Domino's Pizza (DPZ) 10-K risk factor changes: FY2017 vs FY2017

We compete within the food service market and the quick service restaurant sector not only for customers, but also for management and hourly employees, [added: including drivers,] suitable real estate sites and qualified franchisees.

While [removed: over 99% of] [added: all] domestic franchisees purchased food, equipment and supplies from us in [removed: 2016,] [added: 2017,] domestic franchisees are not required to purchase food, equipment or supplies from us and they may choose to purchase from outside suppliers.

We and our franchisees are currently planning to expand our [added: domestic and] international operations in many of the markets where we currently operate and in select new markets.

For instance, if prevailing health or dietary preferences cause consumers to avoid pizza and other products we offer in favor of foods that are perceived as [removed: more healthy,] [added: healthier,] our business and operating results would be harmed.

While we believe there are adequate reserve quantities and potential alternative suppliers, shortages or interruptions in the supply of food products caused by [removed: unanticipated] [added: increased] demand, [added: capacity constraints,] problems in production or distribution, financial or other difficulties of suppliers, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, could adversely affect our operating results.

Our domestic dough manufacturing and supply chain centers service all of our Company-owned [removed: stores] and [removed: over 99% of our] domestic franchise stores.

_Our success depends in part upon effective advertising, and lower advertising funds may reduce our ability to adequately market the Domino’s [removed: Pizza®] [added: Pizza] brand._

In fiscal [removed: 2016,] [added: 2017,] each store in the contiguous United States generally was required to contribute 6% of their sales to DNAF (subject, in limited instances, to lower rates based on certain incentives and waivers), which uses such fees for national advertising in addition to contributions for local market-level advertising.

| • | | increases in anti-American sentiment and the identification of the Domino’s [removed: Pizza®] [added: Pizza] brand as an American brand; |

Approximately [removed: 7.2%] [added: 7.4%] of our total revenues in [removed: 2016, 7.4%] [added: 2017, 7.2%] of our total revenues in [removed: 2015] [added: 2016] and [removed: 7.7%] [added: 7.4%] of our total revenues in [removed: 2014] [added: 2015] were derived from our international franchise segment, a majority of which were denominated in foreign currencies.

A hypothetical 10% adverse change in the foreign currency rates in our international markets would have resulted in a negative impact on international royalty revenues of approximately [removed: $16.7] [added: $17.9] million in [removed: 2016.][added: 2017.]

As of [removed: January 1,] [added: December 31,] 2017, we had [removed: 799] [added: 789] domestic franchisees operating [removed: 4,979] [added: 5,195] domestic stores.

Fourteen of these franchisees each own and operate over 50 domestic stores, including our largest domestic franchisee who owns and operates [removed: 189] [added: 187] stores, and the average franchisee owns and operates [removed: six] [added: seven] stores.

Our largest international master franchisee operates [removed: 1,990] [added: 2,170] stores in seven markets, which accounts for approximately [removed: 24%] [added: 23%] of our total international store count.

However, [added: our cyber insurance coverage may not cover the costs of a cyber incident and] these measures, as well as our increased awareness of the risk of a cyber incident, do not guarantee that our reputation and financial results will not be adversely affected by such an incident.

Our use [added: and retention] of personally identifiable information is regulated by foreign, federal and state laws, as well as by certain third-party agreements.

[removed: A] [added: Laws and regulations governing] cyber [removed: incident] [added: incidents] could [removed: also] require us to notify customers, employees or other groups, result in adverse publicity, loss of sales and profits, increase fees payable to third parties and result in penalties or remediation and other costs that could adversely affect our business and results of operations.

| • | | compliance with the Patient Protection and Affordable Care Act, and subsequent amendments (the “Affordable Care Act”); [removed: and] |

| • | | compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules promulgated [removed: thereunder.] [added: thereunder; and] |

We are [removed: also] generally responsible for between $500,000 and $3.0 million per occurrence under these retention programs for owned and non-owned automobile liabilities.

As of [removed: January 1,] [added: December 31,] 2017, our consolidated [removed: long-term] [added: total] indebtedness was approximately [removed: $2.19] [added: $3.15] billion.

During the term following issuance, the outstanding senior notes will accrue interest [removed: at fixed rates.][added: in accordance with the terms of the debt agreements.]

Additionally, our senior notes have original scheduled principal payments of [removed: $38.6] [added: $32.0] million in each of [removed: 2017] [added: 2018] and [removed: 2018, $878.5 million in] 2019, [removed: $488.0] [added: $509.5] million in 2020, [removed: $8.0] [added: $27.0] million in [added: 2021, $879.8 million in 2022, $18.0 million in] each of [removed: 2021 through 2024] [added: 2023] and [removed: $728.0] [added: 2024, $742.0] million in [removed: 2025.][added: 2025, $10.0 million in 2026 and $907.5 million in 2027.]

In accordance with our debt agreements, the payment of principal on the outstanding senior notes [removed: (i)] shall be suspended if the leverage ratios for the Company are less than or equal to [removed: 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 leverage ratios, or (ii) on and after the payment in full of the 2012 fixed rate senior secured notes, may be suspended if the leverage ratios for the Company are less than or equal to] 5.0x total [removed: debt] [added: debt, as defined,] to [removed: EBITDA] [added: adjusted EBITDA, as defined,] and no [removed: catch up] [added: catch-up] provisions are applicable.

Competition from delivery aggregators and other food delivery services has also increased in recent years.

Cheese is a significant cost to us, representing approximately 20-25% of the market basket purchased by our Company-owned stores.

Several states in which we operate have recently approved minimum wage increases.

As minimum wage increases are implemented in these states or if such increases are approved and implemented in other states in which we operate, we expect our labor costs will increase.

An additional regional dough manufacturing and food supply chain center is expected to open in fiscal 2018.

Although we have entered into employment agreements with Richard E.

Allison Jr., and Russell J.

Weiner, each of these executives may terminate his agreement on ninety days’ notice.

Our other executive officers may terminate their employment pursuant to their employment agreements at any time.

In addition, more than half of all global retail sales in 2017 were derived from digital channels, primarily through our online ordering website and mobile applications, where customers enter personally

identifiable information that we retain.

Any other material disruption or other adverse event affecting one or more of our digital ordering platforms could similarly result in a loss of sales and profits, which could adversely affect our business and results of operations.

| • | | regulations under the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). |

The 2017 Tax Act was signed into law on December 22, 2017, significantly reforming the Internal Revenue Code of 1986, as amended.

The 2017 Tax Act, among other things, includes changes to U.S. Federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a territorial system and modifies or repeals many business deductions and credits.

We continue to examine the impact the 2017 Tax Act may have on our business.

The estimated impact of the 2017 Tax Act is based on our management’s current knowledge and assumptions and recognized impacts could be materially different from current estimates based on our actual results and our further analysis of the new law.

We revalued our net deferred tax assets and liabilities at the newly enacted corporate tax rate in fiscal 2017.

While the impact of this new legislation was not material to our 2017 financial statements, we expect to have a significantly lower effective tax rate in future periods.

| --- | --- | --- |

##### [Table of Contents](#toc)

The cheese block price per pound averaged $1.56 in 2016, and the estimated increase in Company-owned store food costs from a hypothetical $0.25 adverse change in the average cheese block price per pound would have been approximately $2.5 million in 2016.

Other than with our President and Chief Executive Officer, J.

Patrick Doyle, we do not have long-term employment agreements with any of our executive officers.

Fiscal [removed: 2015] [added: 2017 and 2016 each] consisted of [removed: 53] [added: 52] weeks, while fiscal [removed: 2016 and fiscal 2014 each] [added: 2015] consisted of [removed: 52] [added: 53] weeks._

Domino’s is the [removed: second] largest pizza [removed: restaurant chain] [added: company] in the [removed: world,] [added: world based on global retail sales,] with more than [removed: 13,800] [added: 14,800] locations in over 85 markets around the world.

On average, we [added: and our franchisees] sell more than [removed: 2] [added: 2.5] million pizzas each day throughout our global system.

Domino’s generates revenues and earnings by charging royalties to [removed: its] [added: our] franchisees.

In our international markets, we generally grant geographical rights to the Domino’s [removed: Pizza®] [added: Pizza] brand to master franchisees.

These master franchisees are charged with developing their geographical area, and they may profit by sub-franchising and selling [removed: ingredients] [added: food] and equipment to those sub-franchisees, as well as by running pizza stores.

Everyone in the system can benefit, including the end consumer, who can feed [removed: their family] Domino’s menu items [added: to their family] conveniently and economically.

| | • | | Global retail sales (which are total retail sales at Company-owned and franchised stores worldwide) increased [removed: 9.8%] [added: 12.7%] as compared to [removed: 2015.] [added: 2016.] |

We continued our focus on growing online ordering and the digital customer experience as we introduced new innovative ordering platforms including zero-click ordering, Google Home, Facebook Messenger, Apple [removed: Watch,] [added: Watch] and Amazon Echo.

Our emphasis on technology innovation helped [removed: us] [added: the Domino’s system] generate more than half of [removed: U.S.] [added: global retail] sales from digital channels in [removed: 2016, as well as reach an estimated $5.6 billion in global digital sales.][added: 2017.]

Overall, we believe our focus in [removed: 2016] [added: 2017] on global growth and technology will continue to strengthen our brand in the future.

Fiscal [removed: 2015] [added: 2017] Highlights

| | • | | Global retail sales increased [removed: 11.1%] [added: 9.8%] as compared to [removed: 2014.] [added: 2015.] |

| | • | | Same store sales increased [removed: 12.0%] [added: 7.7%] in our domestic stores and increased [removed: 7.8%] [added: 3.4%] in our international stores. |

| | • | | Our revenues increased [removed: 11.2%.] [added: 12.8%.] |

| | • | | Our income from operations increased [removed: 17.4%.] [added: 14.8%.] |

| | • | | Our net income increased [removed: 18.6%.] [added: 29.5%.] |

During [removed: 2015,] [added: 2017,] we continued our rapid global expansion with the opening of [removed: 901] [added: 1,045] net new stores.

Our international franchise segment led the way with [removed: 768] [added: 829] net new store openings.

We continued our focus on growing online ordering and the digital customer experience as [removed: we introduced several innovative ordering platforms, including Samsung Smart TV® as] well as [removed: Twitter and text message using a pizza emoji.][added: other technological advancements.]

If a Company-owned store that generated [removed: $500,000] [added: $1,000,000] in revenue in fiscal [removed: 2015] [added: 2016] was sold to a franchisee in fiscal [removed: 2016,] [added: 2017,] revenues from Company-owned stores would have declined by [removed: $500,000] [added: $1,000,000] in fiscal [removed: 2016,] [added: 2017,] while franchise royalty revenues would have increased by only [removed: $27,500] [added: $55,000] in fiscal [removed: 2016,] [added: 2017,] as we generally collect 5.5% of a domestic franchisee’s retail sales.

[removed: Aside from this impairment charge, the] [added: The] Company did not record [removed: an] [added: any] impairment [removed: charge] [added: charges] during fiscal [removed: 2016,] [added: 2017,] fiscal [removed: 2015] [added: 2016] or fiscal [removed: 2014.][added: 2015.]

A significant portion of our goodwill relates to acquisitions of domestic franchise stores and is included in our domestic stores segment, specifically, [added: in] our Company-owned stores division.

We evaluate goodwill annually for impairment by comparing the fair value of the reporting unit (which is primarily determined using the present value of [removed: historical] [added: future] cash flows) to its carrying value.

[removed: At January 1, 2017, the fair value of our business operations with] associated goodwill exceeded their recorded carrying value, including the related goodwill.

We had accruals for legal matters of approximately [removed: $2.7] [added: $1.7] million at [removed: January 1,] [added: December 31,] 2017 and [removed: $1.9] [added: $2.7] million at January [removed: 3, 2016.][added: 1, 2017.]

Specifically, various methods, including analyses of historical trends and actuarial valuation methods, are utilized to estimate the cost to settle reported [removed: claims,] [added: claims] and claims incurred but not yet reported.

A 10% change in our self-insurance liability at [removed: January 1,] [added: December 31,] 2017 would have affected our income before provision for income taxes by approximately [removed: $4.4] [added: $5.1] million for fiscal [removed: 2016.][added: 2017.]

We had accruals for insurance matters of approximately [removed: $43.9] [added: $51.4] million at [removed: January 1,] [added: December 31,] 2017 and [removed: $40.9] [added: $43.9] million at January [removed: 3, 2016.][added: 1, 2017.]

The Company [removed: had] [added: did not have any] valuation allowances recorded for deferred tax assets [removed: of approximately $0.1 million] as of [removed: January 1,] [added: December 31,] 2017 and [added: had valuation allowances recorded for deferred tax assets of] approximately [removed: $0.2] [added: $0.1] million as of January [removed: 3, 2016.][added: 1, 2017.]

| | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Domestic Company-owned stores | | | [removed: 10.4] [added: 8.7] | % | | | [removed: 12.2] [added: 10.4] | % | | | [removed: 6.2] [added: 12.2] | % |

| Domestic franchise stores | | | [removed: 10.5] [added: 7.6] | % | | | [removed: 11.9] [added: 10.5] | % | | | [removed: 7.7] [added: 11.9] | % |

| Domestic stores | | | [removed: 10.5] [added: 7.7] | % | | | [removed: 12.0] [added: 10.5] | % | | | [removed: 7.5] [added: 12.0] | % |

| International stores (excluding foreign currency impact) | | | [removed: 6.3] [added: 3.4] | % | | | [removed: 7.8] [added: 6.3] | % | | | [removed: 6.9] [added: 7.8] | % |

| Closings | | | — | | | | [removed: (34] [added: (13] | ) | | | [removed: (34] [added: (13] | ) | | | [removed: (60] [added: (62] | ) | | | [removed: (94] [added: (75] | ) |

| Transfers | | | [removed: (13] [added: (16] | ) | | | [removed: 13] [added: 16] | | | | — | | | | — | | | | — | |

| (dollars in millions) | | [removed: 2016] [added: 2017] | | | | | | | | [removed: 2015] [added: 2016] | | | | | | | | [removed: 2014] [added: 2015] | | | | | | |

| Domestic Company-owned stores | | $ | [removed: 439.0] [added: 490.8] | | | | | | | $ | [removed: 396.9] [added: 439.0] | | | | | | | $ | [removed: 348.5] [added: 396.9] | | | | | |

| Domestic franchise | | | [removed: 312.3] [added: 351.4] | | | | | | | | [removed: 272.8] [added: 312.3] | | | | | | | | [removed: 230.2] [added: 272.8] | | | | | |

In 2017, as part of an industry-first collaboration with Ford Motor Company, Domino’s began a meaningful test of delivery using self-driving vehicles.

Our emphasis on technology innovation helped the Domino’s system generate more than half of global retail sales from digital channels in 2016.

At December 31, 2017, the fair value of our business operations with

We account for forfeitures as they occur.

| Openings | | | 16 | | | | 213 | | | | 229 | | | | 891 | | | | 1,120 | |

| Store count at December 31, 2017 | | | 392 | | | | 5,195 | | | | 5,587 | | | | 9,269 | | | | 14,856 | |

2017 compared to 2016

Consolidated revenues increased $315.4 million or 12.8% in 2017.

| | | 2017 | | | | | | | | 2016 | | | | | | |

| Domestic Company-owned stores | | $ | 490.8 | | | | 58.3 | % | | $ | 439.0 | | | | 58.4 | % |

| Domestic franchise | | | 351.4 | | | | 41.7 | % | | | 312.3 | | | | 41.6 | % |

This increase was due to an 8.7% increase in same store sales as compared to 2016 and an increase in the average number of stores open during the year.

| | | 2017 | | | | | | | | 2016 | | | | | | |

| Domestic supply chain | | $ | 1,574.9 | | | | 90.6 | % | | $ | 1,408.8 | | | | 91.2 | % |

| International supply chain | | | 164.1 | | | | 9.4 | % | | | 135.5 | | | | 8.8 | % |

Our market basket pricing to stores increased 1.7% during 2017, which resulted in an estimated $18.8 million increase in domestic supply chain revenues.

_International supply chain._ Revenues from international supply chain operations increased $28.6 million or 21.1% in 2017, driven primarily by higher volumes from increased order counts at the store level.

The positive impact of foreign currency exchange rates of $3.4 million in 2017 also contributed to the increases.

| | | 2017 | | | | | | | | 2016 | | | | | | |

| Consolidated cost of sales | | | 1,922.0 | | | | 68.9 | % | | | 1,704.9 | | | | 69.0 | % |

| Consolidated operating margin | | $ | 866.0 | | | | 31.1 | % | | $ | 767.7 | | | | 31.0 | % |

Company-owned store operating margin decreased 1.3 percentage points during 2017.

| | | 2017 | | | | | | | | 2016 | | | | | | |

| Revenues | | $ | 490.8 | | | | 100.0 | % | | $ | 439.0 | | | | 100.0 | % |

| Cost of sales | | | 377.7 | | | | 76.9 | % | | | 331.9 | | | | 75.6 | % |

| Store operating margin | | $ | 113.2 | | | | 23.1 | % | | $ | 107.2 | | | | 24.4 | % |

| | • | | Food costs increased 0.1 percentage points to 26.7% in 2017, due primarily to higher overall commodity prices. |

| | • | | Labor costs increased 0.7 percentage points to 29.5% in 2017, due primarily to an increase in labor rates in certain markets. The leveraging of higher same store sales partially offset this increase. |

| | | 2017 | | | | | | | | 2016 | | | | | | |

| Revenues | | $ | 1,739.0 | | | | 100.0 | % | | $ | 1,544.3 | | | | 100.0 | % |

| Cost of sales | | | 1,544.3 | | | | 88.8 | % | | | 1,373.1 | | | | 88.9 | % |

| Supply chain operating margin | | $ | 194.7 | | | | 11.2 | % | | $ | 171.3 | | | | 11.1 | % |

Increased labor and delivery costs partially offset this increase.

_General and administrative expenses._ General and administrative expenses increased $31.2 million or 9.9% in 2017, primarily driven by continued investments in technological initiatives (primarily in e-commerce and information technology) as well as investments in other strategic areas.

Higher Company-owned store national advertising contributions resulting from higher same store sales also contributed to the increase.

These increases were partially offset by lower performance-based compensation expense and a pre-tax gain recognized from the sale of 17 Company-owned stores during the fourth quarter of 2017 of $4.0 million.

This increase was driven by higher average borrowings and approximately $5.8 million of expenses related to the 2017 Recapitalization.

The increase in interest expense was offset in part by a lower weighted-average borrowing rate.

_Provision for income taxes._ Provision for income taxes decreased $7.8 million to $122.2 million in 2017.

Although pre-tax income increased in 2017, the effective tax rate decreased, primarily as a result of the Company’s adoption of ASU 2016-09, _Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting_ (“ASU 2016-09”), which requires tax benefits on equity-based compensation to be recorded as a reduction to the income tax provision.

| | • | | The inclusion of the 53rd week in 2015 positively impacted our results. |

Our emphasis on technology innovation helped us generate approximately 50% of U.S. sales from digital channels in 2015, as well as reach an estimated $4.7 billion in global digital sales.

During the year, the Company also launched its “Piece of the Pie Rewards” loyalty program, which is meant to reward customers with a program that is simple to understand and easy to use.

Upon signing up for the program, customers become rewards members and can earn points for online orders.

When rewards members reach a certain amount of points, they can redeem their points for free pizza.

As discussed in Note 1 to our consolidated financial statements, the Company incurred an impairment charge related to its corporate airplane in the fourth quarter of 2014.

Historically, we have also estimated the expected forfeiture rate and only recognized expense for those awards expected to vest.

We use historical data to determine these assumptions.

| | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | |

| Store count at December 29, 2013 | | | 390 | | | | 4,596 | | | | 4,986 | | | | 5,900 | | | | 10,886 | |

| Openings | | | — | | | | 115 | | | | 115 | | | | 722 | | | | 837 | |

| | | | | | | | | | | | | | | | | | | | | | | | | |

In fiscal 2016, the Company began managing the Alaska and Hawaii supply chain centers as part of its domestic supply chain business.

Prior to fiscal 2016, these centers were managed as part of the Company’s international supply chain business.

Revenues from these supply chain centers are included in the 2016 and 2015 domestic supply chain revenues in the table above.

_International franchise._ International franchise revenues primarily consist of royalties from retail sales and other fees from our international franchise stores.

Management has historically included costs to support online ordering as part of labor and related costs.

Costs to support online ordering are now included within transaction-related expenses and the prior year costs have been reclassified to conform to current year presentation.

Decreases in certain food prices have a positive effect on the supply chain operating margin percentage due to the fixed dollar margin earned by supply chain on certain food items.

2015 compared to 2014

_Revenues._ Consolidated revenues increased $222.7 million or 11.2% in 2015.

The increase was due primarily to higher supply chain food volumes as well as increased sales of equipment to stores in connection with our store reimaging program.

The inclusion of the 53rd week in 2015 also positively impacted revenues by an estimated $49.7 million.

These increases were offset in part by the negative impact of changes in foreign currency exchange rates on international franchise royalties and international supply chain revenues, as well as lower cheese and other commodity prices.

| | | 2015 | | | | | | | | 2014 | | | | | | |

| Domestic Company-owned stores | | $ | 396.9 | | | | 59.3 | % | | $ | 348.5 | | | | 60.2 | % |

| Domestic franchise | | | 272.8 | | | | 40.7 | % | | | 230.2 | | | | 39.8 | % |

This increase was due to a 12.2% increase in same store sales as compared to 2014, as well as an estimated $9.1 million impact of the 53rd week, offset in part by the sale of 14 Company-owned stores to a franchisee that occurred in the first quarter of 2014.

| Domestic supply chain | | $ | 1,266.4 | | | | 91.6 | % | | $ | 1,149.7 | | | | 91.1 | % |

| International supply chain | | | 116.8 | | | | 8.4 | % | | | 112.8 | | | | 8.9 | % |

Revenues from these supply chain centers are included in the 2015 and 2014 domestic supply chain revenues in the table above.

They were partially offset by lower cheese and other commodity prices.

We estimate that the lower cheese block price (passed through directly in domestic supply chain pricing to franchisees) resulted in an approximate $45.3 million decrease in domestic supply chain revenues during 2015.

_International supply chain._ Revenues from international supply chain operations increased $4.0 million or 3.5% in 2015.

This increase resulted primarily from higher volumes in 2015 and an estimated $2.6 million impact of the 53rd week, and were offset in part by the negative impact of foreign currency exchange rates of approximately $16.4 million in 2015.

| Consolidated cost of sales | | | 1,533.4 | | | | 69.2 | % | | | 1,399.1 | | | | 70.2 | % |

| Consolidated operating margin | | $ | 683.1 | | | | 30.8 | % | | $ | 594.8 | | | | 29.8 | % |

| Revenues | | $ | 396.9 | | | | 100.0 | % | | $ | 348.5 | | | | 100.0 | % |

| Cost of sales | | | 299.3 | | | | 75.4 | % | | | 267.4 | | | | 76.7 | % |

In connection with the [removed: 2015] [added: 2017] Recapitalization, we issued fixed [added: and floating] rate notes and, at [removed: January 1,] [added: December 31,] 2017, we are [removed: only] exposed to interest rate risk on borrowings under our [removed: 2015] [added: 2017 Floating Rate Notes and our 2017] Variable Funding Notes.

As of [removed: January 1,] [added: December 31,] 2017, we had no outstanding borrowings under our [removed: 2015] [added: 2017] Variable Funding Notes.

Approximately [removed: 7.2%] [added: 7.4%] of our total revenues in [removed: 2016, 7.4%] [added: 2017, 7.2%] of our total revenues in [removed: 2015] [added: 2016] and [removed: 7.7%] [added: 7.4%] of our total revenues in [removed: 2014] [added: 2015] were derived from our international franchise segment, a majority of which were denominated in foreign currencies.

A hypothetical 10% adverse change in the foreign currency rates for our international markets would have resulted in a negative impact on royalty revenues of approximately [removed: $16.7] [added: $17.9] million in [removed: 2016.][added: 2017.]

Domino’s is the [removed: second] largest pizza [removed: restaurant chain] [added: company] in the [removed: world,] [added: world based on global retail sales,] with more than [removed: 13,800] [added: 14,800] locations in over 85 markets around the world.

On average, we [added: and our franchisees] sell more than [removed: 2] [added: 2.5] million pizzas each day throughout our global system.

Domino’s generates revenues and earnings by charging royalties [added: and fees] to [removed: its] [added: our] franchisees.

Royalties are ongoing percent-of-sales fees for use of the [removed: Domino’s] [added: Domino’s®] brand marks.

These master franchisees are charged with developing their geographical area, and they may profit by sub-franchising and selling [removed: ingredients] [added: food] and equipment to those sub-franchisees, as well as by running pizza stores.

Everyone in the system can benefit, including the end consumer, who can feed [removed: their family] Domino’s menu items [added: to their family] conveniently and economically.

We pioneered the pizza delivery business and built Domino’s [removed: Pizza®] [added: Pizza] into one of the most widely-recognized consumer brands in the world.

The Company’s most recent recapitalization transaction in [removed: 2015] [added: 2017] (the [removed: “2015] [added: “2017] Recapitalization”) primarily consisted of the issuance of [removed: $1.3] [added: $1.9] billion of fixed [added: and floating] rate notes and the repurchase and retirement of [removed: $551.3] [added: $910.2] million of previously outstanding fixed rate notes.

Following the [removed: 2015] [added: 2017] Recapitalization, and including debt from its previous recapitalization in [removed: 2012] [added: 2015] (the [removed: “2012] [added: “2015] Recapitalization”), the Company had [removed: $2.24] [added: $3.15] billion in [removed: long-term] [added: total] debt.

During this time frame, we also began expanding our focus on technology through our development of innovative ordering platforms and other technological [removed: advancements.][added: advancements, such as the launch of our Piece of the Pie Rewards® loyalty program in 2015.]

Globally, we opened our 10,000th store in 2012 and our [removed: 13,000th] [added: 14,000th] store in [removed: 2016.][added: 2017.]

In 2013, we announced a plan requiring all stores to adopt our new [added: carry-out friendly] “Pizza Theater” store design, which is more inviting to customers and allows them to see their orders being made fresh in front of them.

From [removed: 2006] [added: 2007] through [removed: 2016,] [added: 2017,] the U.S. QSR pizza category has grown from [removed: $33.1] [added: $32.9] billion to [removed: $35.8] [added: $36.0] billion.

It is the second-largest category within the [removed: $281.9] [added: $290.2] billion U.S. QSR sector.

Delivery segment sales of [removed: $10.0] [added: $9.8] billion in [removed: 2016] [added: 2017] (down from [removed: $11.4] [added: $10.9] billion in [removed: 2006)] [added: 2007)] account for approximately [removed: 28%] [added: 27%] of total U.S. QSR pizza.

The delivery segment declined during the period from [removed: 2006] [added: 2007] to 2012, and has increased slightly since 2012, from $9.7 billion in 2012 to [removed: $10.0] [added: $9.8] billion in [removed: 2016.][added: 2017.]

The three industry leaders, including Domino’s, account for [removed: approximately] [added: over] 56% of U.S. pizza delivery, based on reported consumer spending, with the remaining sales going to regional chains and independent establishments.

From [removed: 2006] [added: 2007] to [removed: 2016,] [added: 2017,] the carryout segment grew from [removed: $13.9] [added: $13.5] billion to [removed: $16.5] [added: $16.7] billion.

The four industry leaders, including Domino’s, account for approximately [removed: 47%] [added: 48%] of the carryout segment.

We believe that demand for pizza and pizza delivery is large and growing throughout the world, driven by international consumers’ increasing emphasis on convenience, and the proven success of our [removed: 30] [added: 35] years of conducting business abroad.

We generally compete on the basis of product quality, location, image, service, [removed: technology] [added: technology, convenience] and price.

No customer accounted for more than 10% of total consolidated revenues in [removed: 2016, 2015] [added: 2017, 2016] or [removed: 2014.][added: 2015.]

Our largest franchisee based on store count, Domino’s Pizza Enterprises [removed: (ASX: DMP),] [added: (DMP: ASX),] operates [removed: 1,990] [added: 2,170] stores in seven international markets, and accounts for [removed: 14%] [added: 15%] of our total store count.

Revenues from this master franchisee accounted for 1.5% of our consolidated revenues in [removed: 2016.][added: 2017.]

Our international business unit only requires a minimal amount of general and administrative expenses to [removed: operate] [added: support] its markets, and does not have costs of sales.

Our typical store also offers oven-baked sandwiches, pasta, boneless chicken and wings, bread side items, desserts and [removed: Coca-Cola®] soft drink products.

We have been focused primarily on pizza delivery for over [removed: 50] [added: 55] years, as well as carryout as a significant component of our business.

In 2012, we introduced our carryout-friendly Pizza Theater store design; [removed: we expect that substantially all] [added: the majority] of our [added: domestic and international] stores [removed: will convert] [added: have converted] to this design [removed: by] [added: as of] the end of 2017.

Many stores [removed: will] offer casual seating and [removed: will] enable customers to watch the preparation of their orders, but [removed: will] [added: do] not offer a full-service dine-in experience.

We conduct research and product development at our World Resource Center [added: (our corporate headquarters)] in Ann Arbor, Michigan.

Our domestic stores segment consists primarily of our franchise operations, which consist of [removed: 4,979] [added: 5,195] franchised stores located in the contiguous United States.

During [removed: 2016,] [added: 2017,] our domestic stores segment accounted for [removed: $751.3] [added: $842.2] million, or [added: over] 30% of our consolidated revenues.

As of [removed: January 1,] [added: December 31,] 2017, our network of [removed: 4,979] [added: 5,195] domestic franchise stores were owned and operated by [removed: 799] [added: 789 independent] domestic franchisees.

As of [removed: January 1,] [added: December 31,] 2017, the average domestic franchisee owned and operated [removed: six] [added: seven] stores and had been in our franchise system for over [removed: 17] [added: 18] years.

At the same time, 14 of our domestic franchisees operated more than 50 stores (including our largest domestic franchisee who operated [removed: 189] [added: 187] stores) and [removed: 277] [added: 271] of our domestic franchisees each operated one store.

[removed: Approximately 90%] [added: You can start in an entry-level position and become a store owner – in fact, significantly all] of our [removed: 799] independent domestic franchise owners started their careers with us as delivery drivers or in other in-store positions.

[removed: We] [added: In addition, we] generally restrict the ability of domestic franchisees to be involved in other businesses, which [removed: focuses] [added: we believe helps focus] our franchisees’ attention on operating their stores.

We believe these [added: characteristics and] standards are largely unique [removed: to] [added: within] the franchise industry and [removed: result] [added: have resulted] in qualified and focused franchisees operating [removed: their] [added: Domino’s] stores.

Our domestic stores currently contribute 6% of their [removed: retail] sales to fund national marketing and advertising campaigns (subject, in limited instances, to lower rates based on certain incentives and waivers).

At [removed: January 1,] [added: December 31,] 2017, we had [removed: 8,440] [added: 9,269] international franchise stores.

Excess proceeds from both our 2015 and 2017 Recapitalizations were primarily used to repurchase shares of our common stock.

The majority of our domestic and international stores have completed these remodels as of the end of 2017.

We also compete on a broader scale with other food and food delivery companies.

Significantly all of our 789 independent domestic franchise owners started their careers with us as delivery drivers or in other in-store positions, which we believe offers advantages in terms of familiarity with our business and store operations.

| India | | | 1,126 | |

| Mexico | | | 701 | |

| Australia | | | 670 | |

| Turkey | | | 508 | |

| Japan | | | 503 | |

| Canada | | | 472 | |

| France | | | 370 | |

| Netherlands | | | 242 | |

An additional regional dough manufacturing and food supply chain center is expected to open in fiscal 2018.

We are currently in negotiations for a longer-term contract that would extend through June 2022.

In 2017, more than half of all global retail sales were derived from digital channels, primarily through our online ordering website and mobile applications.

In 2017, as part of an industry-first collaboration with Ford Motor Company, Domino’s began a meaningful test of delivery using self-driving vehicles.

The Partners Foundation is committed to meeting the needs of Domino’s team members facing crisis situations, such as fire, illness, natural disasters or other personal tragedies, including meaningful financial support for hurricane victims and their families in 2017.

Our goal is to be substantially complete with these remodels by the end of 2017.

As a result, the majority of our domestic franchisees have historically come from within the Domino’s Pizza system.

| India | | | 1,106 | |

| Mexico | | | 655 | |

| Australia | | | 623 | |

| Turkey | | | 477 | |

| Japan | | | 472 | |

| Canada | | | 438 | |

| France | | | 325 | |

| Germany | | | 213 | |

In 2016, more than half of our U.S. sales came via digital platforms.

That metric is higher in some of our international markets.

You can start in an entry-level position and become a store owner – in fact, approximately 90% of our independent domestic franchise owners started their careers with us as delivery drivers or in other in-store positions.

[removed: The remaining cases] [added: These matters] referenced above could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy.

While we may occasionally be party to large claims, including class action suits, we do not believe that [removed: these] [added: any existing] matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows.

The Company continues to deny liability in this matter.

Included in the ordinary course litigation matters referenced above, we are party to three 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 $6.9 million.

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 filed a Petition for Review with the Supreme Court of the State of Texas.

The Company filed opposition to the writ of review and asserted that the claims were appropriately dismissed by the Court of Appeals of the State of Texas.

In the second quarter of 2016, the Texas Supreme Court rejected the plaintiffs’ writ of certiorari, leaving the appellate court’s favorable decision to stand.

During the fourth quarter of 2016, the Plaintiff filed a petition for writ of certiorari with the United States Supreme Court.

In the fourth quarter of 2016, the United States Supreme Court denied the writ of certiorari.

Plaintiff has exhausted all appellate rights and the Texas Court of Appeals order dismissing all claims against Domino’s Pizza LLC stands.

For the fiscal year ended [removed: January 1,] [added: December 31,] 2017

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities [removed: Act: Yes ☒ No ☐]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the [removed: Act: Yes ☐ No ☒]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company, or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting [added: company,” and “emerging growth] company” in Rule 12b-2 of the Exchange Act.

The aggregate market value of the voting and non-voting common stock held by non-affiliates of Domino’s Pizza, Inc. as of June [removed: 19, 2016] [added: 18, 2017] computed by reference to the closing price of Domino’s Pizza, Inc.’s common stock on the New York Stock Exchange on such date was [removed: $6,127,024,302.][added: $10,126,535,325.]

As of February [removed: 21, 2017,] [added: 13, 2018,] Domino’s Pizza, Inc. had [removed: 48,051,144] [added: 43,018,242] shares of common stock, par value $0.01 per share, outstanding.

Portions of the definitive proxy statement to be furnished to shareholders of Domino’s Pizza, Inc. in connection with the annual meeting of shareholders to be held on April [removed: 25, 2017] [added: 24, 2018] are incorporated by reference into Part III.

| Item 1A. | | [Risk [removed: Factors.](#tx350071_3)] [added: Factors](#tx531906_3)] | | | 11 | |

| Item 1B. | | [Unresolved Staff [removed: Comments.](#tx350071_4)] [added: Comments](#tx531906_4)] | | | [removed: 18] [added: 19] | |

| Item 4. | | [Mine Safety [removed: Disclosures.](#tx350071_7)] [added: Disclosures](#tx531906_7)] | | | 19 | |

| Item 4A. | | [Executive Officers of the [removed: Registrant.](#tx350071_8)] [added: Registrant](#tx531906_8)] | | | 19 | |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities.](#tx350071_10)] [added: Securities](#tx531906_10)] | | | 20 | |

| Item 6. | | [Selected Financial [removed: Data.](#tx350071_11)] [added: Data](#tx531906_11)] | | | 22 | |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations.](#tx350071_12)] [added: Operations](#tx531906_12)] | | | 24 | |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market [removed: Risk.](#tx350071_13)] [added: Risk](#tx531906_13)] | | | 40 | |

| Item 8. | | [Financial Statements and Supplementary [removed: Data.](#tx350071_14)] [added: Data](#tx531906_14)] | | | 41 | |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure.](#tx350071_15)] [added: Disclosure](#tx531906_15)] | | | [removed: 73] [added: 75] | |

| Item 9A. | | [Controls and [removed: Procedures.](#tx350071_16)] [added: Procedures](#tx531906_16)] | | | [removed: 73] [added: 75] | |

| Item 9B. | | [Other [removed: Information.](#tx350071_17)] [added: Information](#tx531906_17)] | | | [removed: 73] [added: 75] | |

| [removed: [Part III](#tx350071_18)] | | [added: [Part III](#tx531906_18)] | | | | [removed: [](#tx350071_18)] |

| Item 10. | | [Directors, Executive Officers and Corporate [removed: Governance.](#tx350071_19)] [added: Governance](#tx531906_19)] | | | [removed: 74] [added: 76] | |

| Item 11. | | [Executive [removed: Compensation.](#tx350071_20)] [added: Compensation](#tx531906_20)] | | | [removed: 77] [added: 79] | |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters.](#tx350071_21)] [added: Matters](#tx531906_21)] | | | [removed: 77] [added: 79] | |

| Item 13. | | [Certain Relationships and Related Transactions, and Director [removed: Independence.](#tx350071_22)] [added: Independence](#tx531906_22)] | | | [removed: 77] [added: 79] | |

| Item 14. | | [Principal Accountant Fees and [removed: Services.](#tx350071_23)] [added: Services](#tx531906_23)] | | | [removed: 77] [added: 79] | |

| Item 15. | | [Exhibits, Financial Statement [removed: Schedules.](#tx350071_25)] [added: Schedules](#tx531906_25)] | | | [removed: 78] [added: 80] | |

| Item 16. | | [Form 10-K [removed: Summary.](#tx350071_26)] [added: Summary](#tx531906_26)] | | | [removed: 82] [added: 85] | |

10-K 1 d531906d10k.htm FORM 10-K

Act: Yes ☒ No ☐

Act: Yes ☐ No ☒

| Emerging growth company | | ☐ | | | | |

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

| | | [Part I](#tx531906_1) | | | | |

| Item 1. | | [Business](#tx531906_2) | | | 2 | |

| Item 2. | | [Properties](#tx531906_5) | | | 19 | |

| Item 3. | | [Legal Proceedings](#tx531906_6) | | | 19 | |

| | | [Part II](#tx531906_9) | | | | |

| | | [Part IV](#tx531906_24) | | | | |

| | | | | | | |

| [SIGNATURES](#tx531906_27) | | | | | 91 | |

10-K 1 d350071d10k.htm FORM 10-K

| [Part I](#tx350071_1) | | | | | | [](#tx350071_1) |

| Item 1. | | [Business.](#tx350071_2) | | | 2 | |

| Item 2. | | [Properties.](#tx350071_5) | | | 18 | |

| Item 3. | | [Legal Proceedings.](#tx350071_6) | | | 19 | |

| [Part II](#tx350071_9) | | | | | | [](#tx350071_9) |

| [Part IV](#tx350071_24) | | | | | | [](#tx350071_24) |

| [SIGNATURES](#tx350071_27) | | | | | 88 | |

We lease approximately [removed: 235,000] [added: 260,000] square feet for our World Resource Center located in Ann Arbor, Michigan under an operating lease with Domino’s Farms Office Park, L.L.C., an unrelated company.

We own [removed: one domestic Company-owned store building and] five supply chain center buildings.

##### [Table of Contents](#toc)

Directors, Executive Officers and Corporate Governance on pages [removed: 75] [added: 76] through [removed: 77,] [added: 78,] which is incorporated herein by reference.

As of February [removed: 21, 2017,] [added: 13, 2018,] Domino’s Pizza, Inc. had 170,000,000 authorized shares of common stock, par value $0.01 per share, of which [removed: 48,051,144] [added: 43,018,242] were issued and outstanding.

| [added: 2017:] | | High | | | | Low | | | | Dividends Declared Per Share | | |

Our Board of Directors declared a quarterly dividend of [removed: $0.46] [added: $0.55] per common share on February [removed: 15, 2017] [added: 14, 2018] payable on March 30, [removed: 2017] [added: 2018] to shareholders of record at the close of business on March 15, [removed: 2017.][added: 2018.]

As of February [removed: 21, 2017,] [added: 13, 2018,] there were [removed: 1,306] [added: 1,499] registered holders of record of Domino’s Pizza, Inc.’s common stock.

[removed: We have] [added: As of December 31, 2017, we had] a Board of Directors-approved share repurchase program for up to [removed: $250.0 million] [added: $1.25 billion] of our common stock, of which [removed: $149.1] [added: $198.5] million remained available [removed: at January 1, 2017] for future purchases of our common stock.

The following table summarizes our repurchase activity during the fourth quarter ended [removed: January 1,] [added: December 31,] 2017:

| Period | | Total Number of Shares Purchased (1) | | | | Average [removed: Price Paid] [added: Price Paid] per Share | | | | Total Number [removed: of Shares] [added: of Shares] Purchased as Part of Publicly Announced [removed: Program] [added: Program (2)] | | | | [removed: Maximum Approximate] [added: Maximum Approximate] Dollar Value of Shares that May Yet Be Purchased Under the [removed: Program] [added: Program (in thousands)] | | |

| (1) | [removed: 3,939] [added: 4,506] shares were purchased as part of the Company’s employee stock purchase discount plan. During the fourth quarter, the shares were purchased at an average price of [removed: $160.85.] [added: $190.97.] |

The following comparative stock performance line graph compares the cumulative shareholder return on the common stock of Domino’s Pizza, Inc. [added: (NYSE: DPZ)] for the five-year period between December 31, [removed: 2011] [added: 2012] and December 31, [removed: 2016,] [added: 2017,] with cumulative total return on (i) the Total Return Index for the New York Stock Exchange (the “NYSE Composite Index”), (ii) the Standard & Poor’s 500 Index (the “S&P 500”) and (iii) the peer group, the Standard & Poor’s 400 Restaurant Index (the “S&P 400 Restaurant Index”).

The cumulative total return computations set forth in the performance graph assume the investment of $100 in the Company’s common stock, the NYSE Composite Index, the S&P 500 Index and the S&P 400 Restaurant Index on December 31, [removed: 2011.][added: 2012.]

[removed: ][added: ]

| First quarter (January 2, 2017 – March 26, 2017) | | $ | 189.81 | | | $ | 158.36 | | | $ | 0.46 | |

| Second quarter (March 27, 2017 – June 18, 2017) | | | 218.15 | | | | 173.75 | | | | 0.46 | |

| Third quarter (June 19, 2017 – September 10, 2017) | | | 218.88 | | | | 178.38 | | | | 0.46 | |

| Fourth quarter (September 11, 2017 – December 31, 2017) | | | 209.44 | | | | 168.71 | | | | 0.46 | |

| Period #10 (September 11, 2017 to October 8, 2017) | | | — | | | $ | — | | | | — | | | $ | 250,000 | |

| Period #11 (October 9, 2017 to November 5, 2017) (2) | | | 799,561 | | | | 191.93 | | | | 797,649 | | | | 223,368 | |

| Period #12 (November 6, 2017 to December 3, 2017) | | | 140,697 | | | | 178.64 | | | | 139,377 | | | | 198,468 | |

| Period #13 (December 4, 2017 to December 31, 2017) | | | 1,274 | | | | 183.61 | | | | — | | | | 198,468 | |

| Total | | | 941,532 | | | $ | 189.93 | | | | 937,026 | | | $ | 198,468 | |

| (2) | On July 27, 2017, the Company’s Board of Directors authorized a new share repurchase program to repurchase up to $1.25 billion of the Company’s common stock. This repurchase program replaced the previously existing $250.0 million share repurchase program. On August 2, 2017, the Company entered into a $1.0 billion accelerated share repurchase agreement (the “2017 ASR Agreement”) with a counterparty. In connection with the 2017 ASR Agreement, the Company received and retired a total of 5,218,670 shares of its common stock, including 4,558,863 shares received and retired during the third quarter and 659,807 shares received and retired at final settlement during the fourth quarter. |

| --- | --- |

The average price paid per share of $191.93 for Period #11 (October 9, 2017 to November 5, 2017) includes the 659,807 shares received and retired at final settlement of the 2017 ASR Agreement.

The average purchase price per share for the 5,218,670 shares the Company received and retired through the $1.0 billion ASR program was $191.62.

On February 14, 2017, the Company’s Board of Directors authorized a new share repurchase program to repurchase up to $750.0 million of the Company’s common stock.

This repurchase program replaces the remaining availability of approximately $198.5 million under the Company’s previously approved $1.25 billion share repurchase program.

| | | | | | | | | | | | | |

| 2015: | | | | | | | | | | | | |

| First quarter (December 29, 2014 – March 22, 2015) | | $ | 104.63 | | | $ | 94.17 | | | $ | 0.31 | |

| Second quarter (March 23, 2015 – June 14, 2015) | | | 113.96 | | | | 98.36 | | | | 0.31 | |

| Third quarter (June 15, 2015 – September 6, 2015) | | | 119.43 | | | | 101.78 | | | | 0.31 | |

| Fourth quarter (September 7, 2015 – January 3, 2016) | | | 112.95 | | | | 101.62 | | | | 0.31 | |

| Period #1 (September 12, 2016 to October 9, 2016) | | | — | | | $ | — | | | | — | | | $ | 165,531,424 | |

| Period #2 (October 10, 2016 to November 6, 2016) | | | 1,827 | | | | 151.85 | | | | — | | | | 165,531,424 | |

| Period #3 (November 7, 2016 to December 4, 2016) | | | 39,939 | | | | 160.57 | | | | 38,894 | | | | 159,295,327 | |

| Period #4 (December 5, 2016 to January 1, 2017) | | | 64,567 | | | | 160.07 | | | | 63,500 | | | | 149,139,484 | |

| Total | | | 106,333 | | | $ | 160.12 | | | | 102,394 | | | $ | 149,139,484 | |

| (dollars in millions, except per share data) | | [added: December 31, 2017 (3) | | | |] January 1, 2017 | | | | January 3, 2016 [removed: (3)] [added: (4)] | | | | December 28, 2014 | | | | December 29, 2013 | | | [removed: | December 30, 2012 (4) | | |]

| Domestic Company-owned stores | | $ | [removed: 439.0] [added: 490.8] | | | $ | [removed: 396.9] [added: 439.0] | | | $ | [removed: 348.5] [added: 396.9] | | | $ | [removed: 337.4] [added: 348.5] | | | $ | [removed: 323.7] [added: 337.4] | |

| Domestic franchise | | | [removed: 312.3] [added: 351.4] | | | | [removed: 272.8] [added: 312.3] | | | | [removed: 230.2] [added: 272.8] | | | | [removed: 212.4] [added: 230.2] | | | | [removed: 195.0] [added: 212.4] | |

| Domestic stores | | | [removed: 751.3] [added: 842.2] | | | | [removed: 669.7] [added: 751.3] | | | | [removed: 578.7] [added: 669.7] | | | | [removed: 549.8] [added: 578.7] | | | | [removed: 518.7] [added: 549.8] | |

| Supply chain | | | [removed: 1,544.3] [added: 1,739.0] | | | | [removed: 1,383.2] [added: 1,544.3] | | | | [removed: 1,262.5] [added: 1,383.2] | | | | [removed: 1,118.9] [added: 1,262.5] | | | | [removed: 1,039.8] [added: 1,118.9] | |

| International franchise | | | [removed: 177.0] [added: 206.7] | | | | [removed: 163.6] [added: 177.0] | | | | [removed: 152.6] [added: 163.6] | | | | [removed: 133.6] [added: 152.6] | | | | [removed: 120.0] [added: 133.6] | |

| Total revenues | | | [removed: 2,472.6] [added: 2,788.0] | | | | [removed: 2,216.5] [added: 2,472.6] | | | | [removed: 1,993.8] [added: 2,216.5] | | | | [removed: 1,802.2] [added: 1,993.8] | | | | [removed: 1,678.4] [added: 1,802.2] | |

| Cost of sales | | | [removed: 1,704.9] [added: 1,922.0] | | | | [removed: 1,533.4] [added: 1,704.9] | | | | [removed: 1,399.1] [added: 1,533.4] | | | | [removed: 1,253.2] [added: 1,399.1] | | | | [removed: 1,177.1] [added: 1,253.2] | |

| Operating margin | | | [removed: 767.7] [added: 866.0] | | | | [removed: 683.1] [added: 767.7] | | | | [removed: 594.8] [added: 683.1] | | | | [removed: 549.0] [added: 594.8] | | | | [removed: 501.3] [added: 549.0] | |

| General and administrative expense | | | [removed: 313.6] [added: 344.8] | | | | [removed: 277.7] [added: 313.6] | | | | [removed: 249.4] [added: 277.7] | | | | [removed: 235.2] [added: 249.4] | | | | [removed: 219.0] [added: 235.2] | |

| Income from operations | | | [removed: 454.0] [added: 521.2] | | | | [removed: 405.4] [added: 454.0] | | | | [removed: 345.4] [added: 405.4] | | | | [removed: 313.8] [added: 345.4] | | | | [removed: 282.3] [added: 313.8] | |

| Interest income | | | [removed: 0.7] [added: 1.5] | | | | [removed: 0.3] [added: 0.7] | | | | [removed: 0.1] [added: 0.3] | | | | [removed: 0.2] [added: 0.1] | | | | [removed: 0.3] [added: 0.2] | |

| Interest expense | | | [removed: (110.1] [added: (122.5] | ) | | | [removed: (99.5] [added: (110.1] | ) | | | [removed: (86.9] [added: (99.5] | ) | | | [removed: (88.9] [added: (86.9] | ) | | | [removed: (101.4] [added: (88.9] | ) |

| Income before provision for income taxes | | | [removed: 344.7] [added: 400.2] | | | | [removed: 306.2] [added: 344.7] | | | | [removed: 258.6] [added: 306.2] | | | | [removed: 225.1] [added: 258.6] | | | | [removed: 181.2] [added: 225.1] | |

| Provision for income taxes | | | [removed: 130.0] [added: 122.2] | | | | [removed: 113.4] [added: 130.0] | | | | [removed: 96.0] [added: 113.4] | | | | [removed: 82.1] [added: 96.0] | | | | [removed: 68.8] [added: 82.1] | |

| Net income | | $ | [removed: 214.7] [added: 277.9] | | | $ | [removed: 192.8] [added: 214.7] | | | $ | [removed: 162.6] [added: 192.8] | | | $ | [removed: 143.0] [added: 162.6] | | | $ | [removed: 112.4] [added: 143.0] | |

| Common stock – basic | | $ | [removed: 4.41] [added: 6.05] | | | $ | [removed: 3.58] [added: 4.41] | | | $ | [removed: 2.96] [added: 3.58] | | | $ | [removed: 2.58] [added: 2.96] | | | $ | [removed: 1.99] [added: 2.58] | |

| Common stock – diluted | | | [removed: 4.30] [added: 5.83] | | | | [removed: 3.47] [added: 4.30] | | | | [removed: 2.86] [added: 3.47] | | | | [removed: 2.48] [added: 2.86] | | | | [removed: 1.91] [added: 2.48] | |

| Dividends declared per share | | $ | [removed: 1.52] [added: 1.84] | | | $ | [removed: 1.24] [added: 1.52] | | | $ | [removed: 1.00] [added: 1.24] | | | $ | [removed: 0.80] [added: 1.00] | | | $ | [removed: 3.00] [added: 0.80] | |

| Cash and cash equivalents | | $ | [removed: 42.8] [added: 35.8] | | | $ | [removed: 133.4] [added: 42.8] | | | $ | [removed: 30.9] [added: 133.4] | | | $ | [removed: 14.4] [added: 30.9] | | | $ | [removed: 54.8] [added: 14.4] | |

| Restricted cash and cash equivalents | | | [removed: 126.5] [added: 191.8] | | | | [removed: 180.9] [added: 126.5] | | | | [removed: 121.0] [added: 180.9] | | | | [removed: 125.5] [added: 121.0] | | | | [removed: 60.0] [added: 125.5] | |

| Working capital (1) | | | [added: (10.3 | ) | | |] (34.3 | ) | | | 45.7 | | | | 41.8 | | | | (28.5 | ) | [removed: | | 16.8 | |]

| Total assets | | | [removed: 716.3] [added: 836.8] | | | | [removed: 799.8] [added: 716.3] | | | | [removed: 596.3] [added: 799.8] | | | | [removed: 496.6] [added: 596.3] | | | | [removed: 443.4] [added: 496.6] | |

| Total debt net of debt issuance cost | | | [removed: 2,187.9] [added: 3,153.8] | | | | [removed: 2,240.8] [added: 2,187.9] | | | | [removed: 1,500.6] [added: 2,240.8] | | | | [removed: 1,507.7] [added: 1,500.6] | | | | [removed: 1,526.0] [added: 1,507.7] | |

| Total stockholders’ deficit | | | [removed: (1,883.1] [added: (2,735.4] | ) | | | [removed: (1,800.3] [added: (1,883.1] | ) | | | [removed: (1,219.5] [added: (1,800.3] | ) | | | [removed: (1,290.2] [added: (1,219.5] | ) | | | [removed: (1,335.5] [added: (1,290.2] | ) |

| (dollars in millions) | | [added: December 31, 2017 (3) | | | |] January 1, 2017 | | | | January 3, [removed: 2016(3)] [added: 2016 (4)] | | | | December 28, 2014 | | | | December 29, 2013 | | | [removed: | December 30, 2012 (4) | | |]

| Depreciation and amortization | | $ | [removed: 38.1] [added: 44.4] | | | $ | [removed: 32.4] [added: 38.1] | | | $ | [removed: 35.8] [added: 32.4] | | | $ | [removed: 25.8] [added: 35.8] | | | $ | [removed: 23.2] [added: 25.8] | |

| Capital expenditures | | | [removed: 61.5] [added: 90.3] | | | | [removed: 62.4] [added: 61.5] | | | | [removed: 71.8] [added: 62.4] | | | | [removed: 40.4] [added: 71.8] | | | | [removed: 29.3] [added: 40.4] | |

| Domestic Company-owned stores | | | [removed: 10.4] [added: 8.7] | % | | | [removed: 12.2] [added: 10.4] | % | | | [removed: 6.2] [added: 12.2] | % | | | [removed: 3.9] [added: 6.2] | % | | | [removed: 1.3] [added: 3.9] | % |

| Domestic franchise stores | | | [removed: 10.5] [added: 7.6] | % | | | [removed: 11.9] [added: 10.5] | % | | | [removed: 7.7] [added: 11.9] | % | | | [removed: 5.5] [added: 7.7] | % | | | [removed: 3.2] [added: 5.5] | % |

| Domestic stores | | | [removed: 10.5] [added: 7.7] | % | | | [removed: 12.0] [added: 10.5] | % | | | [removed: 7.5] [added: 12.0] | % | | | [removed: 5.4] [added: 7.5] | % | | | [removed: 3.1] [added: 5.4] | % |

| International stores | | | [removed: 6.3] [added: 3.4] | % | | | [removed: 7.8] [added: 6.3] | % | | | [removed: 6.9] [added: 7.8] | % | | | [removed: 6.2] [added: 6.9] | % | | | [removed: 5.2] [added: 6.2] | % |

| Domestic Company-owned stores | | | 392 | | | | [removed: 384] [added: 392] | | | | [removed: 377] [added: 384] | | | | [removed: 390] [added: 377] | | | | [removed: 388] [added: 390] | |

| Domestic franchise stores | | | [removed: 4,979] [added: 5,195] | | | | [removed: 4,816] [added: 4,979] | | | | [removed: 4,690] [added: 4,816] | | | | [removed: 4,596] [added: 4,690] | | | | [removed: 4,540] [added: 4,596] | |

| Domestic stores | | | [removed: 5,371] [added: 5,587] | | | | [removed: 5,200] [added: 5,371] | | | | [removed: 5,067] [added: 5,200] | | | | [removed: 4,986] [added: 5,067] | | | | [removed: 4,928] [added: 4,986] | |

| International stores | | | [removed: 8,440] [added: 9,269] | | | | [removed: 7,330] [added: 8,440] | | | | [removed: 6,562] [added: 7,330] | | | | [removed: 5,900] [added: 6,562] | | | | [removed: 5,327] [added: 5,900] | |

| Total stores | | | [removed: 13,811] [added: 14,856] | | | | [removed: 12,530] [added: 13,811] | | | | [removed: 11,629] [added: 12,530] | | | | [removed: 10,886] [added: 11,629] | | | | [removed: 10,255] [added: 10,886] | |

| (1) | The working capital amounts exclude restricted cash [added: and cash equivalents] amounts of [added: $191.8 million in 2017,] $126.5 million in 2016, $180.9 million in 2015, $121.0 million in [removed: 2014, $125.5 million in 2013] [added: 2014] and [removed: $60.0] [added: $125.5] million in [removed: 2012.] [added: 2013.] |

| (2) | Same store sales growth is calculated including only sales from stores that also had sales in the comparable period of the prior [removed: year, but excluding sales from certain seasonal locations such as stadiums and concert arenas.] [added: year.] International same store sales growth is calculated similarly to domestic same store sales growth. Changes in international same store sales are reported on a constant dollar basis which reflects changes in international local currency sales. The 53rd week in fiscal 2015 had no impact on reported same store sales growth amounts. |

| [removed: (3)] [added: (4)] | In connection with our 2015 Recapitalization, the Company issued $1.3 billion of fixed rate notes. A portion of the proceeds from the 2015 Recapitalization [removed: were] [added: was] used to make an optional prepayment of approximately $551.3 million in aggregate principal amount of [removed: the] [added: its] 2012 fixed rate notes, at par, pay scheduled principal catch-up amounts on [removed: the] [added: its] 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. [removed: Additionally, as part] [added: The Company also used a portion] of the [removed: 2015 Recapitalization,] [added: proceeds from] the [removed: Company’s Board of Directors authorized] [added: 2015 Recapitalization to enter into] a [added: $600.0 million accelerated] share repurchase [removed: program] [added: agreement] to repurchase [removed: up to $800.0 million of] the Company’s common stock. [removed: This share repurchase program replaced a previously existing $200.0 million share repurchase program.] Refer to Note 4 of the [added: consolidated] financial statements for additional detail related to the 2015 Recapitalization. |

| | | | | | | | | | | | | | | | | | | | | |

In our opinion, the consolidated financial statements [removed: listed in the index appearing under Item 15(a)(1)] [added: referred to above] present fairly, in all material respects, the financial position of [removed: Domino’s Pizza, Inc. and its subsidiaries at January 1,] [added: the Company as of December 31,] 2017 and January [removed: 3, 2016,] [added: 1, 2017,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended [removed: January 1,] [added: December 31,] 2017 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of [removed: January 1,] [added: December 31,] 2017, based on criteria established in [removed: Internal Control – Integrated Framework] [added: _Internal Control—Integrated Framework_] (2013) issued by the [removed: Committee of Sponsoring Organizations of the Treadway Commission (COSO).][added: COSO.]

The Company’s management is responsible for these [removed: financial statements and] [added: consolidated] financial [removed: statement schedules,] [added: statements,] for maintaining effective internal control over financial [removed: reporting] [added: 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 [removed: 9(A).][added: 9A.]

Our responsibility is to express opinions on [removed: these financial statements, on] the [added: Company’s consolidated] financial [removed: statement schedules,] [added: statements] and on the Company’s internal control over financial reporting based on our [removed: integrated] audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

| | | [added: December 31, 2017 | | | |] January 1, 2017 | | | | January 3, 2016 | | |

| [removed: Cash and cash equivalents] [added: CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD] | | [removed: $] | 42,815 | | | [removed: $] | 133,449 | | [added: | | 30,855 | |]

| Restricted cash and cash equivalents | | | [removed: 126,496] [added: 191,762] | | | | [removed: 180,940] [added: 126,496] | |

| Accounts receivable, net of reserves of [removed: $2,342] [added: $1,424] in [removed: 2016] [added: 2017] and [removed: $2,662] [added: $2,342] in [removed: 2015] [added: 2016] | | | [removed: 150,369] [added: 173,677] | | | | [removed: 131,582] [added: 150,369] | |

| Inventories | | | [removed: 40,181] [added: 39,961] | | | | [removed: 36,861] [added: 40,181] | |

| Prepaid expenses and other | | | [removed: 17,635] [added: 18,389] | | | | [removed: 20,646] [added: 17,635] | |

| Advertising fund assets, restricted | | | [removed: 118,377] [added: 120,223] | | | | [removed: 99,159] [added: 118,377] | |

| Total current assets | | | [removed: 495,873] [added: 579,780] | | | | [removed: 602,637] [added: 495,873] | |

| Land and buildings | | | [removed: 29,129] [added: 29,171] | | | | [removed: 29,064] [added: 29,129] | |

| Leasehold and other improvements | | | [removed: 120,726] [added: 128,613] | | | | [removed: 111,071] [added: 120,726] | |

| Equipment | | | [removed: 201,827] [added: 216,599] | | | | [removed: 186,405] [added: 201,827] | |

| Construction in progress | | | [removed: 7,816] [added: 32,482] | | | | [removed: 9,633] [added: 7,816] | |

| Accumulated depreciation and amortization | | | [removed: (220,964] [added: (237,279] | ) | | | [removed: (204,283] [added: (220,964] | ) |

| Property, plant and equipment, net | | | [removed: 138,534] [added: 169,586] | | | | [removed: 131,890] [added: 138,534] | |

| Investments in marketable securities, restricted | | | [removed: 7,260] [added: 8,119] | | | | [removed: 6,054] [added: 7,260] | |

| Goodwill | | | [removed: 16,058] [added: 15,423] | | | | [removed: 16,097] [added: 16,058] | |

| Capitalized software, net of accumulated amortization of [removed: $68,727] [added: $78,696] in [removed: 2016] [added: 2017] and [removed: $61,330] [added: $68,727] in [removed: 2015] [added: 2016] | | | [removed: 40,256] [added: 52,823] | | | | [removed: 28,505] [added: 40,256] | |

| Other assets, net of accumulated amortization of $776 in [removed: 2016] [added: 2017] and $776 in [removed: 2015] [added: 2016] | | | [removed: 9,379] [added: 8,272] | | | | [removed: 8,797] [added: 9,379] | |

| Deferred income taxes | | | [removed: 8,935] [added: 2,750] | | | | [removed: 5,865] [added: 8,935] | |

| Total other assets | | | [removed: 81,888] [added: 87,387] | | | | [removed: 65,318] [added: 81,888] | |

| Total assets | | $ | [removed: 716,295] [added: 836,753] | | | $ | [removed: 799,845] [added: 716,295] | |

| Current portion of long-term debt | | $ | [removed: 38,887] [added: 32,324] | | | $ | [removed: 59,333] [added: 38,887] | |

| Accounts payable | | | [removed: 111,510] [added: 106,894] | | | | [removed: 106,927] [added: 111,510] | |

| Accrued compensation | | | [removed: 42,089] [added: 37,417] | | | | [removed: 32,999] [added: 42,089] | |

| Accrued interest | | | [removed: 18,826] [added: 22,095] | | | | [removed: 20,459] [added: 18,826] | |

| Insurance reserves | | | [removed: 16,742] [added: 20,754] | | | | [removed: 17,597] [added: 16,742] | |

| Advertising fund liabilities | | | [removed: 118,377] [added: 120,223] | | | | [removed: 99,159] [added: 118,377] | |

| Other accrued liabilities | | | [removed: 57,267] [added: 58,578] | | | | [removed: 39,509] [added: 57,267] | |

| Total current liabilities | | | [removed: 403,698] [added: 398,285] | | | | [removed: 375,983] [added: 403,698] | |

| Long-term debt, less current portion | | | [removed: 2,148,990] [added: 3,121,490] | | | | [removed: 2,181,460] [added: 2,148,990] | |

| Insurance reserves | | | [removed: 27,141] [added: 30,611] | | | | [removed: 23,314] [added: 27,141] | |

| Other accrued liabilities | | | [removed: 19,609] [added: 21,751] | | | | [removed: 19,339] [added: 19,609] | |

| Total long-term liabilities | | | [removed: 2,195,740] [added: 3,173,852] | | | | [removed: 2,224,113] [added: 2,195,740] | |

_Opinions on the Financial Statements and Internal Control over Financial Reporting_

We have audited the accompanying consolidated balance sheets of Domino’s Pizza, Inc. and its subsidiaries as of December 31, 2017 and January 1, 2017, and the related consolidated statements of income, comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2017, including the related notes, the schedule of condensed financial information of the registrant as of December 31, 2017 and January 1, 2017 and for the three years in the period ended December 31, 2017 appearing under Item 16, and the schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 appearing under Item 16 (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in _Internal Control—Integrated Framework_ (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

_Change in Accounting Principle_

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2017.

_Basis for Opinions_

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

_Definition and Limitations of Internal Control over Financial Reporting_

February 20, 2018

We have served as the Company’s auditor since 2002.

| | | | 406,865 | | | | 359,498 | |

| | | December 31, 2017 | | | | January 1, 2017 | | |

| NET INCOME | | $ | 277,905 | | | $ | 214,678 | | | $ | 192,789 | |

| Net income | | | — | | | | — | | | | — | | | | 277,905 | | | | — | |

| Purchases of common stock | | | (5,576,249 | ) | | | (56 | ) | | | (12,590 | ) | | | (1,051,607 | ) | | | — | |

| Exercises of stock options | | | 357,925 | | | | 4 | | | | 6,095 | | | | — | | | | — | |

| Other | | | — | | | | — | | | | (122 | ) | | | — | | | | — | |

| BALANCE AT DECEMBER 31, 2017 | | | 42,898,329 | | | $ | 429 | | | $ | 5,654 | | | $ | (2,739,437 | ) | | $ | (2,030 | ) |

| Net income | | $ | 277,905 | | | $ | 214,678 | | | $ | 192,789 | |

As of December 31, 2017, scheduled amortization for the next five fiscal years was approximately $14.3 million, $9.4 million, $5.3 million, $3.3 million and $1.6 million for 2018, 2019, 2020, 2021 and 2022, respectively.

The Company also paid dividends of $13.8 million in 2015 related to a dividend declaration in 2014.

_Recently Adopted Accounting Standards_

The new standard was effective for the Company beginning January 2, 2017.

As a result, excess tax benefits or deficiencies from equity-based compensation activity are reflected in the consolidated statements of income as a component of the provision for income taxes, whereas they previously were recognized in the consolidated statement of stockholders’ deficit.

The Company also elected to account for forfeitures as they occur, rather than to use an estimate of expected forfeitures for financial statement reporting purposes.

The adoption of ASU 2016-09 resulted in a decrease in our provision for income taxes of $27.2 million in fiscal 2017, primarily due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

The Company’s election to account for forfeitures as they occur had an immaterial impact on its equity-based compensation expense.

The Company adopted the cash flow presentation prospectively, and accordingly, excess tax benefits from equity-based compensation of $27.2 million in fiscal 2017 are presented as an operating activity, while $48.1 million and $17.8 million of excess tax benefits from equity-based compensation in fiscal 2016 and fiscal 2015, respectively, are presented as a financing activity.

The presentation requirements for cash flows related to taxes paid for restricted stock upon vesting had no impact on our consolidated statements of cash flows for any of the periods presented because such cash flows have historically been presented as a financing activity.

_Accounting Standards Not Yet Adopted_

The Company has considered all new accounting pronouncements issued by the FASB and concluded the following accounting pronouncements may have a material impact on our consolidated financial statements, or represent accounting pronouncements for which the Company has not yet completed its assessment.

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.

Under the new revenue recognition standard, entities apply a five-step model that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Specifically, companies identify the performance obligations within their contracts with customers, allocate the transaction price received from customers to each performance obligation identified within their contracts, and recognize revenue as the performance obligations are satisfied.

During 2015, 2016, and 2017, the FASB issued various amendments which provide additional clarification and implementation guidance on ASC 606.

The new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition.

The Company has determined that the store opening fees received from international franchisees do not contain separate and distinct performance obligations from the franchise right and those upfront fees will therefore be recognized as revenue over the term of each respective franchise agreement.

Currently, we recognize such fees as revenue when received.

| --- | --- |

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.

February 28, 2017

| | | | | | | | | |

| | | | 359,498 | | | | 336,173 | |

| | | | | | | | | | | | | |

| | | | (94 | ) | | | (2,076 | ) | | | (1,468 | ) |

| | | | 532 | | | | 1,189 | | | | 791 | |

| | | | | | | | | | | | | | | | | | | | | |

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

| Net income | | | — | | | | — | | | | — | | | | 162,587 | | | | — | |

| Issuance of common stock, net | | | 102,169 | | | | 1 | | | | — | | | | — | | | | — | |

| Purchases of common stock | | | (1,151,931 | ) | | | (12 | ) | | | (17,632 | ) | | | (64,763 | ) | | | — | |

| Exercises of stock options | | | 939,340 | | | | 10 | | | | 9,018 | | | | — | | | | — | |

| Other | | | — | | | | — | | | | 262 | | | | — | | | | — | |

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.

The Company received $4.4 million, $3.9 million and $3.4 million from franchisees from enhancements of internally developed point-of-sale software during 2016, 2015 and 2014, respectively.

The Company also received $2.0 million, $1.8 million, and $0.9 million from franchisees for software licenses and software development work during 2016, 2015 and 2014, respectively.

During 2015, the Company declared and paid dividends of approximately $66.5 million, or $1.24 per share.

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.

The third quarter 2013 dividend of approximately $11.1 million was paid to shareholders on December 30, 2013, which was included in fiscal 2014.

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 1, 2017 and January 3, 2016.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-15, _Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern_.

ASU 2014-15 requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures.

ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.

The Company has completed its evaluation as of January 1, 2017, and concluded that there are no conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern under ASU 2014-15.

Subsequent to adoption, the impact of the standard will be dependent on a number of factors, including the market value per share of the Company’s common stock at restricted stock vesting dates and the number of stock options that are exercised, as excess tax benefits or deficiencies will be reflected in the consolidated statements of income as a component of the provision for income taxes.

The Company expects that the subsequent impact of adoption of this guidance will likely be material to the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, _Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)_.

In May 2016, the FASB issued ASU 2016-12, _Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients_ and ASU 2016-11, _Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March_ _3, 2016 EITF Meeting_.

In December 2016, the FASB issued ASU 2016-20, _Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers_.

These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, _Revenue from Contracts with Customers (Topic 606)_.

ASU 2016-10 clarifies the following two aspects of ASU 2014-09: identifying performance obligations and licensing implementation guidance.

ASU 2016-11 rescinds several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance relating to accounting for consideration given by a vendor to a customer, as well as accounting for shipping and handling fees and freight services.

ASU 2016-12 provides clarification to Topic 606 on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition.

ASU 2016-12 clarifies that an entity retrospectively applying the guidance in Topic 606 is not required to disclose the effect of the accounting change in the period of adoption.

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting as of [removed: January 1,] [added: December 31,] 2017 based on the framework in _Internal Control_ _— Integrated Framework (2013)_ issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on that evaluation, management concluded that its internal control over financial reporting was effective as of [removed: January 1,] [added: December 31,] 2017.

The effectiveness of the Company’s internal control over financial reporting as of [removed: January 1,] [added: December 31,] 2017, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

| David A. Brandon | | [removed: 64] [added: 65] | | Chairman of the Board of Directors |

| J. Patrick Doyle | | [removed: 53] [added: 54] | | President, Chief Executive Officer and Director |

| Jeffrey D. Lawrence | | [removed: 43] [added: 44] | | Executive Vice President, Chief Financial Officer |

| Richard E. Allison, Jr. | | [removed: 50] [added: 51] | | President, Domino’s International |

| Troy A. Ellis | | [removed: 51] [added: 52] | | Executive Vice President, Supply Chain Services |

| Stanley J. Gage | | [removed: 50] [added: 51] | | Executive Vice President, Team USA |

| Scott R. Hinshaw | | [removed: 54] [added: 55] | | Executive Vice President, Franchise Operations and Development |

| Timothy P. McIntyre | | [removed: 54] [added: 55] | | Executive Vice President, Communication, Investor Relations and Legislative Affairs |

| Kevin S. Morris | | [removed: 56] [added: 57] | | Executive Vice President, General Counsel |

| J. Kevin Vasconi | | [removed: 56] [added: 57] | | Executive Vice President, Chief Information Officer |

| Russell J. Weiner | | [removed: 48] [added: 49] | | President, Domino’s USA |

| Judith L. Werthauser | | [removed: 51] [added: 52] | | Executive Vice President, Chief People Officer |

| C. Andrew Ballard | | [removed: 44] [added: 45] | | Director |

| Andrew B. Balson | | [removed: 50] [added: 51] | | Director |

| Diana F. Cantor | | [removed: 59] [added: 60] | | Director |

| Richard L. Federico | | [removed: 62] [added: 63] | | Director |

| James A. Goldman | | [removed: 58] [added: 59] | | Director |

Mr. Brandon is currently Chairman and CEO of Toys “R” Us, Inc., the world’s largest specialty retailer of toy and baby [removed: products.][added: products, a position he has held since July 2015.]

Mr. Brandon [removed: also] served as [added: our] Chief Executive Officer from March 1999 to March [removed: 2010.][added: 2010 and was retained by the Company as a Special Advisor from March 2010 to January 2011.]

Mr. Doyle serves on the Board of Directors of Best Buy Co., Inc. and also previously served on the Board of Directors of G&K Services, Inc. [added: In January 2018, Mr. Doyle announced that he will resign from his position as President, Chief Executive Officer and Director of the Company effective June 30, 2018.]

Allison, Jr._ has served as our President, Domino’s International since October [removed: 2014.][added: 2014, after joining the Company in March 2011 as Executive Vice President of International.]

[added: Prior to joining Domino’s,] Mr. Allison served as a Partner at Bain & Company, Inc. from 2004 through December 2010, as co-leader of Bain’s restaurant practice and was employed with Bain & Company for more than 13 years.

Mr. Gage joined Domino’s [removed: Pizza] in 1985.

Mr. McIntyre [removed: also] serves on Eastern Michigan University’s College of Business Marketing Advisory [removed: Board.][added: Board and served on the Board of Directors of Food Gatherers through December 2017.]

Prior to joining Domino’s, Mr. Morris [removed: previously] served at New York-based Equinox Holdings, Inc. and its various operating subsidiaries and affiliates from December 2012 to January 2017, most recently as Senior Vice President, General Counsel and Corporate Secretary.

Ms. Werthauser previously served as Senior Vice President of Human Resources at Target Corp. [removed: She] [added: Ms. Werthauser] joined Target in 2008, holding increasing levels of human resources [removed: responsibilities there.][added: responsibilities.]

Prior to Target, [added: Ms.] Werthauser was Senior Vice President of Human Resources for U.S. Bancorp in [removed: Minneapolis.][added: Minneapolis, held several senior human resources positions at Marshall Field’s department stores and directed student programs at the University of Minnesota.]

[added: Prior to joining Domino’s,] Mr. Weiner held various marketing positions at PepsiCo, Inc. from 1998 to 2008, most recently serving as Vice President of Marketing, Colas for Pepsi-Cola North America.

Andrew Ballard_ has served on our Board of Directors since July 2015 and is a member of the Compensation Committee [added: and the Nominating and Corporate Governance Committee] of the Board of Directors.

Mr. Ballard currently serves as the CEO and Co-founder of [removed: Quad Analytix,] [added: Wiser Solutions, Inc.,] a technology and data company, and is also the Founder and Managing Partner of Figtree Partners, an investment firm focused on digital media.

In addition to serving on Domino’s Board, Mr. Ballard is currently Chairman of [removed: Datacor] [added: Datacor, Inc.] and Vice Chairman of Zignal Labs, and has held previous board roles at Activant [removed: Solutions,] [added: Solutions Inc.,] Catalina [removed: Marketing, DoubleClick,] [added: Marketing Corporation, DoubleClick Inc.,] Getty Images, Internet [removed: Brands] [added: Brands, Inc.] and [removed: Vertafore.][added: Vertafore, Inc. Mr. Ballard is the Chair of the Board of Trustees and Chair of the Investment Committee of the San Francisco Foundation.]

Balson_ has served on our Board of Directors since March 1999 and [removed: also] serves as the Chairperson of the Compensation Committee of the Board of Directors.

Mr. Balson became a Principal of Bain Capital in [removed: June] [added: January] 1998.

Ms. Cantor is currently a Partner at Alternative Investment Management, LLC, a position she has held since January [removed: 2010] [added: 2010,] and is the Vice Chairman of the Virginia Retirement System, where she also serves on the Audit and Compliance Committee.

Federico_ has served on our Board of Directors since February 2011 and [removed: also serves on] [added: is a member of] the [added: Audit Committee and the] Compensation Committee of the Board of Directors.

[removed: He] [added: Mr. Goldman] was President of the Food and Beverage Division at Campbell Soup Company from 2001 to 2004.

[removed: He] [added: Mr. Goldman] worked in various executive positions at Nabisco Inc. from 1992 to 2000.

[removed: Prior to his work at Nabisco Inc.,] Mr. Goldman [removed: was a senior consulting associate at McKinsey & Co. Mr. Goldman] [added: previously] served as a member of the Board of Directors at The Children’s Place Retail [removed: from 2006 to 2008,] [added: and served] on [removed: the] [added: its] Compensation Committee.

[added: Prior to his work at Nabisco Inc.,] Mr. Goldman [added: was a senior consulting associate at McKinsey & Co. Mr. Goldman] is currently a Senior Advisor at Eurazeo, a private equity firm listed on the Paris Stock Exchange.

Mr. Goldman is also currently on the Board of Trustees of Save the Children in Fairfield, CT, the [added: Executive] Board of [removed: Governors of] the International Tennis Hall of Fame in Newport, RI and the Advisory Boards of FEED Projects in New York, NY and Sugarfina in Los Angeles, CA.

In January 2018, the Company announced that the Board of Directors has appointed Mr. Allison to succeed Mr. Doyle as the Company’s Chief Executive Officer, effective July 1, 2018.

Mr. Allison shall also be appointed to the Company’s Board of Directors as soon as practical after July 1, 2018.

In January 2018, the Company announced that the Board of Directors has appointed Mr. Weiner to the newly-created role of Chief Operating Officer and President of the Americas, effective July 1, 2018.

| Eric B. Anderson | | 44 | | Executive Vice President, International Operations |

| Gregory A. Trojan | | 57 | | Director |

Mr. Brandon was retained by the Company as a Special Advisor from March 2010 to January 2011.

_Eric B.

Anderson_ has served as Executive Vice President of International Operations since January 2016.

Mr. Anderson joined Domino’s in 2010 as Regional Vice President for the Americas and Business Strategy.