (the “2021 Recapitalization”). In connection with the 20192021 Recapitalization, and borrowings under the Company’s variable funding noteswe recorded $2.3 million of incremental interest expense in the three fiscal quarterssecond quarter of 2020.3.9%3.8% in both the third quarter and the three fiscal quarters of 2020,2021 from 4.1%3.9% in both the third quarter and the three fiscal quarters of 2019,2020, resulting from the lower interest rates on the debt outstanding in 2020 as compareddue to the same periods2021 Recapitalization. The Company's weighted average borrowing rate was 3.9% in 2019.Provision for income taxes increased $0.83.2%41.6%, in the third quarter of 20202021, and increased $48.6 million, or 185.7%, in the three fiscal quarters of 2021, due to higherpre-taxincome, partially offset by higherchanges in excess tax benefits on non-cash equity-based compensation, which are recorded as a reduction to the income tax provision. Provision forprovision, as well as higher pre-tax income taxes decreased $27.8 million, or 51.5%, in the three fiscal quartersrespective periods of 2020 due primarily to higher excess tax benefits on equity-based compensation, partially offset by higherpre-taxincome.2021. The Company recognized $3.4$14.0 million in excess tax benefits in the third quarter of 20202021 as compared to $1.2$3.4 million in the third quarter of 20192020, and recognized $56.9$18.3 million in excess tax benefits in the three fiscal quarters of 20202021 as compared to $19.7$56.9 million in the three fiscal quarters of 2019, resulting2020. These changes in excess tax benefits from a significant increase innon-cash equity-based compensation resulted primarily from the timing of stock options exercised in 2020the third quarter and three fiscal quarters of 2021 as compared to 2019.the same periods in 2020. The effective tax rate decreased to 10.7% during the third quarter of 2021 as compared to 19.9% in the third quarter of 2020 and decreased2020. The effective tax rate increased to 17.4% during the three fiscal quarters of 2021 as compared to 7.2% in the three fiscal quarters of 20202020.comparedSegment 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 21.7%a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.
of 2021
of 2020
of 2021
of 202020192021, primarily due to the $3.6 million increase in U.S. franchise royalties and 16.6%fees revenues, partially offset by the $1.0 million decrease in U.S. Company-owned store operating margin, as discussed above. U.S. stores Segment Income increased $28.5 million, or 9.7%, in the three fiscal quarters of 2019.COVID-19ImpactAs2021, primarily due to the $37.0 million increase in U.S. franchise royalties and fees revenues and the $5.2 million increase in U.S. Company-owned store operating margin, as discussed above. U.S. franchise revenues do not have a cost of September 6, 2020, nearly all of oursales component, so changes in these revenues have a disproportionate effect on U.S. stores remained open, withSegment 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 deploying contactless delivery and carryout solutions. Based on information reported to usSegment Income. These increases in U.S. stores Segment Income were partially offset by our master franchisees, we estimate that as of September 6, 2020, there were fewer than 400 international stores temporarily closed.As discussed furtherincreased investments in “Liquidity and Capital Resources”, giventechnological initiatives for the market uncertainty arising fromCOVID-19,we took a precautionary measure and borrowed $158.0respective periods.under our variable funding notes during the second quarter of 2020. We repaid $100.0 million of these borrowings during the second quarter of 2020 and $58.0 millionor 4.8%, in the third quarter of 2020. As2021, primarily due to the $4.2 million increase in operating margin described above. Supply chain Segment Income increased $5.3 million, or 3.3%, in the three fiscal quarters of September 6,2021, primarily due to the $6.8 million increase in operating margin described above.we had less than $0.1 million outstanding under our variable funding notes.Duringas well as lower professional fees. The increase in allocated costs in theCOVID-19pandemic, we also made certain third quarter and three fiscal quarters of 2021 was due primarily to higher investments relatedin technological initiatives to safety and cleaning equipment, enhanced sick pay and compensation for frontline team members and support technology for our franchiseesU.S. and their communities. While it is not possible at this time to estimateinternational franchise stores. Higher labor and travel costs partially offset the full continued impact thatCOVID-19could have on our business, the continued spread ofCOVID-19and 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.20
22
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. We generally collect our receivables within three weeks from the date of the related sale and we generally experience 35 to 45multiple inventory turns per year.month. In addition, our sales are not typically seasonal, which further limits our working capital requirements. TheThese factors, coupled with the use of our ongoing cash flows from operations to service our debt obligations, invest in our business, pay dividends and repurchase our common stock, reducesreduce our working capital amounts. As of September 6, 2020,12, 2021, we had working capital of $301.7$215.1 million, excluding restricted cash and cash equivalents of $160.3$206.3 million, advertising fund assets, restricted, of $144.3$186.8 million and advertising fund liabilities of $138.3$178.5 million. Working capital includes total unrestricted cash and cash equivalents of $330.7$295.4 million.
Our primary source of liquidity is cash flows from operations and availability of borrowings under our variable funding notes. During the third quarter and three fiscal quarters of 2020,2021, we experienced increases in both U.S. and international same store sales versus the comparable periods in the prior year. While our U.S. same store sales declined in the third quarter of 2021, same store sales increased during the three fiscal quarters of 2021. Additionally, both our U.S. and international businesses grew store counts in the third quarter and the three fiscal quarters of 2020.2021. These factors contributed to our global retail sales growth realized in both the third quarter and three fiscal quarters of 2021 which resulted in our continued ability to generate positive operating cash flows. As of September 12, 2021, we had a variable funding note facility which allowed 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”). The letters of credit are primarily related to our casualty insurance programs and certain supply chain center leases. As of September 12, 2021, we had no outstanding borrowings and $157.5 million of available borrowing capacity under our 2021 Variable Funding Notes, net of letters of credit issued of $42.5 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 variable funding notes to, among other things, fund working capital requirements, invest in our core business, service our indebtedness, pay dividends and repurchase shares of our common stock. We did not have any material commitments for capital expenditures as of September 6, 2020.
Our ability to continue to fund these items and continue to reduceservice our debt could be adversely affected by the occurrence of any of the events described under “Risk Factors” in our filings with the Securities and Exchange Commission. There can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available under the 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 our fixed and floating rateoutstanding senior notes and to service, extend or refinance our variable funding notes will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
Restricted Cash
As of September 6, 2020,12, 2021, we had approximately $113.6$158.6 million of restricted cash held for future principal and interest payments and other working capital requirements of our asset-backed securitization structure, $46.1$47.5 million of restricted cash held in a three-month interest reserve as required by the related debt agreements and $0.6$0.2 million of other restricted cash for a total of $160.3$206.3 million of restricted cash and cash equivalents. As of September 6, 2020,12, 2021, we also held $118.9$166.7 million of advertising fund restricted cash and cash equivalents, which can only be used for activities that promote the Domino’s Pizza brand.
Long-Term Debt
As of September 6, 2020,12, 2021, we had approximately $4.11$5.07 billion of totallong-term debt, of which $43.7$54.8 million was classified as a current liability. OurAs of September 12, 2021, our fixed and floating rate notes from the recapitalizations we completed in 2021, 2019, 2018, 2017 and 2015 havehad original scheduled principal payments of $10.5$12.9 million in the remainder of 2020, $42.0 million in 2021, $897.0 million in 2022, $33.0$51.5 million in each of 2022, 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 may be suspended if our leverage ratio is less than or equal to 5.0x total debt to adjusted EBITDA, as defined in the related agreements, 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 on our then-outstanding notes beginning in the first quarter of 2021. Accordingly, all principal amounts of our outstanding notes were classified as long-term debt in the condensed consolidated balance sheet as of January 3, 2021. Subsequent to the closing of the 2021 Recapitalization, we had a leverage ratio of greater than 5.0x, and accordingly, resumed making the previously scheduled debt amortization payment on our outstanding notes beginning in the second quarter of 2021.
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2021 Recapitalization
During the second quarter of 2021, on April 16, 2021 (the “closing date”), we completed the 2021 Recapitalization in which certain of our subsidiaries issued new notes pursuant to our asset-backed securitization structure. The new 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 A-2-I Fixed Rate 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 (collectively with the 2021 A-2-I Fixed Rate Notes, the “2021 Notes”) in an offering exempt from registration under the Securities Act of 1933, as amended. As of September 6, 2020, we12, 2021, the 2021 Notes had less than $0.1scheduled principal payments of $4.6 million in 2021, $18.5 million in each of 2022 through 2027, $804.8 million in 2028, $10.0 million in each of 2029 and 2030 and $905.0 million in 2031. Gross proceeds from the issuance of the 2021 Notes were $1.85 billion.
Concurrently, certain of our subsidiaries also issued the 2021 Variable Funding Notes, which allow 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 were undrawn on the closing date. In connection with the issuance of our 2021 Variable Funding Notes, our previous variable funding note facility was canceled.
A portion of proceeds from the 2021 Recapitalization was used to repay the remaining $291.0 million in outstanding borrowingsprincipal under our variable funding2017 five-year floating rate notes and $582.0 million in outstanding principal under our 2017 five-year fixed rate notes. The proceeds were also used to pre-fund a portion of the interest payable on the 2021 Notes and pay transaction fees and expenses. In connection with the repayment of the 2017 five-year floating rate notes and 2017 five-year fixed rate notes, we expensed approximately $160.0$2.0 million available for borrowing, netthe remaining unamortized debt issuance costs associated with these notes. Additionally, in connection with the 2021 Recapitalization, we capitalized $14.9 million of lettersdebt issuance costs, which are being amortized into interest expense over the 7.5 and 10-year expected terms of credit issued of $40.0 million. The letters of credit are primarily related to our casualty insurance programs and supply chain center leases. Borrowings under the variable funding notes are available to fund our working capital requirements, capital expenditures and, subject to other limitations, other2021 Notes. We used the remaining proceeds for general corporate purposes, including dividend payments andwhich primarily included a $1.0 billion accelerated share repurchases.
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. The Company’s Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company’s common stock on October 4, 2019.
During the first week of the first quarter of 2020,2021, we repurchased and retired 271,06465,870 shares of our common stock under our Board of Directors-approved share repurchase program for a total of approximately $79.6$25.0 million. We did notOur Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of our common stock on February 24, 2021.
On April 30, 2021, we entered into 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 retire anyreceived 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 duringat an average price of $444.29, including the remainder2,012,596 shares of the first quarter orour common stock received and retired during the second or third quartersquarter of 2020. As2021.
On July 20, 2021, our Board of September 6, 2020,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 Company had a total remaining authorized amount for share repurchases of approximately $326.6 million.
During the third quarter of 2019,2021, we repurchased and retired 384,338152,817 shares of our common stock under our Board of Directors-approved share repurchase program for a total of approximately $93.7$79.7 million. During the three fiscal quarters of 2019,2021, we repurchased and retired 430,1822,469,473 shares of our common stock (including 2,250,786 shares of common stock repurchased under the ASR Agreement and 218,687 shares of common stock repurchased under our Board of Directors-approved share repurchase programprogram) for a total of approximately $105.1$1.1 billion. As of September 12, 2021, we had a total remaining authorized amount for share repurchases of approximately $920.3 million.
Dividends
On July 15, 2020, the Company’s20, 2021, our Board of Directors declared a $0.78$0.94 per share quarterly dividend on itsour outstanding common stock for shareholders of record as of September 15, 2020,2021, which was paid on September 30, 2020.
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Sources and Uses of Cash
The following table illustrates the main components of our cash flows:
(In millions) | Three Fiscal Quarters of 2020 | Three Fiscal Quarters of 2019 | ||||||
Cash Flows Provided By (Used In) | ||||||||
Net cash provided by operating activities | $ | 370.4 | $ | 324.6 | ||||
Net cash used in investing activities | (91.1 | ) | (3.1 | ) | ||||
Net cash used in financing activities | (153.6 | ) | (246.3 | ) | ||||
Exchange rate changes | 0.2 | 0.1 | ||||||
Change in cash and cash equivalents, restricted cash and cash equivalents | $ | 126.0 | $ | 75.3 | ||||
(In millions) |
| Three Fiscal Quarters |
|
| Three Fiscal Quarters |
| ||
Cash flows provided by (used in) |
|
|
|
|
|
| ||
Net cash provided by operating activities |
| $ | 484.6 |
|
| $ | 370.4 |
|
Net cash used in investing activities |
|
| (90.3 | ) |
|
| (91.1 | ) |
Net cash used in financing activities |
|
| (228.1 | ) |
|
| (153.6 | ) |
Effect of exchange rate changes on cash |
|
| 0.1 |
|
|
| 0.2 |
|
Change in cash and cash equivalents, restricted cash and cash equivalents |
| $ | 166.2 |
|
| $ | 126.0 |
|
Operating Activities
Cash provided by operating activities increased $45.8$114.2 million in the three fiscal quarters of 20202021 primarily due to an increase in net income of $68.0 million and highernon-cashamounts of $6.6 million. These increases were partially offset by a $28.8 million negativethe positive impact of changes in operating assets and liabilities of $73.0 million. The positive impact of changes in 2020 as compared to 2019, which primarilyoperating assets and liabilities related to an increase in our inventorythe timing of payments on accounts payable and accounts receivable balances,accrued liabilities, income tax payments as well as the timing of paymentscollections on accounts payable. Thesereceivable in 2021 as compared to 2020. The increase in net income, adjusted for the impact of non-cash transactions, of $24.5 million in the three fiscal quarters of 2021 also contributed to the increase in cash provided by operating asset and liabilityactivities. The increase in cash provided by operating activities was also due to a $16.7 million positive impact of changes were partially offset by an increase in advertising fund assets and liabilities, restricted, in 20202021 as compared to 20192020 due to lower spendingthe receipt of fund assets.
Investing Activities
Cash used in investing activities was $91.1$90.3 million in the three fiscal quarters of 2020,2021, which primarily consisted primarilyof $50.7 million of capital expenditures of $51.2 million (driven primarily by investments in technological initiatives, supply chain centers and corporate stores)store operations) and thean additional investment in Dash Brands (Note 6) of $40.0 million.
Financing Activities
Cash used in investingfinancing activities was $3.1$228.1 million in the three fiscal quarters of 2019. We used $42.7 million of cash for capital expenditures (driven primarily by investments in technological initiatives and supply chain centers). This use of cash was partially offset by maturities of advertising fund investments, restricted of $30.2 million and proceeds from the sale of assets of $9.7 million, which 2021,primarily related to the 2019 Store Sale.
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Forward-Looking Statements
This filing contains various forward-looking statements about the Company within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) that are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. You can identify forward-looking statements by the use of words such as “anticipates,” “believes,” “could,” “should,” “estimates,” “expects,” “intends,” “may,” “will,” “plans,” “predicts,” “projects,” “seeks,” “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, our anticipated profitability, estimates in same store sales growth, the growth of our U.S. and international business, our ability to service our indebtedness, our future cash flows, our operating performance, trends in our business and other descriptions of future events reflect the Company’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. Important factors that could cause actual results to differ materially from our expectations are more fully described under the section headed “Risk Factors” in this filing and in our other filings with the Securities and Exchange Commission, including under the section headed “Risk Factors” in our 20192020 Form10-Kand in our Quarterly Reports on Form10-Qfor the quarterly periods ended March 22, 2020 and June 14, 2020. 10-K. 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: our substantial increased indebtedness as a result of our recapitalization transactions and our ability to incur additional indebtedness or refinance or renegotiate key terms of that indebtedness in the future; the impact a downgrade in our credit rating may have on our business, financial condition and results of operations; our future financial performance and our ability to pay principal and interest on our indebtedness; our ability to manage difficulties associated with or related to the COVID-19 pandemic and the effects of COVID-19 on our business and supply chain; the effectiveness of our advertising, operations and promotional initiatives; the strength of our brand, including our ability to compete in the U.S. and internationally in our intensely competitive industry, including the food service and food delivery markets; our ability to manage difficulties associated with or related to theCOVID-19pandemic and the effects ofCOVID-19on our business and supply chain; the impact of social media and other consumer-oriented technologies on our business, brand and reputation; new product, digital ordering and concept developments by us, and other food-industry competitors; the impact of new or improved technologies and alternative methods of delivery on consumer behavior; new product, digital ordering and concept developments by us, and other food-industry competitors; our ability to maintain good relationships with and attract new franchisees, and franchisees’ ability to profitablysuccessfully manage their operations without negatively impacting our royalty payments and fees or our brand’s reputation; our ability to successfully implement cost-saving strategies; our ability and that of our franchisees to successfully operate in the current and future credit environment; changes in the level of consumer spending given general economic conditions, including interest rates, energy prices and consumer confidence; our ability and that of our franchisees to open new restaurants and keep existing restaurants in operation; changes in operating expenses resulting from changes in prices of food (particularly cheese), fuel and other commodity costs, labor, utilities, insurance, employee benefits and other operating costs; the impact that widespread illness, health epidemics or general health concerns, severe weather conditions and natural disasters may have on our business and the economies of the countries where we operate; changes in foreign currency exchange rates; changes in income tax rates; our ability to retain or replace our executive officers and other key members of management and our ability to adequately staff our stores and supply chain centers with qualified personnel; our ability to find and/or retain suitable real estate for our stores and supply chain centers; changes in government legislation and regulations, including changes in laws and regulations regarding information privacy, payment methods consumer protection and social media; adverse legal judgments or settlements; food-borne illness or contamination of products; data breaches, power loss, technological failures, user error or other cyber risks threatening us or our franchisees; the effect of war, terrorism, catastrophic events or climate change; our ability to pay dividends and repurchase shares; changes in consumer preferences,tastes, spending and traffic patterns and demographic trends; actions by activist investors; changes in accounting policies; and adequacy of our insurance coverage. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this filing might not occur. All forward-looking statements speak only as of the date of this filing and should be evaluated with an understanding of their inherent uncertainty. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission, or other applicable law, we will not undertake, and specifically disclaim, any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances arising after the date of this filing, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on the forward-looking statements included in this filing or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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Item 3. 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 recapitalizations of our business, we have issued fixed and floating rate notes and entered into variable funding notes and, at September 6, 2020,12, 2021, we are exposed to interest rate risk on borrowings under our floating rate notes and variable funding notes. As of September 6, 2020,12, 2021, we had less than $0.1 million ofno outstanding borrowings under our variable funding notes. 2021 Variable Funding Notes.
Our floating rate notes and our variable funding notes2021 Variable Funding Notes bear interest at fluctuating interest rates based on LIBOR.
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. 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 or 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
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 7.1% of our total revenues in the third quarter of 2021, approximately 6.9% of our total revenues in the three fiscal quarters of 2021, approximately 5.6% of our total revenues in the third quarter of 2020 and approximately 5.8% of our total revenues in the three fiscal quarters of 2020 approximately 6.7% of our total revenues in the third quarter of 2019 and approximately 6.6% of our total revenues in the three fiscal quarters of 2019 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 rate risk. A hypothetical 10% adverse change in the foreign currency exchange rates for our international markets would have resulted in a negative impact on royalty revenues of approximately $14.1$18.4 million in the three fiscal quarters of 2020.
Item 4. Controls and Procedures.
Management, with the participation of the Company’s Chief Executive Officer (who is also serving as the Company’s interim principal financial officer), Richard E. Allison, Jr., and Executive Vice President and Chief Financial Officer, Stuart A. Levy, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as that term is defined inand Mr. Levy concluded that the Company’s disclosure controls and procedures were effective.
During the quarterly period ended September 6, 2020,12, 2021, there were no changes in the Company’s internal controlscontrol over financial reporting as defined in underthe Securities and Exchange Act of 1934, as amended, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. 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’ compensation, general liability, automobile and franchisee claims. We are also subject to suits related to employment practices as well as intellectual property, including patents.
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 1A. Risk Factors.
There have been and are expectedno material changes with respect to continue to be adversely affected bythe COVID-19 pandemic,which could adversely affect our business, financial condition and results of operations as well.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Maximum Approximate Dollar | ||||||||||||||||
Total Number of Shares | Value of Shares that | |||||||||||||||
Total Number | Purchased as Part of | May Yet Be Purchased | ||||||||||||||
of Shares | Average Price Paid | Publicly Announced | Under the Program | |||||||||||||
Period | Purchased (1) | Per Share | Program (2) | (in thousands) | ||||||||||||
Period #7 (June 15, 2020 to July 12, 2020) | 1,040 | $ | 374.76 | — | $ | 326,552 | ||||||||||
Period #8 (July 13, 2020 to August 9, 2020) | 1,548 | 394.08 | — | 326,552 | ||||||||||||
Period #9 (August 10, 2020 to September 6, 2020) | 1,540 | 410.67 | — | 326,552 | ||||||||||||
Total | 4,128 | $ | 395.40 | — | $ | 326,552 | ||||||||||
|
|
|
|
|
|
|
|
|
|
| Maximum |
| ||||
|
|
|
|
|
|
|
| Total Number of Shares |
|
| Value of Shares that |
| ||||
|
| Total Number |
|
|
|
|
| Purchased as Part of |
|
| May Yet Be Purchased |
| ||||
|
| of Shares |
|
| Average Price Paid |
|
| Publicly Announced |
|
| Under the Program |
| ||||
Period |
| Purchased (1) |
|
| Per Share |
|
| Program (2) |
|
| (in thousands) |
| ||||
Period #7 (June 21, 2021 |
|
| 913 |
|
| $ | 475.82 |
|
|
| — |
|
| $ | — |
|
Period #8 (July 19, 2021 |
|
| 300,483 |
|
|
| 530.80 |
|
|
| 299,265 |
|
|
| 967,586 |
|
Period #9 (August 16, 2021 |
|
| 93,194 |
|
|
| 515.30 |
|
|
| 91,742 |
|
|
| 920,312 |
|
Total |
|
| 394,590 |
|
| $ | 521.24 |
|
|
| 391,007 |
|
| $ | 920,312 |
|
(1) | 3,583 shares in the third quarter of |
(2) | On April 30, 2021, the Company On July 20, 2021, the Company’s Board of |
Subsequent to the end of the third quarter and through October 12, 2021, the Company repurchased and retired an additional 205,145 shares of common stock for a total of approximately $100.1 million, or an average price of $487.90 per share. | |
Authorization for the repurchase program may be modified, suspended, or discontinued at any time. The repurchase of shares in any particular period and the actual amount of such purchases remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DOMINO’S PIZZA, INC. (Registrant) | ||||||||
Date: October 14, 2021 | /s/ Richard E. Allison, Jr. | |||||||
Richard E. Allison, Jr. | ||||||||
Chief Executive (Principal Executive Officer and Principal Financial Officer) |
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