Item 8. Financial Statements and Supplementary Data.

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Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

of Domino’s Pizza, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Domino’s Pizza, Inc. and its subsidiaries at January 3, 2016 and December 28, 2014, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting, appearing under Item 9(A). Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the classification of debt issuance costs and deferred tax assets and liabilities.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 25, 2016

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	January 3, 2016			December 28, 2014

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	133,449		$	30,855
Restricted cash and cash equivalents		180,940			120,954
Accounts receivable, net of reserves of $2,662 in 2015 and $3,361 in 2014		131,582			118,395
Inventories		36,861			37,944
Prepaid expenses and other		20,646			32,569
Advertising fund assets, restricted		99,159			72,055
Deferred income taxes		—			9,857
Asset held-for-sale		—			5,732

Total current assets		602,637			428,361


PROPERTY, PLANT AND EQUIPMENT:
Land and buildings		29,064			25,859
Leasehold and other improvements		111,071			99,804
Equipment		186,405			178,378
Construction in progress		9,633			6,179

		336,173			310,220
Accumulated depreciation and amortization		(204,283	)		(196,174	)

Property, plant and equipment, net		131,890			114,046

OTHER ASSETS:
Investments in marketable securities, restricted		6,054			4,586
Goodwill		16,097			16,297
Capitalized software, net of accumulated amortization of $61,330 in 2015 and $54,552 in 2014		28,505			20,562
Other assets, net of accumulated amortization of $776 in 2015 and $776 in 2014		8,797			10,006
Deferred income taxes		5,865			2,475

Total other assets		65,318			53,926


Total assets	$	799,845		$	596,333

The accompanying notes are an integral part of these consolidated statements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

(In thousands, except share and per share amounts)


	January 3, 2016			December 28, 2014
LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Current portion of long-term debt	$	59,333		$	565
Accounts payable		106,927			86,552
Accrued compensation		32,999			23,618
Accrued interest		20,459			14,008
Insurance reserves		17,597			14,465
Dividends payable		557			14,351
Advertising fund liabilities		99,159			72,055
Other accrued liabilities		38,952			39,994

Total current liabilities		375,983			265,608

LONG-TERM LIABILITIES:
Long-term debt, less current portion		2,181,460			1,500,599
Insurance reserves		23,314			26,951
Deferred income taxes		—			5,588
Other accrued liabilities		19,339			17,052

Total long-term liabilities		2,224,113			1,550,190

Total liabilities		2,600,096			1,815,798

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ DEFICIT:
Common stock, par value $0.01 per share; 170,000,000 shares authorized; 49,838,221 in 2015 and 55,553,149 in 2014 issued and outstanding		498			556
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, none issued		—			—
Additional paid-in capital		6,942			29,561
Retained deficit		(1,804,143	)		(1,246,921	)
Accumulated other comprehensive loss		(3,548	)		(2,661	)

Total stockholders’ deficit		(1,800,251	)		(1,219,465	)


Total liabilities and stockholders’ deficit	$	799,845		$	596,333

The accompanying notes are an integral part of these consolidated statements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)


	For the Years Ended
	January 3, 2016			December 28, 2014			December 29, 2013

REVENUES:
Domestic Company-owned stores	$	396,916		$	348,497		$	337,414
Domestic franchise		272,808			230,192			212,369
Supply chain		1,383,161			1,262,523			1,118,873
International franchise		163,643			152,621			133,567

Total revenues		2,216,528			1,993,833			1,802,223

COST OF SALES:
Domestic Company-owned stores		299,294			267,385			256,596
Supply chain		1,234,103			1,131,682			996,653

Total cost of sales		1,533,397			1,399,067			1,253,249

OPERATING MARGIN		683,131			594,766			548,974

GENERAL AND ADMINISTRATIVE		277,692			249,405			235,163

INCOME FROM OPERATIONS		405,439			345,361			313,811

INTEREST INCOME		313			143			160

INTEREST EXPENSE		(99,537	)		(86,881	)		(88,872	)

INCOME BEFORE PROVISION FOR INCOME TAXES		306,215			258,623			225,099

PROVISION FOR INCOME TAXES		113,426			96,036			82,114

NET INCOME	$	192,789		$	162,587		$	142,985


EARNINGS PER SHARE:

Common Stock – basic	$	3.58		$	2.96		$	2.58
Common Stock – diluted	$	3.47		$	2.86		$	2.48

DIVIDENDS DECLARED PER SHARE	$	1.24		$	1.00		$	0.80

The accompanying notes are an integral part of these consolidated statements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	For the Years Ended
	January 3, 2016			December 28, 2014			December 29, 2013


NET INCOME	$	192,789		$	162,587		$	142,985

OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:

Currency translation adjustment		(2,076	)		(1,468	)		432

		(2,076	)		(1,468	)		432

TAX ATTRIBUTES OF ITEMS IN OTHER COMPREHENSIVE INCOME (LOSS):

Currency translation adjustment		1,189			791			(30	)

		1,189			791			(30	)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX		(887	)		(677	)		402


COMPREHENSIVE INCOME	$	191,902		$	161,910		$	143,387

The accompanying notes are an integral part of these consolidated statements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except share data)


	Common Stock						Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)
	Shares			Amount

BALANCE AT DECEMBER 30, 2012		56,313,249		$	563		$	1,664		$	(1,335,364	)	$	(2,386	)

Net income		—			—			—			142,985			—
Common stock dividends and equivalents		—			—			—			(44,190	)		—
Issuance of common stock, net		330,656			3			—			—			—
Tax payments for restricted stock upon vesting		(137,262	)		(1	)		(8,030	)		—			—
Purchase of common stock		(1,666,435	)		(16	)		(44,240	)		(52,876	)		—
Exercise of stock options		928,464			9			9,442			—			—
Tax impact from equity-based compensation		—			—			19,498			—			—
Non-cash compensation expense		—			—			21,987			—			—
Other		—			—			348			—			—
Currency translation adjustment, net of tax		—			—			—			—			402


BALANCE AT DECEMBER 29, 2013		55,768,672			558			669			(1,289,445	)		(1,984	)

Net income		—			—			—			162,587			—
Common stock dividends and equivalents		—			—			—			(55,300	)		—
Issuance of common stock, net		102,169			1			—			—			—
Tax payments for restricted stock upon vesting		(105,101	)		(1	)		(7,926	)		—			—
Purchase of common stock		(1,151,931	)		(12	)		(17,632	)		(64,763	)		—
Exercise of stock options		939,340			10			9,018			—			—
Tax impact from equity-based compensation		—			—			27,583			—			—
Non-cash compensation expense		—			—			17,587			—			—
Other		—			—			262			—			—
Currency translation adjustment, net of tax		—			—			—			—			(677	)


BALANCE AT DECEMBER 28, 2014		55,553,149			556			29,561			(1,246,921	)		(2,661	)

Net income		—			—			—			192,789			—
Common stock dividends and equivalents		—			—			—			(66,524	)		—
Issuance of common stock, net		78,891			1			—			—			—
Tax payments for restricted stock upon vesting		(69,334	)		(1	)		(7,430	)		—			—
Purchase of common stock		(6,152,918	)		(62	)		(55,008	)		(683,487	)		—
Exercise of stock options		428,433			4			4,810			—			—
Tax impact from equity-based compensation		—			—			17,775			—			—
Non-cash compensation expense		—			—			17,623			—			—
Other		—			—			(389	)		—			—
Currency translation adjustment, net of tax		—			—			—			—			(887	)


BALANCE AT JANUARY 3, 2016		49,838,221		$	498		$	6,942		$	(1,804,143	)	$	(3,548	)

The accompanying notes are an integral part of these consolidated statements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	For the Years Ended
	January 3, 2016			December 28, 2014			December 29, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	192,789		$	162,587		$	142,985
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization		32,434			35,788			25,783
(Gains) losses on sale/disposal of assets		316			(1,107	)		367
Benefit for losses on accounts and notes receivable		(1,084	)		(570	)		(1,257	)
Provision (benefit) for deferred income taxes		1,713			(132	)		6,055
Amortization of debt issuance costs		12,393			5,746			6,094
Non-cash compensation expense		17,623			17,587			21,987
Tax impact from equity-based compensation		(17,775	)		(27,583	)		(19,498	)
Changes in operating assets and liabilities-
Increase in accounts receivable		(13,678	)		(12,710	)		(11,001	)
Increase in inventories, prepaid expenses and other		(2,262	)		(11,827	)		(242	)
Increase in accounts payable and accrued liabilities		69,032			22,776			21,867
Increase in insurance reserves		285			1,784			849

Net cash provided by operating activities		291,786			192,339			193,989

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(63,282	)		(70,093	)		(40,387	)
Proceeds from sale of assets		12,724			9,160			4,518
Change in restricted cash		(59,986	)		4,499			(65,438	)
Other		1,252			(1,009	)		1,574

Net cash used in investing activities		(109,292	)		(57,443	)		(99,733	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		1,305,000			—			—
Repayments of long-term debt and capital lease obligations		(564,403	)		(12,332	)		(24,349	)
Proceeds from exercise of stock options		4,814			9,028			9,451
Tax impact from equity-based compensation		17,775			27,583			19,498
Purchases of common stock		(738,557	)		(82,407	)		(97,132	)
Tax payments for restricted stock upon vesting		(7,431	)		(7,927	)		(8,031	)
Payments of common stock dividends and equivalents		(80,329	)		(52,843	)		(34,241	)
Cash paid for financing costs		(17,367	)		—			—
Other		(438	)		—			—

Net cash used in financing activities		(80,936	)		(118,898	)		(134,804	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		1,036			474			118

CHANGE IN CASH AND CASH EQUIVALENTS		102,594			16,472			(40,430	)

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD		30,855			14,383			54,813


CASH AND CASH EQUIVALENTS, AT END OF PERIOD	$	133,449		$	30,855		$	14,383

The accompanying notes are an integral part of these consolidated statements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Domino’s Pizza, Inc. (“DPI”), a Delaware corporation, conducts its operations and derives substantially all of its operating income and cash flows through its wholly-owned subsidiary, Domino’s, Inc. (Domino’s) and Domino’s wholly-owned subsidiary, Domino’s Pizza LLC (“DPLLC”). DPI and its wholly-owned subsidiaries (collectively, “the Company”) are primarily engaged in the following business activities: (i) retail sales of food through Company-owned Domino’s Pizza stores; (ii) sales of food, equipment and supplies to Company-owned and franchised Domino’s Pizza stores through Company-owned supply chain centers; and (iii) receipt of royalties and fees from domestic and international Domino’s Pizza franchisees.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of DPI and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Fiscal Year

The Company’s fiscal year ends on the Sunday closest to December 31. The 2015 fiscal year ended on January 3, 2016, the 2014 fiscal year ended on December 28, 2014 and the 2013 fiscal year ended on December 29, 2013. The 2015 fiscal year consisted of fifty-three weeks, and the 2014 and 2013 fiscal years each consisted of fifty-two weeks.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase. These investments are carried at cost, which approximates fair value.

Restricted Cash and Cash Equivalents

Restricted cash at January 3, 2016 includes $114.2 million of cash held for future principal and interest payments, $26.7 million of cash held in a three month interest reserve, and $40.0 million of cash held as collateral for outstanding letters of credit.

Restricted cash at December 28, 2014 included $56.2 million of cash held for future principal and interest payments, $20.8 million of cash held in a three month interest reserve, $43.9 million of cash held as collateral for outstanding letters of credit and $0.1 million of other restricted cash.

Inventories

Inventories are valued at the lower of cost (on a first-in, first-out basis) or market. Inventories at January 3, 2016 and December 28, 2014 are comprised of the following (in thousands):


	2015		2014
Food	$	30,167	$	31,627
Equipment and supplies		6,694		6,317

Inventories	$	36,861	$	37,944

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Other Assets

Current and long-term other assets primarily include prepaid expenses such as insurance, rent and taxes, deposits, notes receivable, as well as covenants not-to-compete and other intangible assets primarily arising from franchise acquisitions. As of January 3, 2016 and December 28, 2014, all intangible assets were fully amortized.

Asset Held-for-Sale

During the third quarter of 2014, the Company’s Board of Directors approved the sale of the existing corporate airplane, which the Company began actively marketing in the fourth quarter of 2014. As a result of these actions, the Company met held-for-sale criteria and classified the asset as held for sale at December 28, 2014. In the first quarter of 2015, the Company sold the asset for approximately $5.7 million.

Property, Plant and Equipment

Additions to property, plant and equipment are recorded at cost. Repair and maintenance costs are expensed as incurred. Depreciation and amortization expense is provided using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives, other than the estimated useful life of the capital lease assets as described below, are generally as follows (in years):


Buildings		20
Leasehold and other improvements		7 – 15
Equipment		3 – 15

Included in land and buildings as of January 3, 2016 and December 28, 2014 are capital lease assets of approximately $5.1 million and $1.5 million, which are net of $5.4 million and $5.9 million of accumulated amortization, respectively, primarily related to the lease of a supply chain center building, and to a lesser extent, leases of computer equipment. The capital lease assets are being amortized using the straight-line method over the respective lease terms.

Depreciation and amortization expense on property, plant and equipment was approximately $24.1 million, $28.4 million and $20.5 million in 2015, 2014 and 2013, respectively.

Impairments of Long-Lived Assets

The Company evaluates the potential impairment of long-lived assets at least annually based on various analyses including the projection of undiscounted cash flows and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. For Company-owned stores, the Company performs this evaluation on an operating market basis, which the Company has determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows. If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset, the Company estimates the fair value of the assets. If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is recognized and the asset is written down to its estimated fair value.

During the fourth quarter of 2014, in connection with meeting held-for-sale criteria for its corporate airplane, the Company recorded $5.8 million of pre-tax expense to reduce the asset to its fair value less cost to sell. This impairment loss was recorded in general and administrative expenses on the consolidated statements of income. Aside from the impairment loss on the corporate airplane in 2014, the Company did not record an impairment loss on long-lived assets in 2015, 2014 or 2013.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Investments in Marketable Securities

Investments in marketable securities consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plan (Note 7). These investments are stated at aggregate fair value, are restricted and have been placed in a rabbi trust whereby the amounts are irrevocably set aside to fund the Company’s obligations under the deferred compensation plan. The Company classifies and accounts for these investments in marketable securities as trading securities.

Debt Issuance Costs

Debt issuance costs primarily include the expenses incurred by the Company as part of the 2012 and 2015 Recapitalizations (Note 4). Amortization is provided on a straight-line basis (which is materially consistent with the effective interest method) over the expected term of the respective debt instrument to which the costs relate and is included in interest expense.

In connection with the 2012 Recapitalization, the Company recorded $39.9 million of debt issuance costs. In connection with the 2015 Recapitalization, the Company wrote-off approximately $6.9 million of these costs in connection with the extinguishment of $551 million of the 2012 Fixed Rate Notes. The remaining debt issuance costs related to the 2012 Recapitalization are being amortized into interest expense over the seven-year expected term of the 2012 Fixed Rate Notes. Additionally, in connection with the 2015 Recapitalization, the Company recorded $17.4 million of debt issuance costs, which are being amortized into interest expense over the five and ten-year expected terms of the 2015 Fixed Rate Notes.

In connection with the aforementioned write-off of debt issuance costs and scheduled principal payments of its Fixed Rate Notes (Note 4), the Company expensed debt issuance costs of approximately $6.9 million, $0.2 million and $0.5 million in 2015, 2014 and 2013, respectively. Debt issuance cost expense, including the aforementioned amounts, was approximately $12.4 million, $5.7 million and $6.1 million in 2015, 2014 and 2013, respectively.

Goodwill

The Company’s goodwill amounts primarily relate to franchise store acquisitions and are not amortized. The Company performs its required impairment tests in the fourth quarter of each fiscal year and did not recognize any goodwill impairment charges in 2015, 2014 or 2013.

Capitalized Software

Capitalized software is recorded at cost and includes purchased, internally-developed and externally-developed software used in the Company’s operations. Amortization expense is provided using the straight-line method over the estimated useful lives of the software, which range from one to three years. Capitalized software amortization expense was approximately $8.3 million, $7.3 million and $5.0 million in 2015, 2014 and 2013, respectively. The Company received $3.9 million, $3.4 million and $3.0 million from franchisees from sales and enhancements of internally developed point-of-sale software during 2015, 2014 and 2013, respectively.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Insurance Reserves

The Company has retention programs for workers’ compensation, general liability and owned and non-owned automobile liabilities for certain periods prior to December 1998 and for periods after December 2001. The Company is generally responsible for up to $1.0 million per occurrence under these retention programs for workers’ compensation and general liability exposures. The Company is also generally responsible for between $500,000 and $3.0 million per occurrence under these retention programs for owned and non-owned automobile liabilities depending on the year. Total insurance limits under these retention programs vary depending on the year covered and range up to $110.0 million per occurrence for general liability and owned and non-owned automobile liabilities and up to the applicable statutory limits for workers’ compensation.

Insurance reserves relating to our retention programs are based on undiscounted actuarial estimates. These estimates are based on historical information and on certain assumptions about future events. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause these estimates to change in the near term. The Company receives estimates of outstanding insurance exposures from its independent actuary and differences between these estimated actuarial exposures and the Company’s recorded amounts are adjusted as appropriate.

Other Accrued Liabilities

Current and long-term other accrued liabilities primarily include accruals for sales, property and other taxes, legal reserves, store operating expenses, deferred rent expense and deferred compensation liabilities.

Foreign Currency Translation

The Company’s foreign entities use their local currency as the functional currency. For these entities, the Company translates net assets into U.S. dollars at year end exchange rates, while income and expense accounts are translated at average annual exchange rates. Currency translation adjustments are included in accumulated other comprehensive income (loss) and foreign currency transaction gains and losses are included in determining net income.

Revenue Recognition

Domestic Company-owned stores revenues are comprised of retail sales of food through Company-owned Domino’s Pizza stores located in the contiguous United States and are recognized when the items are delivered to or carried out by customers.

Domestic franchise revenues are primarily comprised of royalties and fees from Domino’s Pizza franchisees with operations in the contiguous United States. Royalty revenues are recognized when the items are delivered to or carried out by franchise customers.

Supply chain revenues are primarily comprised of sales of food, equipment and supplies to franchised Domino’s Pizza stores located in the United States and Canada. Revenues from the sales of food are recognized upon delivery of the food to franchisees, while revenues from the sales of equipment and supplies are generally recognized upon shipment of the related products to franchisees.

International franchise revenues are primarily comprised of royalties and fees from Domino’s Pizza franchisees outside the contiguous United States. These revenues are recognized consistently with the policies applied for franchise revenues generated in the contiguous United States.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Supply Chain Profit-Sharing Arrangements

The Company enters into profit-sharing arrangements with domestic and Canadian stores that purchase all of their food from Supply Chain (Note 11). These profit-sharing arrangements generally offer Company-owned stores and participating franchisees with 50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of their regional supply chain center’s pre-tax profits based upon each store’s purchases from the supply chain center. Profit-sharing obligations are recorded as a revenue reduction in Supply Chain in the same period as the related revenues and costs are recorded, and were $85.8 million, $75.7 million and $73.9 million in 2015, 2014 and 2013, respectively.

Advertising

Advertising costs are expensed as incurred. Advertising expense, which relates primarily to Company-owned stores, was approximately $32.0 million, $29.0 million and $29.6 million during 2015, 2014 and 2013, respectively.

Domestic Stores (Note 11) are required to contribute a certain percentage of sales to the Domino’s National Advertising Fund Inc. (“DNAF”), a not-for-profit subsidiary that administers the Domino’s Pizza system’s national and market level advertising activities in the United States. Included in advertising expense were national advertising contributions from Company-owned stores to DNAF of approximately $23.2 million, $20.9 million and $20.1 million in 2015, 2014 and 2013, respectively. DNAF also received national advertising contributions from franchisees of approximately $247.0 million, $217.7 million and $199.4 million during 2015, 2014 and 2013, respectively. Franchisee contributions to DNAF and offsetting disbursements are presented net in the accompanying statements of income.

DNAF assets, consisting primarily of cash received from franchisees and accounts receivable from franchisees, can only be used for activities that promote the Domino’s Pizza® brand. Accordingly, all assets held by the DNAF are considered restricted.

Rent

The Company leases certain equipment, vehicles, retail store and supply chain center locations and its corporate headquarters under operating leases with expiration dates through 2027. Rent expenses totaled approximately $46.1 million, $43.0 million and $40.2 million during 2015, 2014 and 2013, respectively.

Common Stock Dividends

During 2015, the Company declared dividends of approximately $66.5 million, or $1.24 per share, which were paid in 2015. The third quarter 2015 dividend of approximately $15.3 million was paid to shareholders on December 30, 2015, which is also included in fiscal 2015.

During 2014, the Company declared dividends of approximately $55.3 million, or $1.00 per share, of which approximately $41.7 million were paid in 2014. The third quarter 2014 dividend of approximately $13.8 million was paid to shareholders on December 30, 2014, which was included in fiscal 2015.

During 2013, the Company declared dividends of approximately $44.2 million, or $0.80 per share, of which approximately $34.2 million were paid in 2013. The third quarter 2013 dividend of approximately $11.1 million was paid to shareholders on December 30, 2013, which was included in fiscal 2014.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Derivative Instruments

The Company recognizes all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value. The Company had no outstanding derivative instruments as of January 3, 2016 and December 28, 2014.

Stock Options and Other Equity-Based Compensation Arrangements

The cost of all of the Company’s stock options, as well as other equity-based compensation arrangements, is reflected in the financial statements based on the estimated fair value of the awards.

Earnings Per Share

The Company discloses two calculations of earnings per share (“EPS”): basic EPS and diluted EPS. The numerator in calculating common stock basic and diluted EPS is consolidated net income. The denominator in calculating common stock basic EPS is the weighted average shares outstanding. The denominator in calculating common stock diluted EPS includes the additional dilutive effect of outstanding stock options and unvested restricted stock grants and unvested performance-based restricted stock grants.

Supplemental Disclosures of Cash Flow Information

The Company paid interest of approximately $80.8 million, $81.1 million and $82.9 million during 2015, 2014 and 2013, respectively. Cash paid for income taxes was approximately $80.1 million, $76.5 million and $62.8 million in 2015, 2014 and 2013, respectively.

The Company had $0.8 million and $1.7 million of non-cash investing activities related to accruals for capital expenditures in 2015 and 2014, respectively. The Company also had non-cash financing activities related to capital assets and liabilities in 2015. Specifically, the Company recorded $3.4 million for the renewal of a capital lease of a supply chain center building in the first quarter of 2015, and recorded $0.6 million as a result of entering into a capital lease for a corporate store in the third quarter of 2015.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This guidance outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance. ASU 2014-09 was originally effective for annual reporting periods beginning on or after December 15, 2016 and interim periods therein. In August 2015 the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one year making it effective for annual reporting periods beginning or after December 15, 2017 while also providing for early adoption but not before the original effective date. The Company is currently assessing the impact on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amends current consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis of reporting entities that are involved with variable interest entities. ASU No. 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. All legal entities are subject to reevaluation under the revised consolidation model. The adoption of ASU 2015-02 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as deferred charge assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs. The Company early-adopted ASU 2015-03 as of the end of fiscal 2015, and applied its provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification of $27.9 million and $22.9 million of unamortized debt issuance costs related to the Company’s Fixed Rate Notes from other non-current assets to long-term debt within its consolidated balance sheets as of both January 3, 2016 and December 28, 2014, respectively (refer to Note 4 of the financial statements for additional detail). Other than this reclassification, the adoption of ASU 2015-03 did not have an impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, (“ASU 2015-17”). ASU 2015-17 simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. During the fourth quarter of fiscal 2015, the Company elected to early adopt the pronouncement on a prospective basis. Adoption of this amendment did not have a material impact on the Company’s financial position or results of operations, and prior periods were not retrospectively adjusted.

Accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(2)	EARNINGS PER SHARE

The computation of basic and diluted earnings per common share is as follows (in thousands, except share and per share amounts):


	2015		2014		2013
Net income available to common stockholders – basic and diluted	$	192,789	$	162,587	$	142,985


Weighted average number of common shares		53,828,609		54,918,471		55,345,554

Earnings per common share – basic	$	3.58	$	2.96	$	2.58

Diluted weighted average number of common shares		55,532,955		56,931,226		57,720,998

Earnings per common share – diluted	$	3.47	$	2.86	$	2.48

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The denominator in calculating the common stock diluted EPS does not include 188,080 stock options in 2015, 222,060 stock options in 2014 and 152,340 stock options in 2013, as their inclusion would be anti-dilutive.

(3)	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.

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 following table summarizes the carrying amounts and fair values of certain assets at January 3, 2016:


	At January 3, 2016
			Fair Value Estimated Using
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Cash equivalents	$	108,766	$	108,766	$	—	$	—
Restricted cash equivalents		128,554		128,554		—		—
Investments in marketable securities		6,054		6,054		—		—

The following table summarizes the carrying amounts and fair values of certain assets at December 28, 2014:


	At December 28, 2014
			Fair Value Estimated Using
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Cash equivalents	$	16,290	$	16,290	$	—	$	—
Restricted cash equivalents		93,121		93,121		—		—
Investments in marketable securities		4,586		4,586		—		—

(4)	RECAPITALIZATIONS AND FINANCING ARRANGEMENTS

On October 21, 2015, the Company completed a recapitalization transaction (the “2015 Recapitalization”) by issuing $1.3 billion aggregate principal amount of fixed rate notes consisting of $500 million Series 2015-1 3.484% Fixed Rate Senior Secured Notes, Class A-2-I (the “2015 Five-Year Notes”) and $800 million Series 2015-1 4.474% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Ten-Year Notes” and, together with the 2015 Five-Year Notes, the “2015 Fixed Rate Notes”). Concurrently, the Company also issued a revolving financing facility which allows for advances of up to $125 million of Series 2015-1 Variable Funding Senior Secured Notes, Class A-1 (the “2015 Variable Funding Notes”) and issuances of letters of credit. The 2015 Variable Funding Notes were undrawn upon issuance. Gross proceeds from the issuance of the 2015 Fixed Rate Notes were $1.3 billion. The 2015 Fixed Rate Notes and the 2015 Variable Funding Notes are referred to collectively as the “2015 Notes.”

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The Company’s previous refinancing transaction occurred in April 2012 (the “2012 Recapitalization”), with the issuance of $1.575 billion of Series 2012-1 5.216% Fixed Rate Senior Secured Notes, Class A-2 (the “2012 Fixed Rate Notes”) and a revolving financing facility that allowed for advances of up to $100 million of Series 2012-1 Variable Funding Senior Secured Notes, Class A-1 Notes (the “2012 Variable Funding Notes”). The 2012 Fixed Rate Notes and the 2012 Variable Funding Notes are referred to collectively as the “2012 Notes.” The 2012 Fixed Rate Notes and the 2015 Fixed Rate Notes are referred to collectively as the “Fixed Rate Notes”. The 2012 Notes and the 2015 Notes are referred to collectively as the “Notes.”

A portion of proceeds from the 2015 Recapitalization were used to make an optional prepayment of approximately $551 million in aggregate principal amount of the 2012 Fixed Rate Notes, at par, pay scheduled principal catch-up amounts on the 2012 Fixed Rate Notes, make an interest reserve deposit, pre-fund a portion of the principal and interest payable on the 2015 Fixed Rate Notes and pay transaction fees and expenses. In connection with the issuance and sale of the 2015 Variable Funding Notes, the Company permanently reduced to zero the commitment to fund the 2012 Variable Funding Notes and the 2012 Variable Funding Notes were cancelled.

Additionally, as part of the 2015 Recapitalization, on October 23, 2015, the Company’s Board of Directors authorized a new share repurchase program to repurchase up to $800 million of the Company’s common stock. This repurchase program replaced the remaining availability under the Company’s previously disclosed $200 million share repurchase program. On October 27, 2015, the Company entered into a $600 million accelerated share repurchase agreement (the “ASR Agreement”) with a counterparty. Pursuant to the terms of the ASR Agreement, on October 30, 2015, as part of its new $800 million share repurchase authorization, the Company used a portion of the proceeds from the 2015 Recapitalization to pay the counterparty $600 million in cash and received 4,858,994 shares of the Company’s common stock. At final settlement, the counterparty may be required to deliver additional shares of common stock to the Company, or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the counterparty, based generally on the average of the daily volume-weighted average prices of the Company’s common stock during the term of the ASR Agreement. The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances generally under which the ASR Agreement may be accelerated, extended or terminated early by the counterparty and various acknowledgments, representations and warranties made by the parties to one another. Final settlement of the ASR Agreement is expected to be completed by the end of the first quarter of 2016, although the settlement may be accelerated at the counterparty’s option.

2015 Fixed Rate Notes

The 2015 Fixed Rate Notes have scheduled principal payments of $13.0 million in each of 2016, 2017, 2018, and 2019, $488.0 million in 2020, $8.0 million in each of 2021, 2022, 2023, and 2024, and $728.0 million in 2025.

The legal final maturity date of the 2015 Fixed Rate Notes is in October of 2045, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2015 Five-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October of 2020 and the 2015 Ten-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October of 2025. If the Company has not repaid or refinanced the 2015 Fixed Rate Notes prior to the applicable anticipated repayment date, additional interest will accrue of at least 5% per annum, as defined in the related agreements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2015 Variable Funding Notes

The 2015 Variable Funding Notes allow for advances of up to $125 million and issuance of letters of credit. Interest on the 2015 Variable Funding Notes will be payable at a per year rate equal to LIBOR plus 219 basis points. The 2015 Variable Funding Notes were undrawn at closing. The unused portion of the 2015 Variable Funding Notes is subject to a commitment fee ranging from 50 to 100 basis points depending on utilization. It is anticipated that any amounts outstanding on the 2015 Variable Funding Notes will be repaid in full on or prior to October 2020, subject to two additional one-year extensions at the option of the Company, subject to certain conditions. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue on the 2015 Variable Funding Notes equal to 5% per annum. At January 3, 2016, there were $46.2 million of letters of credit and $78.8 million of borrowing capacity under the $125 million 2015 Variable Funding Notes.

2012 Fixed Rate Notes

Subsequent to the Company’s optional prepayment of approximately $551 million in aggregate principal amount of the 2012 Fixed Rate Notes in connection with the 2015 Recapitalization, the 2012 Fixed Rate Notes have remaining scheduled principal payments of $46.1 million in 2016, $25.6 million in each of 2017 and 2018, and $865.4 million in 2019. During fiscal 2015, the Company made principal payments of approximately $7.9 million in addition to the aforementioned $551 million optional prepayment of the 2012 Fixed Rate Notes. The expected repayment date for the 2012 Fixed Rate Notes is January 2019, with legal final maturity in January 2042.

2012 Variable Funding Notes

In connection with the 2015 Recapitalization, the 2012 Variable Funding Notes were cancelled. The 2012 Variable Funding Notes allowed for the issuance of up to $100.0 million of financing and certain other credit instruments, including letters of credit in support of various obligations of the Company.

Guarantees and Covenants of the Notes

The Notes are guaranteed by four subsidiaries of DPLLC and secured by a security interest in substantially all of the assets of the Company, including royalty and certain other income from all domestic and international stores, domestic supply chain income and intellectual property. The restrictions placed on the Company’s subsidiaries require that the Company’s principal and interest obligations have first priority and amounts are segregated weekly to ensure appropriate funds are reserved to pay the quarterly interest amounts due. The amount of weekly cash flow that exceeds the required weekly interest reserve is generally remitted to the Company in the form of a dividend. However, once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the subsidiaries.

The Fixed Rate Notes are subject to certain financial and non-financial covenants, including a debt service coverage ratio calculation, as defined in the related agreements. The covenants, among other things, may limit the ability of certain of our subsidiaries to declare dividends, make loans or advances or enter into transactions with affiliates. In the event that certain covenants are not met, the Fixed Rate Notes may become partially or fully due and payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Fixed Rate Notes at any time, subject to certain make-whole interest obligations. All make-whole interest obligations on the 2015 Five-Year Notes cease after April 2018. The 2015 Ten-Year Notes are callable at 101% in 2018, subject to certain conditions as defined in the related debt agreements, and all make-whole interest obligations on the 2015 Ten-Year Notes cease after October 2022. All make-whole interest obligations on the 2012 Fixed Rate Notes cease after July 2017.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

While the Fixed Rate Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis. The payment of principal of the Fixed Rate Notes (i) shall be suspended if the leverage ratios for the Company are less than or equal to 4.5x total debt to EBITDA and there are no scheduled principal catch-up amounts outstanding; provided, that during any such suspension, principal payments will continue to accrue and are subject to catch-up upon failure to satisfy the aforementioned leverage ratios on an ongoing basis, or (ii) on and after the payment in full of the 2012 Fixed Rate Notes, may be suspended if certain leverage ratios for the Company are less than or equal to 5.0x total debt to EBITDA and no catch-up provisions are applicable. During the second quarter of 2014, the Company met the maximum leverage ratios of less than 4.5x, and, in accordance with the debt agreements, ceased debt amortization payments in the third quarter of 2014. The Company continued to meet the maximum leverage ratios of less than 4.5x in each of the quarters prior to the 2015 Recapitalization and accordingly, did not make previously scheduled debt amortization payments as permitted in the debt agreements. Subsequent to the 2015 Recapitalization, the Company’s leverage ratios exceeded 4.5x and, accordingly, the Company began making the scheduled amortization payments as well as the required catch-up payments.

Fair Value Disclosures

At January 3, 2016, management estimates that the approximately $962.7 million in principal amount of outstanding 2012 Fixed Rate Notes had a fair value of approximately $991.6 million, and at December 28, 2014 the approximately $1.522 billion in principal amount of 2012 Fixed Rate Notes had a fair value of approximately $1.597 billion. At January 3, 2016, management estimates that the $500 million in principal amount of outstanding 2015 Five-Year Notes had a fair value of approximately $489.5 million, and at January 3, 2016, management estimates that the $800 million in principal amount of outstanding 2015 Ten-Year Notes had a fair value of approximately $781.6 million. The Fixed Rate Notes are classified as a Level 2 measurement (Note 3), as the Company estimated the fair value amount by using available market information. The Company obtained broker quotes from two separate brokerage firms that are knowledgeable about the Company’s Fixed Rate Notes and, at times, trade these notes. Further, the Company performs its own internal analysis based on the information it gathers from public markets, including information on notes that are similar to that of the Company. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the fair value estimates presented herein are not necessarily indicative of the amount that the Company or the debtholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values calculated above.

Debt Issuance Costs and Transaction-Related Expenses

During fiscal 2015 and in connection with the 2015 Recapitalization, the Company incurred approximately $8.1 million of net expenses. This consisted primarily of the aforementioned $6.9 million net write-off of deferred financing fees. The Company also incurred approximately $0.4 million of interest expense on the 2012 Fixed Rate Notes subsequent to the closing of the 2015 Recapitalization but prior to the repayment of the 2012 Fixed Rate Notes, resulting in the payment of interest on both the full amount of the 2012 and 2015 Fixed Rate Notes for a short period of time. Further, the Company incurred $0.9 million of other net 2015 Recapitalization-related general and administrative expenses, including legal and professional fees.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Consolidated Long-Term Debt

At January 3, 2016 and December 28, 2014, consolidated long-term debt consisted of the following (in thousands):


	2015			2014
5.216% Class A-2 Notes; expected repayment date January 2019; legal final maturity January 2042	$	962,719		$	1,521,844
3.484% Class A-2-I Notes; expected repayment date October 2020; legal final maturity October 2045		500,000			—
4.474% Class A-2-II Notes; expected repayment date October 2025; legal final maturity October 2045		800,000			—
2012 Variable Funding Notes		—			—
2015 Variable Funding Notes		—			—
Capital lease obligations		5,996			2,267
Debt issuance costs, net of accumulated amortization of $14.7 million in 2015 and $17.0 million in 2014		(27,922	)		(22,947	)

Total debt		2,240,793			1,501,164
Less – current portion		59,333			565

Consolidated long-term debt, net of debt issuance costs	$	2,181,460		$	1,500,599

At January 3, 2016, maturities of long-term debt and capital lease obligations are as follows (in thousands):


2016	$	59,333
2017		38,886
2018		38,917
2019		878,821
2020		488,396
Thereafter		764,362

	$	2,268,715

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(5)	COMMITMENTS AND CONTINGENCIES

Lease Commitments

As of January 3, 2016, the future minimum rental commitments for all non-cancelable leases are as follows (in thousands):


	Operating Leases		Capital Leases			Total
2016	$	50,939	$	831		$	51,770
2017		47,340		823			48,163
2018		43,356		826			44,182
2019		34,746		828			35,574
2020		28,368		831			29,199
Thereafter		72,696		6,012			78,708

Total future minimum rental commitments	$	277,445		10,151		$	287,596

Less – amounts representing interest				(4,155	)

Total principal payable on capital leases			$	5,996

Legal Proceedings and Related Matters

The Company is a party to lawsuits, revenue agent reviews by taxing authorities and legal proceedings, of which the majority involve workers’ compensation, employment practices liability, general liability and automobile and franchisee claims arising in the ordinary course of business. The Company records legal fees associated with loss contingencies when they are probable and reasonably estimable.

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Included in the ordinary course litigation matters referenced above, the Company is party to two employment practice cases and two casualty cases. We have established legal and insurance accruals for losses relating to these cases which we believe are reasonable based upon our assessment of the current facts and circumstances. However, it is reasonably possible that our ultimate losses could exceed the amounts recorded by $2.0 million. The remaining cases referenced above could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy. In management’s opinion, these matters, individually and in the aggregate, should not have a significant adverse effect on the financial condition of the Company, and the established accruals adequately provide for the estimated resolution of such claims.

On September 11, 2012, Domino’s Pizza LLC was named as a defendant in a lawsuit along with MAC Pizza Management, Inc., a large franchisee, and Joshua Balka, the franchisee’s delivery driver, filed by Raghurami Reddy, the plaintiff. The case involved a traffic accident in which the franchisee’s delivery driver collided with another vehicle, where the driver of the other vehicle sustained head injuries and the passenger of the other vehicle sustained fatal injuries. The jury delivered a $32.0 million judgment for the plaintiff where the Company was found to be 60% liable. The Company denied liability and filed an appeal of the verdict on a variety of grounds. In the first quarter of 2015, the appellate court reversed the trial court’s decision and dismissed the claims against the Company. The plaintiff has filed a writ of review with the Supreme Court of the State of Texas. The Company filed opposition to the writ of review and the matter is currently pending before the Supreme Court of the State of Texas. The Company continues to deny liability in this matter and assert that the claims were appropriately dismissed by the Court of Appeals of the State of Texas.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(6)	INCOME TAXES

Income before provision for income taxes in 2015, 2014 and 2013 consists of the following (in thousands):


	2015		2014		2013
Domestic	$	298,055	$	250,730	$	217,468
Foreign		8,160		7,893		7,631

	$	306,215	$	258,623	$	225,099

The differences between the United States Federal statutory income tax provision (using the statutory rate of 35%) and the Company’s consolidated provision for income taxes for 2015, 2014 and 2013 are summarized as follows (in thousands):


	2015			2014			2013
Federal income tax provision based on the statutory rate	$	107,175		$	90,518		$	78,785
State and local income taxes, net of related Federal income taxes		8,589			7,320			5,880
Non-resident withholding and foreign income taxes		15,750			15,032			13,923
Foreign tax and other tax credits		(18,345	)		(17,397	)		(16,423	)
Non-deductible expenses, net		1,180			1,284			1,161
Valuation allowance		(301	)		(369	)		29
Unrecognized tax benefits, net of related Federal income taxes		110			(48	)		232
Other		(732	)		(304	)		(1,473	)

	$	113,426		$	96,036		$	82,114

The components of the 2015, 2014 and 2013 consolidated provision for income taxes are as follows (in thousands):


	2015		2014			2013
Provision for Federal income taxes –
Current provision	$	84,071	$	70,958		$	54,115
Deferred provision (benefit)		862		(873	)		5,280

Total provision for Federal income taxes		84,933		70,085			59,395

Provision for state and local income taxes –
Current provision		11,892		10,178			8,021
Deferred provision		851		741			775

Total provision for state and local income taxes		12,743		10,919			8,796

Provision for non-resident withholding and foreign income taxes		15,750		15,032			13,923

	$	113,426	$	96,036		$	82,114

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

As of January 3, 2016 and December 28, 2014, the significant components of net deferred income taxes are as follows (in thousands):


	2015			2014
Deferred Federal income tax assets –
Insurance reserves	$	10,202		$	10,359
Equity compensation		12,040			11,697
Other accruals and reserves		14,411			12,161
Bad debt reserves		1,232			1,675
Valuation allowance		(155	)		(456	)
Other		5,409			5,082

Total deferred Federal income tax assets		43,139			40,518


Deferred Federal income tax liabilities –
Depreciation, amortization and asset basis differences		3,667			899
Capitalized software		21,398			16,628
Gain on debt extinguishments		13,609			18,146
Other		288			576

Total deferred Federal income tax liabilities		38,962			36,249

Net deferred Federal income tax asset		4,177			4,269

Net deferred state and local income tax asset		1,688			2,475

Net deferred income taxes	$	5,865		$	6,744

As of January 3, 2016, the classification of net deferred income taxes is summarized as follows (in thousands):


	Long-term		Total
Deferred tax assets	$	5,865	$	5,865

Net deferred income tax assets	$	5,865	$	5,865

As of December 28, 2014, the classification of net deferred income taxes is summarized as follows (in thousands):


	Current			Long-term			Total
Deferred tax assets	$	14,681		$	28,312		$	42,993
Deferred tax liabilities		(4,824	)		(31,425	)		(36,249	)

Net deferred income taxes	$	9,857		$	(3,113	)	$	6,744

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Realization of the Company’s deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Although realization of the Company’s net deferred tax assets is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. On an ongoing basis, management will assess whether it remains more likely than not that the net deferred tax assets will be realized.

For financial reporting purposes, the Company’s investment in foreign subsidiaries does not exceed its tax basis. Therefore no deferred income taxes have been provided.

The Company recognizes the financial statement benefit of a tax position if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and penalties in income tax expense.

During 2013, the Company accrued interest expense of $0.1 million. At December 29, 2013, the amount of unrecognized tax benefits was $3.6 million of which, if ultimately recognized, $2.1 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. At December 29, 2013, the Company had $0.6 million of accrued interest and no accrued penalties. This amount is excluded from the $3.6 million total unrecognized tax benefit.

During 2014 and in connection with the sale of 14 Company-owned stores to franchisees, the Company recognized a capital gain and also released $0.3 million of a deferred tax valuation allowance.

During 2014, the Company accrued interest expense of $0.1 million. At December 28, 2014, the amount of unrecognized tax benefits was $2.9 million of which, if ultimately recognized, $1.7 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. At December 28, 2014, the Company had $0.7 million of accrued interest and no accrued penalties. This amount is excluded from the $2.9 million total unrecognized tax benefit.

During 2015 and in connection with the sale of four Company-owned stores to franchisees, the Company recognized a capital gain and also released $0.3 million of a deferred tax valuation allowance.

During 2015, the Company reversed an interest expense accrual of $0.6 million. At January 3, 2016, the amount of unrecognized tax benefits was $2.1 million of which, if ultimately recognized, $1.7 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. At January 3, 2016, the Company had less than $0.1 million of accrued interest and no accrued penalties.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


Balance as of December 30, 2012	$	3,472

Additions for tax positions of current year		337
Additions for tax positions of prior years		398
Reductions in tax positions from prior years for:
Changes in prior year tax positions		(157	)
Settlements during the period		(133	)
Lapses of applicable statute of limitations		(344	)

Balance as of December 29, 2013		3,573

Additions for tax positions of current year		211
Additions for tax positions of prior years		173
Reductions in tax positions from prior years for:
Changes in prior year tax positions		(605	)
Settlements during the period		(55	)
Lapses of applicable statute of limitations		(358	)

Balance as of December 28, 2014		2,939

Additions for tax positions of current year		233
Additions for tax positions of prior years		171
Reductions in tax positions from prior years for:
Changes in prior year tax positions		(100	)
Settlements during the period		(27	)
Lapses of applicable statute of limitations		(1,101	)

Balance as of January 3, 2016	$	2,115

The Company continues to be under examination by certain states. The Company’s Federal statute of limitation has expired for years prior to 2012 and the relevant state and foreign statutes vary. The Company expects the current ongoing examinations to be concluded in the next twelve months and does not expect the assessment of any significant additional amounts in excess of amounts reserved.

(7)	EMPLOYEE BENEFITS

The Company has a retirement savings plan which qualifies under Internal Revenue Code Section 401(k). All employees of the Company who have completed 1,000 hours of service and are at least 21 years of age are eligible to participate in the plan. The plan requires the Company to match 100% of the first 3% of each employee’s elective deferrals and 50% of the next 2% of each employee’s elective deferrals. During 2015, 2014 and 2013, the Company’s matching contributions were made in the form of cash and vested immediately. The expenses incurred for Company contributions to the plan were approximately $4.6 million, $4.1 million and $3.9 million in 2015, 2014 and 2013, respectively.

The Company has established a non-qualified deferred compensation plan available for certain key employees. Under this self-funding plan, the participants may defer up to 40% of their annual compensation. The participants direct the investment of their deferred compensation within several investment funds. The Company is not required to contribute and did not contribute to this plan during 2015, 2014 or 2013.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The Company has an employee stock purchase discount plan (the “ESPDP”). Under the ESPDP, eligible employees may deduct up to 15% of their eligible wages to purchase common stock at 85% of the market price of the stock at the purchase date. The ESPDP requires employees to hold their purchased common stock for at least one year. The Company purchases common stock on the open market for the ESPDP at the current market price. There were 23,994 shares, 25,224 shares and 27,404 shares of common stock in 2015, 2014 and 2013, respectively, purchased on the open market for participating employees at a weighted-average price of $105.16 in 2015, $74.89 in 2014 and $55.24 in 2013. The expenses incurred under the ESPDP were approximately $0.4 million, $0.3 million and $0.2 million in 2015, 2014 and 2013, respectively.

(8)	FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company is a party to stand-by letters of credit. The Company’s exposure to credit loss for stand-by letters of credit is represented by the contractual amounts of these instruments. The Company uses the same credit policies in making conditional obligations as it does for on-balance sheet instruments. Total conditional commitments under letters of credit as of January 3, 2016 are $46.2 million and relate to the Company’s insurance programs and supply chain center leases. As of January 3, 2016, a portion of the Company’s stand-by letters of credit were collateralized with $40.0 million of cash. The Company has also guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees is $1.8 million as of January 3, 2016.

(9)	EQUITY INCENTIVE PLANS

The cost of all employee stock options, as well as other equity-based compensation arrangements, is reflected in the consolidated statements of income based on the estimated fair value of the awards.

The Company’s current equity incentive plan benefits certain of the Company’s employees and directors and is named the Domino’s Pizza, Inc. 2004 Equity Incentive Plan (the 2004 Equity Incentive Plan). As of January 3, 2016, the maximum number of shares that may be granted under the 2004 Equity Incentive Plan is 15,600,000 shares of voting common stock of which 3,209,604 shares were authorized for grant but have not been granted.

The Company recorded total non-cash compensation expense of $17.6 million, $17.6 million and $22.0 million in 2015, 2014 and 2013, respectively. All non-cash compensation expense amounts are recorded in general and administrative expense.

Stock Options

As of January 3, 2016, the number of stock options granted and outstanding under the 2004 Equity Incentive Plan was 3,323,476 options. Stock options granted under the 2004 Equity Incentive Plan and a predecessor plan prior to fiscal 2009 were generally granted with an exercise price equal to the market price at the date of the grant, expired ten years from the date of grant and vested over five years from the date of grant. Stock options granted from fiscal 2009 through fiscal 2012 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over three years from the date of grant. Stock options granted in fiscal 2013 through fiscal 2015 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over four years from the date of grant. Additionally, all stock options granted become fully exercisable upon vesting. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Stock option activity related to the 2004 Equity Incentive Plan is summarized as follows:


	Common Stock Options
	Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
						(Years)		(In thousands)
Stock options at December 30, 2012		4,662,539		$	11.50

Stock options granted		591,490			50.83
Stock options cancelled		(8,500	)		7.63
Stock options exercised		(928,464	)		10.22

Stock options at December 29, 2013		4,317,065		$	17.17

Stock options granted		222,060			72.30
Stock options cancelled		(9,670	)		54.56
Stock options exercised		(939,340	)		9.56

Stock options at December 28, 2014		3,590,115		$	22.47

Stock options granted		193,970			111.63
Stock options cancelled		(32,176	)		73.55
Stock options exercised		(428,433	)		11.70

Stock options at January 3, 2016		3,323,476		$	28.57		4.8	$	275,589

Exercisable at January 3, 2016		2,747,863		$	18.67		4.1	$	254,388

The total intrinsic value of stock options exercised was approximately $41.7 million, $68.1 million and $46.0 million in 2015, 2014 and 2013, respectively. Cash received from the exercise of stock options was approximately $4.8 million, $9.0 million and $9.5 million in 2015, 2014 and 2013, respectively. The tax benefit realized from stock options exercised was approximately $14.7 million, $23.6 million and $15.5 million in 2015, 2014 and 2013, respectively.

The Company recorded total non-cash compensation expense of $3.9 million, $4.4 million and $6.9 million in 2015, 2014 and 2013, respectively, related to stock option awards. As of January 3, 2016, there was $7.6 million of total unrecognized compensation cost related to unvested stock options granted under the 2004 Equity Incentive Plan which generally will be recognized on a straight-line basis over the related vesting period. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.6 years.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Management estimated the fair value of each option grant made during 2015, 2014 and 2013 as of the date of the grant using the Black-Scholes option pricing method. Weighted average assumptions are presented in the following table. The risk-free interest rate is based on the estimated effective 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.


	2015			2014			2013
Risk-free interest rate		1.7	%		1.8	%		1.1	%
Expected life (years)		5.5			5.5			5.5
Expected volatility		28.4	%		33.7	%		38.7	%
Expected dividend yield		1.1	%		1.4	%		1.6	%

Weighted average fair value per stock option	$	28.45		$	21.16		$	15.84

Option valuation models require the input of highly subjective assumptions. In management’s opinion, existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options, as changes in subjective input assumptions can significantly affect the fair value estimate.

Other Equity-Based Compensation Arrangements

The Company granted 8,350 shares, 10,640 shares and 24,540 shares of restricted stock in 2015, 2014 and 2013, respectively, to members of its Board of Directors. These grants generally vest one-year from the date of the grant and have a fair value equal to the market price of the Company’s stock on the grant date. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. The Company recorded total non-cash compensation expense of $0.9 million, $0.8 million and $1.0 million in 2015, 2014 and 2013, respectively, related to these restricted stock awards. All non-cash compensation expense amounts are recorded in general and administrative expense. As of January 3, 2016, there was approximately $0.1 million of total unrecognized compensation cost related to these restricted stock grants.

The Company granted 88,250 shares, 119,670 shares and 312,330 shares of performance-based restricted stock in 2015, 2014 and 2013, respectively, to certain employees of the Company. These performance-based restricted stock awards are separated into four tranches and have time-based and performance-based vesting conditions with the last tranche vesting four years from the issuance date. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. These awards are considered granted for accounting purposes when the performance target is set, which is generally in the fourth quarter of each year. The Company recorded total non-cash compensation expense of $12.8 million, $12.4 million and $14.1 million in 2015, 2014 and 2013, respectively, related to these awards. All non-cash compensation expense amounts are recorded in general and administrative expense. As of January 3, 2016, there was an estimated $22.5 million of total unrecognized compensation cost related to performance-based restricted stock.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Restricted stock and performance-based restricted stock activity related to the 2004 Equity Incentive Plan is summarized as follows:


	Shares			Weighted Average Grant Date Fair Value

Nonvested at December 28, 2014		430,767		$	54.79

Shares granted (1)		96,600			113.02
Shares cancelled		(16,591	)		70.00
Shares vested		(194,444	)		48.33

Nonvested at January 3, 2016		316,332		$	75.74

(1)	The weighted average grant date fair value for performance-based restricted shares granted was calculated based on the market price on the grant dates. Certain tranches will ultimately be valued when the performance condition is established for each tranche, which generally occurs in the fourth quarter of each fiscal year.

(10)	CAPITAL STRUCTURE

The Company has a Board of Directors-approved open market share repurchase program of the Company’s common stock, which was reset during the third quarter of 2015 at $200.0 million. The open market share repurchase program has historically been funded by excess cash flow. As part of the 2015 Recapitalization, on October 23, 2015, the Company’s Board of Directors authorized a new share repurchase program to repurchase up to $800.0 million of the Company’s common stock. The $800.0 million repurchase program replaced the previously authorized $200.0 million repurchase program. On October 27, 2015, the Company entered into a $600.0 million ASR Agreement with a counterparty. Pursuant to the terms of the ASR Agreement, on October 30, 2015, as part of its new $800.0 million share repurchase authorization, the Company used a portion of the proceeds from the 2015 Recapitalization to pay the counterparty $600.0 million in cash and received 4,858,994 shares of the Company’s common stock.

During 2015, 2014 and 2013 the Company repurchased 6,152,918 shares, 1,151,931 shares and 1,666,435 shares of common stock for approximately $738.6 million, $82.4 million and $97.1 million, respectively. At January 3, 2016, the Company had $200.0 million remaining under the $800.0 million authorization. The Company’s policy is to recognize the difference between the purchase price and par value of the common stock in additional paid-in capital. In instances where there is no additional paid-in capital, the difference is recognized in retained deficit.

As of January 3, 2016, authorized common stock consists of 160,000,000 voting shares and 10,000,000 non-voting shares. The share components of outstanding common stock at January 3, 2016 and December 28, 2014 are as follows:


	2015		2014
Voting		49,820,467		55,535,395
Non-Voting		17,754		17,754

Total Common Stock		49,838,221		55,553,149

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(11)	SEGMENT INFORMATION

The Company has three reportable segments: (i) Domestic Stores; (ii) Supply Chain; and (iii) International Franchise.

In the fourth quarter of 2014 several organizational changes were made within the Company’s management structure, with one of the changes impacting the management of our supply chain operations. As a result, management determined that our previous domestic supply chain segment and the international supply chain operations division of our previous international segment should be combined into a new global supply chain segment. As a result, the Company now reports the following three business segments: Domestic Stores, Supply Chain and International Franchise. While the consolidated results of the Company have not been impacted by this change in our reportable segments, we have restated our historical segment information in order to provide readers of our financial statements a consistent presentation.

The Company’s operations are organized by management on the combined basis of line of business and geography. The Domestic Stores segment includes operations with respect to all franchised and Company-owned stores throughout the contiguous United States. The Supply Chain segment primarily includes the distribution of food, equipment and supplies to stores from the Company’s supply chain center operations in the United States and Canada. The International Franchise segment primarily includes operations related to the Company’s franchising business in foreign and non-contiguous United States markets.

The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its segments and allocates resources to them based on earnings before interest, taxes, depreciation, amortization and other, referred to as Segment Income.

The tables below summarize the financial information concerning the Company’s reportable segments for 2015, 2014 and 2013. Intersegment Revenues are comprised of sales of food, equipment and supplies from the Supply Chain segment to the Company-owned stores in the Domestic Stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income and income from operations information below primarily includes corporate administrative costs. The “Other” column as it relates to capital expenditures primarily includes capitalized software, certain equipment and leasehold improvements. Tabular amounts presented below are in thousands.


	Domestic Stores		Supply Chain		International Franchise		Intersegment Revenues			Other			Total
Revenues-
2015	$	669,724	$	1,495,308	$	163,643	$	(112,147	)		—		$	2,216,528
2014		578,689		1,367,269		152,621		(104,746	)		—			1,993,833
2013		549,783		1,215,573		133,567		(96,700	)		—			1,802,223

Segment Income-
2015	$	240,942	$	127,155	$	130,650		N/A		$	(42,075	)	$	456,672
2014		202,794		111,593		122,497		N/A			(39,255	)		397,629
2013		188,180		103,258		108,615		N/A			(38,105	)		361,948

Income from Operations-
2015	$	233,248	$	117,185	$	130,601		N/A		$	(75,595	)	$	405,439
2014		196,860		102,409		122,626		N/A			(76,534	)		345,361
2013		181,995		94,665		108,704		N/A			(71,553	)		313,811

Capital Expenditures-
2015	$	25,120	$	9,928	$	—		N/A		$	27,317		$	62,365
2014		15,614		15,451		63		N/A			40,662			71,790
2013		9,884		10,900		65		N/A			19,538			40,387

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The following table reconciles total Segment Income to income before provision for income taxes:


	2015			2014			2013
Total Segment Income	$	456,672		$	397,629		$	361,948
Depreciation and amortization		(32,434	)		(35,788	)		(25,783	)
Gains (losses) on sale/disposal of assets		(316	)		1,107			(367	)
Non-cash compensation expense		(17,623	)		(17,587	)		(21,987	)
2015 recapitalization-related expenses		(860	)		—			—

Income from operations		405,439			345,361			313,811

Interest income		313			143			160
Interest expense		(99,537	)		(86,881	)		(88,872	)

Income before provision for income taxes	$	306,215		$	258,623		$	225,099

The following table summarizes the Company’s identifiable asset information as of January 3, 2016 and December 28, 2014:


	2015		2014
Domestic Stores	$	80,619	$	61,759
Domestic supply chain		155,451		146,394

Total domestic assets		236,070		208,153

International Franchise		17,048		17,897
International supply chain		17,300		18,409

Total international assets		34,348		36,306

Unallocated		529,427		351,874

Total consolidated assets	$	799,845	$	596,333

Unallocated assets primarily include cash and cash equivalents, restricted cash, advertising fund assets, investments in marketable securities, certain long-lived assets and deferred income taxes.

The following table summarizes the Company’s goodwill balance as of January 3, 2016 and December 28, 2014:


	2015		2014
Domestic Stores	$	15,030	$	15,230
Supply Chain		1,067		1,067

Consolidated goodwill	$	16,097	$	16,297

Goodwill was reduced by approximately $0.2 million in 2015 in connection with the sale of four Company-owned stores to franchisees. Goodwill was reduced by approximately $0.5 million in 2014 in connection with the sale of 14 Company-owned stores to a domestic franchisee in 2014. Additionally, one Company-owned store was purchased from a franchisee during 2014, resulting in a $0.2 million increase in goodwill.

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(12)	SALE AND CLOSURE OF COMPANY-OWNED STORES

During 2015, the Company sold four Company-owned stores to franchisees. In connection with the sale of the four stores, the Company recorded a $0.7 million pre-tax gain on the sale of the related assets, which was net of a $0.2 million reduction in goodwill. The gain was recorded in general and administrative expense in the Company’s consolidated statements of income.

During 2014, the Company sold 14 Company-owned stores to a franchisee. In connection with the sale of the 14 stores, the Company recorded a $1.7 million pre-tax gain on the sale of the related assets, which was net of a $0.5 million reduction in goodwill. The gain was recorded in general and administrative expense in the Company’s consolidated statements of income.

(13)	PERIODIC FINANCIAL DATA (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company’s convention with respect to reporting periodic financial data is such that each of the first three fiscal quarters consists of 12 weeks while the last fiscal quarter consists of 16 weeks or 17 weeks. The fourth quarter of 2015 is comprised of 17 weeks, while the fourth quarter of 2014 is comprised of 16 weeks.


	For the Fiscal Quarter Ended								For the Fiscal Year Ended
	March 22, 2015		June 14, 2015		September 6, 2015		January 3, 2016		January 3, 2016
Total revenues	$	502,027	$	488,622	$	484,696	$	741,183	$	2,216,528

Operating margin		157,066		152,672		141,954		231,439		683,131

Income before provision for income taxes		74,182		73,278		60,628		98,127		306,215

Net income		46,289		45,909		37,832		62,759		192,789

Earnings per common share – basic	$	0.84	$	0.84	$	0.69	$	1.21	$	3.58

Earnings per common share – diluted	$	0.81	$	0.81	$	0.67	$	1.18	$	3.47

Common stock dividends declared per share	$	0.31	$	0.31	$	0.31	$	0.31	$	1.24

DOMINO’S PIZZA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	For the Fiscal Quarter Ended								For the Fiscal Year Ended
	March 23, 2014		June 15, 2014		September 7, 2014		December 28, 2014		December 28, 2014
Total revenues	$	453,852	$	450,463	$	446,568	$	642,950	$	1,993,833

Operating margin		137,042		134,645		133,514		189,565		594,766

Income before provision for income taxes		63,880		61,539		56,989		76,215		258,623

Net income		40,474		38,462		35,618		48,033		162,587

Earnings per common share – basic	$	0.73	$	0.70	$	0.65	$	0.88	$	2.96

Earnings per common share – diluted	$	0.71	$	0.67	$	0.63	$	0.85	$	2.86

Common stock dividends declared per share	$	0.25	$	0.25	$	0.25	$	0.25	$	1.00

(14)	SUBSEQUENT EVENTS

On February 24, 2016, the Board of Directors declared a quarterly dividend of $0.38 per common share payable on March 30, 2016 to shareholders of record at the close of business on March 15, 2016.

Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk. · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 8. Financial Statements and Supplementary Data.

Item 8. Financial Statements and Supplementary Data.

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