Domino's Pizza (DPZ) 10-K risk factor changes: FY2019 vs FY2018

[removed: _The] [added: The] quick service restaurant pizza category [removed: is] [added: and the food service and food delivery markets in general are] highly competitive and such competition could adversely affect our operating [removed: results._][added: results.]

In the U.S., we compete [added: primarily] against regional and local companies as well as national chains Pizza [removed: Hut®, Papa John’s® and Little Caesars Pizza®.][added: Hut]

Internationally, we compete primarily with Pizza [removed: Hut®, Papa John’s® and country-specific national and local companies.][added: Hut]

[removed: We could experience increased competition from existing or new companies in the] pizza category [removed: which] [added: that] could create increasing pressures to grow our business in order to maintain our market share.

Additionally, we face growing competition from the supermarket industry and meal kit and food delivery providers, with the improvement of prepared food [removed: offerings] and [added: meal kit offerings, expansion in meal delivery platforms and services and] the trend towards convergence in grocery, deli, retail and restaurant services.

If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for our products, reduced margins, [added: loss of management or hourly employees, disruption in our supply chain centers,] the inability to take advantage of new business opportunities and the loss of market share, all of which would have an adverse effect on our operating results and could cause our stock price to decline.

Competition from [added: order and] delivery aggregators and other food delivery services has also increased in recent years.

The overall food service [added: market, food delivery] market and the quick service restaurant [removed: sector] [added: market] are intensely competitive with respect to food quality, price, service, image, convenience and concept, and are often affected by changes in:

| | • | [removed: |] consumer tastes; |

| | • | [removed: |] international, national, regional or local economic conditions; |

| | • | [removed: |] disposable purchasing power; |

| | • | [removed: |] demographic trends; and |

| | • | [removed: |] currency fluctuations related to international operations. |

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

While [added: substantially] all U.S. franchisees purchased food, equipment and supplies from us in [removed: 2018,] [added: 2019,] U.S. franchisees are not required to purchase food, equipment or supplies from us and they may choose to purchase from outside suppliers.

[removed: _If] [added: If] we fail to successfully implement our growth strategy, which includes opening new U.S. and international stores, our ability to increase our revenues and operating profits could be adversely [removed: affected._][added: affected.]

A significant component of our growth strategy includes the opening of new U.S. [added: (both Company-owned as well as franchised stores)] and international [added: franchised] stores.

| | • | [removed: |] availability of financing with acceptable terms; |

| | • | [removed: |] selection and availability of suitable new store sites and the ability to renew leases in quality locations; |

| | • | [removed: |] negotiation of acceptable lease or financing terms; |

| | • | [removed: |] securing required U.S. or foreign governmental permits, licenses and approvals; |

| | • | [removed: |] employment and training of qualified personnel; and |

| | • | [removed: |] general economic and business conditions. |

[removed: This may require considerable management time as well as start-up] expenses for market development before any significant revenues and earnings are generated.

Therefore, as we continue to expand internationally, we or our franchisees may not experience the operating margins we expect, our results of operations may be negatively [removed: impacted] [added: impacted,] and our common stock price may decline.

[removed: _The] [added: The] food service market is affected by consumer preferences and perceptions.

Changes in these preferences and perceptions may reduce the demand for our products, which would reduce sales and harm our [removed: business._][added: business.]

Food service businesses are affected by changes in consumer tastes, international, national, regional and local economic conditions, [added: marketing, advertising, pricing, including discounting,] and demographic trends.

[removed: _Our] [added: Our] inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could adversely impact our [removed: business._][added: business.]

The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information [removed: dissemination.][added: dissemination and given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors.]

[removed: Other] [added: A failure of us, our employees, our franchisees or third parties acting at our direction to abide by applicable laws and regulations in the use of social media could adversely impact our brand, reputation, marketing partners, financial condition, and results of operations or subject us or our franchisees to fines or other penalties.Other] risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our brand, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information.

[removed: _Reports] [added: Reports] of food-borne illness or food tampering could reduce sales and harm our [removed: business._][added: business.]

Reports, whether true or not, of food-borne illnesses (such as E. coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the [removed: QSR sector] [added: quick service restaurant market] and could in the future as well.

Even reports of food-borne illnesses or food tampering occurring solely at the restaurants of competitors could, by resulting in negative publicity about the restaurant [removed: industry,] [added: industry in general,] adversely affect us on a local, regional, national or international basis.

[removed: _We] [added: We] do not have long-term contracts with certain of our suppliers, and as a result they could seek to significantly increase prices or fail to [removed: deliver._][added: deliver.]

The occurrence of any of the foregoing could have a material adverse effect on [added: the ability of] our [added: supply chain centers to deliver necessary products to our stores and on our] results of operations.

[removed: _Shortages] [added: Shortages] or interruptions in the supply or delivery of fresh food products could adversely affect our operating [removed: results._][added: results.]

While we believe there are adequate reserve quantities and potential alternative suppliers, shortages or interruptions in the supply of food products caused by increased demand, 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 [removed: ingredients, could adversely affect our operating results.][added: ingredients.]

[removed: _Increases] [added: Increases] in food, labor and other costs could adversely affect our profitability and operating [removed: results._][added: results.]

An increase in our operating costs could adversely affect our [removed: profitability.][added: profitability and other operating results.]

| --- | --- |

, Papa John’s

and Little Caesars Pizza

, Papa John’s

and country-specific national and local companies.

We could experience increased competition from existing or new companies in the delivery and

carry-out

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| | • | marketing, advertising and pricing, including discounting; |

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This may require considerable management time as well as

start-up

In addition, we expect to continue our strategy of building additional stores in markets and regions where we have existing stores, which may negatively impact sales at existing stores.

In addition, laws and regulations, including FTC enforcement, rapidly evolve to govern social media platforms and communications.

Further, the occurrence of a widespread illness, health epidemic or other general health concern could adversely affect us on a local, regional or international basis.

A decrease in global retail sales as a result of these health concerns or negative publicity or as a result of the closure of any Domino’s stores could have a material adverse effect on our results of operations.

Additionally, the effects of climate change could increase the frequency and duration of weather impacts on our operations and could adversely affect our operating results.

Advertising Age

We are currently subject to these types of claims and have been subject to these types of claims in the past.

high-fat

foods and that quick service restaurant marketing practices have encouraged obesity.

In addition to decreasing our sales and profitability and diverting our management resources, adverse publicity resulting from such allegations may materially and adversely affect us and our brand, regardless of whether such allegations are valid or whether we are liable.

Our success in the highly competitive pizza delivery and

carry-out

non-compete

and

non-solicitation

agreements that extend for 24 months following the termination of such executive officer’s employment.

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

Each Domino’s store located in the contiguous U.S. is obligated to pay a percentage of its sales in advertising fees.

We may also become subject to private lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our consumers’ credit or debit card information or if consumer or employee information is obtained by unauthorized persons or used inappropriately.

Any such claim or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our business and the potential of incurring significant remediation costs.

If we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines, sanctions and other enforcement measures.

As of December 30, 2018, we also had $65.0 million outstanding under our variable funding notes with a legal maturity date in July 2022, subject to two additional one-year extensions at the option of the Company, subject to certain conditions.

[removed: Overview][added: Overview]

[removed: _Our] [added: Our] fiscal year typically includes 52 weeks, comprised of three twelve-week quarters and one sixteen-week quarter.

Every five or six years our fiscal year includes an extra (or [removed: 53rd) week in the fourth quarter.][added: 53]

Fiscal [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] each consisted of 52 [removed: weeks._][added: weeks.]

[removed: Description] [added: Description] of the [removed: Business][added: Business]

Domino’s is the largest pizza company in the world based on global retail sales, with more than [removed: 15,900] [added: 17,000] locations in over [removed: 85] [added: 90] markets around the world.

Although we are a highly-recognized global brand, we focus on serving [removed: the local] neighborhoods [removed: in which we live and do business] [added: locally] through our large network of franchise owners and Company-owned stores.

Our business model is straightforward: [removed: we] [added: Domino’s stores] handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our [removed: technology] [added: technological] innovations.

Our [added: hand-tossed] dough is [removed: generally] made fresh and distributed to stores around the world by us and our franchisees.

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

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

[removed: The Company] [added: We] also [removed: generates] [added: generate] revenues and earnings by selling food, equipment and supplies to franchisees primarily in the U.S. and Canada, and by operating a number of our own stores.

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

We have historically returned cash to shareholders through dividend payments and share repurchases since becoming a publicly-traded [removed: company.][added: company in 2004.]

[removed: Fiscal 2018 Highlights][added: Fiscal 2019 Highlights]

| | • | [removed: |] Global retail [removed: sales] [added: sales, excluding foreign currency impact] (which [removed: are] [added: includes] total retail sales at Company-owned and franchised stores worldwide) increased [removed: 10.6%] [added: 8.0%] as compared to [removed: 2017.] [added: 2018.] |

| | • | [removed: |] Same store sales increased [removed: 6.6%] [added: 3.2%] in our U.S. stores and increased [removed: 3.5%] [added: 1.9%] in our international stores. |

| | • | [removed: |] Our revenues increased [removed: 23.1%.] [added: 5.4%.] |

| | • | [removed: |] Our income from operations increased [removed: 9.7%.] [added: 10.1%.] |

| | • | [removed: |] Our net income increased [removed: 30.3%.] [added: 10.7%.] |

| | • | [removed: |] Our diluted earnings per share increased [removed: 43.2%.] [added: 14.5%.] |

[added: | (2) | The adoption of ASC 606 in 2018 resulted in the recognition of revenue related to U.S. franchise contributions to DNAF.] In [removed: 2017,] [added: prior years,] under accounting standards in effect at that time, we had presented these contributions net with the related disbursements in our consolidated statement of income. [added: Refer to Note 1 to the consolidated financial statements for additional information related to the adoption of this accounting standard. |]

Refer to Note 1 to the consolidated financial statements for additional information related to the adoption of [removed: this new accounting standard.][added: ASC 606.]

During [removed: 2018,] [added: 2019,] we continued our rapid global expansion with the opening of [removed: 1,058] [added: 1,106] net new stores.

Our international franchise segment led the way with [removed: 800] [added: 856] net new store [removed: openings, including the opening of our 10,000th international store.][added: openings.]

We also continued our strong U.S. and international same store sales performance with [removed: 31] [added: 35] straight quarters of positive U.S. same store sales and [removed: 100] [added: 104] straight quarters of positive international same store sales.

[removed: Additionally, we] [added: We] remained focused on [removed: growing online ordering and] improving the [removed: digital] customer experience through our technology [removed: platforms,] [added: initiatives,] including the recent launch of [added: our GPS delivery tracking technology, which allows customers to track the progress of their pizza delivery through the] Domino’s [removed: Delivery HotSpots.][added: ordering platforms.]

Our emphasis on technology innovation helped the Domino’s system generate more than half of global retail sales from digital channels in [removed: 2018.][added: 2019.]

Overall, we believe our focus in [removed: 2018] [added: 2019] on global growth and technology will continue to strengthen our brand in the future.

[removed: Critical] [added: Critical] accounting policies and [removed: estimates][added: estimates]

On an ongoing basis, our management evaluates its estimates, including those related to revenue recognition, long-lived [removed: and intangible] assets, insurance and legal matters, share-based payments and income taxes.

[removed: _Revenue recognition_.][added: Revenue recognition]

Retail sales from franchise stores are reported to [removed: the Company] [added: us] by [removed: its] [added: our] franchisees and are not included in [removed: Company] [added: our] revenues.

Retail sales are generally reported and related royalties paid to [removed: the Company] [added: us] based on a percentage of retail sales, as specified in the related standard franchise agreement (generally 5.5% of U.S. franchise retail sales and, on average, 3.0% of international franchise retail sales).

Although these revenues are restricted to be used only for advertising and promotional activities to benefit franchised stores, [removed: the Company has] [added: we have] determined there are not performance obligations associated with the franchise advertising contributions received by DNAF that are separate from [removed: its] [added: our] U.S. royalty payment stream and as a result, these franchise contributions and the related expenses are presented gross in the [removed: Company’s] consolidated [removed: statement] [added: statements] of income.

Revenues from Company-owned stores and revenues from franchised stores (including U.S. franchise royalties and fees and U.S. franchise advertising revenues) can fluctuate from [removed: time-to-time as a result of store count and sales level changes.]

[removed: _Long-lived and intangible assets._] We record long-lived assets, including property, plant and equipment and capitalized software, at cost.

For Company-owned stores, we perform related impairment tests on an operating market basis, which [removed: the Company has] [added: we have] determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows.

If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset, [removed: the Company estimates] [added: we estimate] the fair value of the asset.

If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is [removed: recognized] [added: recognized,] and the asset is written down to its estimated fair value.

rd

) week in the fourth quarter.

In this section, we discuss the results of our operations for the year ended December 29, 2019 compared to the year ended December 30, 2018.

For a discussion of the year ended December 30, 2018 compared to the year ended December 31, 2017, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form

10-K

for the year ended December 30, 2018.

Royalties are ongoing

percent-of-sales

sub-franchising

and selling food and equipment to those

sub-franchisees,

as well as by running pizza stores.

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

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

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Our U.S. carryout business experienced continued strong growth.

While our overall U.S. delivery business continues to grow, our U.S. delivery same store sales growth has been pressured by our fortressing strategy, which includes increasing store concentration in certain markets where we compete, as well as from aggressive competitive activity.

not-for-profit

advertising fund (generally 6.0% of U.S. franchise retail sales).

time-to-time

as a result of store count and sales level changes.

Long-lived assets.

Insurance and legal matters.

For certain periods prior to December 1998 and for periods after December 2001, we maintain insurance coverage for workers’ compensation, general liability and owned and

non-owned

Share-based payments.

ten-year

stock option life upon the retirement of individuals holding the awards who have achieved specified service and age requirements.

Income taxes.

| Openings | | | 12 | | | | 253 | | | | 265 | | | | 939 | | | | 1,204 | |

| Store count at December 29, 2019 | | | 342 | | | | 5,784 | | | | 6,126 | | | | 10,894 | | | | 17,020 | |

Revenues.

These increases in revenues were partially offset by lower U.S. Company-owned store revenues resulting from the sale of 59 Company-owned stores to certain of our existing U.S. franchisees during the second quarter of 2019 (the “2019 Store Sale”).

| | | 2019 | | | | | | | | 2018 | | | | | | |

U.S. Company-owned stores.

Revenues from U.S. Company-owned store operations decreased $61.2 million, or 11.9%, in 2019 due primarily to the 2019 Store Sale.

This decrease in revenues was partially offset by a 2.8% increase in same store sales as compared to 2018.

On average, we and our franchisees sell more than 3 million pizzas each day throughout our global system.

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

The adoption of Accounting Standards Codification 606, _Revenue from Contracts with Customers_ (“ASC 606”) in 2018 resulted in the recognition of $358.5 million in revenue in 2018 related to U.S. franchise contributions to Domino’s National Advertising Fund Inc. (“DNAF”), our consolidated not-for-profit advertising fund.

Our Domino’s Piece of the Pie Rewards loyalty program continues to contribute to our U.S. same store sales performance.

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

Fiscal 2017 Highlights

| | • | | Global retail sales increased 12.7% as compared to 2016. |

| | • | | Same store sales increased 7.7% in our U.S. stores and increased 3.4% in our international stores. |

| | • | | Our revenues increased 12.8%. |

| | • | | Our income from operations increased 14.8%. |

| | • | | Our net income increased 29.5%. |

| | • | | Our diluted earnings per share increased 35.6%. |

During 2017, we continued our rapid global expansion with the opening of 1,045 net new stores.

Our international franchise segment led the way with 829 net new store openings.

We continued our focus on growing online ordering and the digital customer experience as well as other technological advancements.

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 2017.

The Company also generates revenues from U.S. franchise advertising contributions to DNAF, its consolidated not-for-profit advertising fund (generally 6.0% of U.S. franchise retail sales).

This can occur when a Company-owned store is sold to a franchisee.

If a Company-owned store that generated $1,000,000 in revenue in fiscal 2017 was sold to a franchisee in fiscal 2018, revenues from Company-owned stores would have declined by $1,000,000 in fiscal 2018, while U.S. franchise royalty revenues would have increased by $55,000 and U.S. franchise advertising revenues would have increased by $60,000 in fiscal 2018, as we generally collect 5.5% of a U.S. franchisee’s retail sales as royalty revenue and 6.0% of a U.S. franchisee’s retail sales for advertising contributions.

A significant portion of our goodwill relates to acquisitions of U.S. franchise stores and is included in our U.S. stores segment, specifically, 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 future cash flows) to its carrying value.

If the carrying value of the reporting unit exceeds the fair value, goodwill would be impaired.

We have not made any significant changes in the methodology used to evaluate goodwill impairment during the years presented.

At December 30, 2018, the fair value of our business operations with associated goodwill exceeded their recorded carrying value, including the related goodwill.

If cash flows generated by our Company-owned stores were to decline significantly in the future or there were negative revisions to the market multiple assumption, we may be required to recognize a goodwill impairment charge.

However, based on the latest impairment analysis, we do not believe it is reasonably likely that there could be changes in assumptions that would trigger impairment.

The Company did not record any impairment charges during fiscal 2018, fiscal 2017 or fiscal 2016.

We adopted ASU 2017-04, _Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment_ (“ASU 2017-04”) during 2018.

ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test.

As the fair value of our business operations exceeded their recorded carrying value in “Step 1” of the impairment test, the adoption of this standard did not have an impact on our evaluation of goodwill impairment.

The actuarial valuation methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date.

The Company did not have any valuation allowances recorded for deferred tax assets as of December 30, 2018 or December 31, 2017.

The amounts recorded on the balance sheet relating to uncertain tax positions consider the ultimate resolution of revenue agent reviews based on estimates and assumptions.

We believe we have appropriately accounted for our uncertain tax positions; however, tax audits, changes in tax laws and other unforeseen matters may result in us owing additional taxes.

We adjust our reserves for uncertain tax positions when facts and circumstances change or due to the passage of time.

The completion of a tax audit or the expiration of a statute of limitations associated with uncertain tax positions are examples of situations when we may adjust our reserves.

Management believes that our tax positions comply with applicable tax law and that we have adequately provided for these matters.

However, to the extent the final tax outcome of these matters is different than our recorded amounts, we may be required to adjust our tax reserves resulting in additional income tax expense or benefit in future periods.

| Store count at January 3, 2016 | | | 384 | | | | 4,816 | | | | 5,200 | | | | 7,330 | | | | 12,530 | |

[removed: _Market risk_][added: Market risk]

In connection with the 2017 Recapitalization, we issued fixed and floating rate notes and, at December [removed: 30, 2018,] [added: 29, 2019,] we are exposed to interest rate risk on borrowings under our 2017 [added: Five-Year] Floating Rate Notes and our [removed: 2017] [added: 2019] Variable Funding Notes.

As of December [removed: 30, 2018,] [added: 29, 2019,] we [removed: had $65.0 million in] [added: did not have any] outstanding borrowings under our [removed: 2017] [added: 2019] Variable Funding Notes.

Our 2017 [added: Five-Year] Floating Rate Notes and our [removed: 2017] [added: 2019] Variable Funding Notes bear interest at fluctuating interest rates based on LIBOR.

A hypothetical 1.0% adverse change in the LIBOR rate would have resulted in higher interest expense of approximately [removed: $3.0] [added: $3.1] million in [removed: 2018.][added: 2019.]

In instances when we use fixed pricing agreements with our suppliers, these agreements cover our physical commodity needs, are not [removed: net-settled and are accounted for as normal purchases.]

[removed: _Foreign] [added: Foreign] currency exchange rate [removed: risk_][added: risk]

Approximately [removed: 6.5%] [added: 6.7%] of our total revenues in [removed: 2018, 7.4%] [added: 2019, 6.5%] of our total revenues in [removed: 2017] [added: 2018] and [removed: 7.2%] [added: 7.4%] of our total revenues in [removed: 2016] [added: 2017] 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: $20.0] [added: $21.2] million in [removed: 2018.][added: 2019.]

| --- | --- |

net-settled

and are accounted for as normal purchases.

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

[removed: Overview][added: Overview]

Domino’s is the largest pizza company in the world based on global retail sales, with more than [removed: 15,900] [added: 17,000] locations in over [removed: 85] [added: 90] markets around the [removed: world.][added: world as of December 29, 2019.]

Although we are a highly-recognized global brand, we focus on serving [removed: the local] neighborhoods [removed: in which we live and do business] [added: locally] through our large global network of franchise owners and [removed: 390] U.S. Company-owned stores.

The Domino’s business model is straightforward: [removed: we] [added: Domino’s stores] handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our [removed: technology] [added: technological] innovations.

Our [added: hand-tossed] dough is [removed: generally] made fresh and distributed to stores around the world by us and our franchisees.

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

The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees [added: through our supply chain operations,] primarily in the U.S. and Canada, and by operating a number of our own stores.

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

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

[removed: Everyone] [added: We believe that everyone] in the system can benefit, including the end consumer, who can purchase Domino’s menu items for themselves and their family conveniently and economically.

It can also yield significant cash [removed: flow] [added: flows] to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures.

We have historically returned cash to shareholders through dividend payments and share [removed: repurchases since becoming a publicly-traded company.][added: repurchases.]

[removed: Our History][added: Our History]

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

Monaghan sold 93% of his economic stake in the Company in 1998 to Bain Capital, LLC, [added: and] then [added: later] sold and transferred his remaining stake in the Company in 2004, when we completed our initial public offering.

Since 1998, the Company has been structured with a leveraged balance sheet and has completed a number of recapitalization [removed: events.][added: transactions.]

The Company’s most recent recapitalization transaction in [removed: 2018] [added: 2019] (the [removed: “2018] [added: “2019] Recapitalization”) primarily consisted of the issuance of [removed: $825.0 million of fixed rate notes and the repurchase and retirement of $490.0] [added: $675.0] million of [removed: previously outstanding] fixed rate notes.

As of December [removed: 30, 2018,] [added: 29, 2019,] the Company had [removed: $3.53] [added: $4.11] billion in total debt, which included debt from its [removed: 2018] [added: 2019] Recapitalization and its previous recapitalization transactions in [added: 2018,] 2017 and 2015 (the [added: “2018 Recapitalization,”] “2017 Recapitalization” and the “2015 Recapitalization,” [added: respectively,] and together with the [removed: 2018] [added: 2019] Recapitalization, the [removed: “2018,] [added: “2019, 2018,] 2017 and 2015 Recapitalizations”).

Excess proceeds from our [added: 2019,] 2018, 2017 and 2015 Recapitalizations were used primarily to repurchase shares of our common stock.

[removed: We re-launched] our brand in the U.S. in late 2009 by introducing a new recipe for our core pizza product.

During this [removed: time frame,] [added: timeframe,] we also began expanding our focus on technology through our development of innovative ordering [removed: platforms] [added: platforms, including those developed for Google Home, Facebook Messenger, Apple Watch, Amazon Echo] and [added: Twitter, as well as] other technological advancements, such as the launch of our Piece of the Pie [removed: Rewards® loyalty program in 2015 and the launch of Domino’s Delivery HotSpots® in 2018.][added: Rewards]

[removed: Globally, we opened our 10,000th] store in 2012 and our [removed: 15,000th store in 2018.][added: 17,000]

[removed: In 2013, we announced a plan requiring all stores to adopt our new 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.

The majority of our U.S. and international stores have completed these remodels as of the end of [removed: 2018.][added: 2019.]

[removed: Our Industry][added: Our Industry]

From [removed: 2008] [added: 2014] through [removed: 2018,] [added: 2019,] the U.S. QSR pizza category has grown from [removed: $32.8] [added: $34.8] billion to [removed: $36.5] [added: $37.8] billion.

It is the second-largest category within the [removed: $299.6] [added: $279] billion U.S. QSR sector.

The U.S. QSR pizza category is primarily comprised of delivery, [removed: dine-in and carryout.]

In the U.S., we compete primarily in the delivery and carryout segments of the pizza [removed: industry.][added: industry, and we are the dollar market share leader for delivery and second-largest dollar market share leader for carryout.]

Delivery segment [removed: sales] [added: dollars] of [removed: $9.8] [added: $11.0] billion in [removed: 2018 (down] [added: 2019 (up] from [removed: $10.3] [added: $10.2] billion in [removed: 2008)] [added: 2014)] account for approximately [removed: 27%] [added: 29%] of total U.S. QSR pizza.

The [removed: three] [added: four] industry leaders, including Domino’s, account for over [removed: 56%] [added: 61%] of U.S. pizza delivery, based on reported consumer spending, with the remaining [removed: sales] [added: dollars] going to regional chains and independent establishments.

From [removed: 2008] [added: 2014] to [removed: 2018,] [added: 2019,] the carryout segment grew from [removed: $14.1] [added: $16.9] billion to [removed: $17.1] [added: $18.8] billion.

The four industry leaders, including Domino’s, account for approximately [removed: 48%] [added: 51%] 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 [removed: the] [added: our] proven success of [removed: our] [added: more than] 35 years of conducting business abroad.

[removed: _Our Competition_][added: Our Competition]

The global pizza delivery and carryout [removed: segments] [added: segments, as well as the broader QSR sector,] are highly competitive.

In the U.S., we compete against regional and local companies as well as national chains Pizza [removed: Hut®, Papa John’s® and Little Caesars Pizza®.][added: Hut]

Internationally, we compete primarily with Pizza [removed: Hut®, Papa John’s® and country-specific national and local pizzerias.][added: Hut]

We also compete [removed: on a broader scale] with other [added: food,] food [added: delivery] and [removed: food] [added: order and] delivery [added: aggregation] companies.

We compete not only for customers, but also for employees, [added: drivers,] suitable real estate sites and qualified franchisees.

| --- | --- |

The Company is primarily a franchisor, with approximately 98% of Domino’s stores currently owned and operated by independent franchisees.

Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strength of the Domino’s global brand, operating system and financial resources.

Royalties are ongoing

percent-of-sales

brand marks.

brand to master franchisees.

sub-franchising

and selling food and equipment to those

sub-franchisees,

as well as by running pizza stores.

We

re-launched

loyalty program in 2015 and the launch of Domino’s Delivery HotSpots

in 2018.

Globally, we opened our 10,000

th

th

store in 2019.

In 2012, we announced a plan requiring all stores to adopt our new

carry-out

dine-in

and carryout, with carryout and delivery comprising the two largest segments.

(Source: The NPD Group/CREST

, year ending November 2019).

, Papa John’s

and Little Caesars Pizza

, Papa John’s

and country-specific national and local pizzerias.

dine-in

experience.

Directly operating Domino’s stores contributes significantly to our ability to act as a credible franchisor.

As of December 29, 2019, franchised stores represented 94% of our total store count within our U.S. stores segment.

in-store

positions, which we believe offers advantages in terms of familiarity with our business and store operations.

We consider our relationship with our U.S. franchisees to be good.

not-for-profit

advertising subsidiary.

| India (JUBLFOOD: NS) | | | 1,312 | |

| Mexico (ALSEA: MX) | | | 801 | |

On average, we and our franchisees sell more than 3 million pizzas each day throughout our global system.

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

We are the market share leader in the delivery segment and we are amongst the top three chains in share in the carryout segment.

The delivery segment declined slightly during the period from 2008 to 2012, and has increased slightly since 2012, from $9.7 billion in 2012 to $9.8 billion in 2018.

_U.S.

| India | | | 1,195 | |

| Mexico | | | 760 | |

| Australia | | | 693 | |

| Japan | | | 550 | |

| Turkey | | | 535 | |

| Canada | | | 487 | |

| France | | | 387 | |

| Germany | | | 283 | |

Our supply chain segment made approximately 766,000 full-service deliveries in 2018 or approximately 2.5 deliveries per store per week, and we produced over 573 million pounds of fresh dough during 2018.

We and our franchisees are continuing to focus on growing our store count around the world to increase our presence in all of our markets to better serve our customers.

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

Here are two organizations worthy of note:

As franchisees are independent business owners, they and their employees are not included in our employee count.

We estimate the total number of people who work in the Domino’s system, including our employees, franchisees and the employees of franchisees, was more than 320,000 as of December 30, 2018.

The [added: case was tried again in June 2019 and the] jury returned a [removed: $10.1] [added: $9.0] million judgment for the plaintiff where the Company and Mr. Kidd were found to be [removed: 90%] [added: 100%] liable (after certain offsets and other deductions the final verdict was [removed: $8.9] [added: $8.0] million).

The Company continues to deny liability [removed: in this matter.][added: and has filed an appeal.]

| --- | --- |

The case went to trial in 2016 and the Company was found liable, but the verdict was reversed by the Florida Fifth District Court of Appeals in May 2018 and was remanded to the Ninth Judicial Circuit Court of Florida for a new trial.

In the second quarter of 2016, the trial court ruled on all post-judgment motions and entered the judgment.

The Company denies liability and in the third quarter of 2016 filed an appeal of the verdict on a variety of grounds.

On May 11, 2018, the court of appeals reversed and remanded the case to the trial court for a new trial based on the plaintiff’s improper closing argument.

[removed: ##### [Table of Contents](#toc)][added: TABLE OF CONTENTS]

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM]

[removed: (Mark One)][added: (Mark One)]

| ☒ | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year ended [removed: December 30, 2018]

| ☐ | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: Commission] [added: Commission] File Number [removed: 001-32242]

[removed: Domino’s] [added: Domino’s] Pizza, [removed: Inc.][added: Inc.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: DELAWARE] [added: DELAWARE] | | [removed: 38-2511577] [added: 38-2511577] |

| [removed: (State] [added: (State] or other jurisdiction [removed: of incorporation] [added: of incorporation] or [removed: organization)] [added: organization)] | | [removed: (I.R.S. Employer Identification No.)] [added: (I.R.S. Employer Identification No.)] |

| [removed: 30] [added: 30] Frank Lloyd Wright [removed: Drive Ann] [added: Drive Ann] Arbor, [removed: Michigan] [added: Michigan] | | [removed: 48105] [added: 48105] |

| [removed: (Address] [added: (Address] of principal executive [removed: offices)] [added: offices)] | | [removed: (Zip Code)] [added: (Zip Code)] |

[removed: Registrant’s] [added: Registrant’s] telephone number, including area code (734) [removed: 930-3030]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of [removed: each class:] [added: Each Class] | | [removed: Name] [added: Trading Symbol | | Name] of [removed: each exchange] [added: Each Exchange] on [removed: which registered:] [added: Which Registered] |

| [removed: Domino’s] [added: Domino’s] Pizza, [removed: Inc. Common] [added: Inc. Common] Stock, $0.01 par [removed: value] [added: value] | | [removed: New] [added: DPZ | | New] York Stock [removed: Exchange] [added: Exchange] |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the [removed: Act: None][added: Act:]

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [removed: ☒ No ☐]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation [removed: S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒ No ☐]

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

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

| [removed: | | | |] Emerging growth company | | ☐ | [added: | | | |]

Indicate by check mark whether the registrant is a shell company (as defined in Rule [removed: 12b-2 of the Act): Yes ☐ No ☒]

[removed: The aggregate market value] of [removed: the voting and non-voting common stock held by non-affiliates of] Domino’s Pizza, Inc. as of June [removed: 17, 2018] [added: 16, 2019] 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: $11,546,079,722.][added: $11,503,936,585.]

As of February [removed: 14, 2019,] [added: 13, 2020,] Domino’s Pizza, Inc. had [removed: 41,040,704] [added: 38,667,039] shares of common stock, par value $0.01 per share, outstanding.

[removed: Documents] [added: Documents] incorporated by [removed: reference:][added: reference:]

Portions of the definitive proxy statement to be furnished to shareholders of Domino’s Pizza, Inc. in connection with the annual meeting of shareholders to be held on April [removed: 23, 2019] [added: 21, 2020] are incorporated by reference into Part III.

| | | [added: Part I] | | [removed: Page No.] [added: Page No.] | [added: | |]

| | | [removed: [Part I](#tx696297_1)] [added: Part II] | | | [added: | |]

| [removed: Item 1.] [added: [Item 1.](#tx796357_1)] | | [removed: [Business.](#tx696297_2)] [added: [Business.](#tx796357_1)] | | [added: |] 2 | [added: |]

| [removed: Item 1A.] [added: [Item 1A.](#tx796357_2)] | | [Risk [removed: Factors.](#tx696297_3)] [added: Factors.](#tx796357_2)] | | [added: |] 11 | [added: |]

| [removed: Item 1B.] [added: [Item 1B.](#tx796357_3)] | | [Unresolved Staff [removed: Comments.](#tx696297_4)] [added: Comments.](#tx796357_3)] | | [removed: 21] | [added: 24 | |]

| [removed: Item 2.] [added: [Item 2.](#tx796357_4)] | | [removed: [Properties.](#tx696297_5)] [added: [Properties.](#tx796357_4)] | | [removed: 21] | [added: 24 | |]

| [removed: Item 3.] [added: [Item 3.](#tx796357_5)] | | [Legal [removed: Proceedings.](#tx696297_6)] [added: Proceedings.](#tx796357_5)] | | [removed: 21] | [added: 24 | |]

10-K

December 29, 2019

or

001-32242

930-3030

None

No

No

No

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes

No

non-accelerated

filer, a smaller reporting company, or an emerging growth company.

12b-2

of the Exchange Act.

12b-2

of the Act): Yes

No

The aggregate market value of the voting and

non-voting

common stock held by

non-affiliates

| | | | | | | |

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

| | | | | | | |

| | | | | | | |

| | | | | | | |

| | | | | | | |

| | | | | | | |

| | | | | | | |

| | | | | | | |

| | | | | | | |

| [SIGNATURES](#tx796357_23) | | | | | 90 | |

ongoing foodservice market research (years ending November) prepared by The NPD Group, as well as market research reports, analyst reports and other publicly-available information.

ongoing foodservice market research from consumer surveys.

10-K 1 d696297d10k.htm 10-K

or

| | | |

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: ☒

TABLE OF CONTENTS

| | | | | |

| [SIGNATURES](#tx696297_27) | | | | 91 |

Part I

| --- | --- |

We lease approximately [removed: 270,000] [added: 250,000] 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.

Under an amendment to this lease, Domino’s Farms Office Park, L.L.C. [removed: is currently constructing] [added: constructed] a new 33,000 square foot building that [removed: will be] [added: was] leased to the Company upon [removed: completion, which is expected to occur] [added: completion] in 2019.

We also own [removed: two] [added: one] store [removed: buildings] [added: building] that we lease to [added: a] U.S. [removed: franchisees.][added: franchisee.]

All other U.S. [removed: Company-owned stores] [added: and international supply chain centers] are leased by us, typically under [removed: five-year] leases [added: ranging between five and 21 years] with one or two five-year renewal options.

| --- | --- |

All other U.S. Company-owned stores are leased by us, typically under

ten-year

leases with one or two five-year renewal options.

All other U.S. and international supply chain centers are leased by us, typically under leases ranging between five and 20 years with one or two five-year renewal options.

| --- | --- |

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

[removed: Part II][added: Part II]

| --- | --- |

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

As of February [removed: 14, 2019,] [added: 13, 2020,] Domino’s Pizza, Inc. had 170,000,000 authorized shares of common stock, par value $0.01 per share, of which [removed: 41,040,704] [added: 38,667,039] were issued and outstanding.

Our Board of Directors declared a quarterly dividend of [removed: $0.65] [added: $0.78] per common share on February [removed: 20, 2019] [added: 19, 2020] payable on March [removed: 29, 2019] [added: 30, 2020] to shareholders of record at the close of business on March [removed: 15, 2019.][added: 13, 2020.]

As of February [removed: 14, 2019,] [added: 13, 2020,] there were [removed: 1,565] [added: 1,510] registered holders of record of Domino’s Pizza, Inc.’s common stock.

As of December [removed: 30, 2018,] [added: 29, 2019,] we had a Board of Directors-approved share repurchase program for up to [removed: $750.0 million] [added: $1.0 billion] of our common stock, of which [removed: $158.8] [added: $406.1] million remained available for future purchases of our common stock.

The following table summarizes our repurchase activity during the fourth quarter ended December [removed: 30, 2018:][added: 29, 2019:]

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

| (1) | [removed: 3,643] [added: 3,471] 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: $274.26.] [added: $264.65.] |

| (2) | From December [removed: 31, 2018] [added: 29, 2019] through February [removed: 14, 2019,] [added: 13, 2020,] the Company repurchased and retired [removed: an additional 33,549] [added: 271,064] shares of common stock for a total of approximately [removed: $8.1] [added: $79.6] million, or an average price of [removed: $242.74] [added: $293.62] per share. Authorization for the repurchase program may be modified, suspended, or discontinued at any time. The repurchase of shares in any particular period and the actual amount of such purchases remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future. |

The following comparative stock performance line graph compares the cumulative shareholder return on the common stock of Domino’s Pizza, Inc. (NYSE: DPZ) for the five-year period between December 31, [removed: 2013] [added: 2014] and December 31, [removed: 2018,] [added: 2019,] with cumulative total return on (i) the [removed: 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 [removed: (iii)] [added: (ii)] 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 [removed: NYSE Composite Index, the] S&P 500 Index and the S&P 400 Restaurant Index on December 31, [removed: 2013.][added: 2014.]

[removed: ][added: ]

| Period #10 (September 9, 2019 to October 6, 2019) | | | 1,281 | | | $ | 244.16 | | | | — | | | $ | 1,000,000 | |

| Period #11 (October 7, 2019 to November 3, 2019) | | | 4,441 | | | | 239.20 | | | | 3,300 | | | | 999,242 | |

| Period #12 (November 4, 2019 to December 1, 2019) | | | 933,055 | | | | 285.26 | | | | 933,055 | | | | 733,078 | |

| Period #13 (December 2, 2019 to December 29, 2019) | | | 1,128,072 | | | | 290.09 | | | | 1,127,023 | | | | 406,142 | |

| Total | | | 2,066,849 | | | $ | 287.81 | | | | 2,063,378 | | | $ | 406,142 | |

| --- | --- |

| Period #10 (September 10, 2018 to October 7, 2018) | | | 5,574 | | | $ | 276.41 | | | | 4,424 | | | $ | 319,595 | |

| Period #11 (October 8, 2018 to November 4, 2018) | | | 331,613 | | | | 264.29 | | | | 330,291 | | | | 232,305 | |

| Period #12 (November 5, 2018 to December 2, 2018) | | | 76,562 | | | | 254.79 | | | | 75,391 | | | | 213,119 | |

| Period #13 (December 3, 2018 to December 30, 2018) | | | 226,270 | | | | 240.11 | | | | 226,270 | | | | 158,788 | |

| Total | | | 640,019 | | | $ | 254.71 | | | | 636,376 | | | $ | 158,788 | |

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

The following selected financial data set forth should be read in conjunction with, and is qualified by reference to, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in this Form [removed: 10-K.]

The selected financial data, with the exception of store [removed: counts] [added: counts, global retail sales growth] and same store sales growth, has been derived from the audited consolidated financial statements of Domino’s Pizza, Inc. and subsidiaries.

| | | [removed: Fiscal] [added: Fiscal] year ended [removed: (8)] [added: (8)] | | | | | | | | | | | | | | | | | | |

| [removed: (dollars] [added: (dollars] in millions, except per share [removed: data)] [added: data)] | | [removed: December] [added: December 29, 2019 | | | | December] 30, 2018 (4) [removed: (5)] | | | | [removed: December] [added: December] 31, 2017 [removed: (6)] | | | | [removed: January] [added: January] 1, [removed: 2017] [added: 2017] | | | | [removed: January] [added: January] 3, 2016 [removed: (7)] | | | [removed: | December 28, 2014 | | |]

| [removed: Income] [added: Income] statement [removed: data:] [added: data:] | | | | | | | | | | | | | | | | | | | | |

| U.S. Company-owned stores | | $ | [removed: 514.8] [added: 453.6] | | | $ | [removed: 490.8] [added: 514.8] | | | $ | [removed: 439.0] [added: 490.8] | | | $ | [removed: 396.9] [added: 439.0] | | | $ | [removed: 348.5] [added: 396.9] | |

| U.S. franchise royalties and fees | | | [removed: 391.5] [added: 428.5] | | | | [removed: 351.4] [added: 391.5] | | | | [removed: 312.3] [added: 351.4] | | | | [removed: 272.8] [added: 312.3] | | | | [removed: 230.2] [added: 272.8] | |

| U.S. franchise advertising (1) | | | [removed: 358.5] [added: 390.8] | | | | [removed: —] [added: 358.5] | | | | — | | | | — | | | | — | |

| U.S. stores | | | [removed: 1,264.8] [added: 1,272.9] | | | | [removed: 842.2] [added: 1,264.8] | | | | [removed: 751.3] [added: 842.2] | | | | [removed: 669.7] [added: 751.3] | | | | [removed: 578.7] [added: 669.7] | |

| Supply chain | | | [removed: 1,943.3] [added: 2,104.9] | | | | [removed: 1,739.0] [added: 1,943.3] | | | | [removed: 1,544.3] [added: 1,739.0] | | | | [removed: 1,383.2] [added: 1,544.3] | | | | [removed: 1,262.5] [added: 1,383.2] | |

| International franchise royalties and fees | | | [removed: 224.7] [added: 241.0] | | | | [removed: 206.7] [added: 224.7] | | | | [removed: 177.0] [added: 206.7] | | | | [removed: 163.6] [added: 177.0] | | | | [removed: 152.6] [added: 163.6] | |

| Total revenues | | | [removed: 3,432.9] [added: 3,618.8] | | | | [removed: 2,788.0] [added: 3,432.9] | | | | [removed: 2,472.6] [added: 2,788.0] | | | | [removed: 2,216.5] [added: 2,472.6] | | | | [removed: 1,993.8] [added: 2,216.5] | |

| Cost of sales | | | [removed: 2,130.2] [added: 2,216.3] | | | | [removed: 1,922.0] [added: 2,130.2] | | | | [removed: 1,704.9] [added: 1,922.0] | | | | [removed: 1,533.4] [added: 1,704.9] | | | | [removed: 1,399.1] [added: 1,533.4] | |

| Operating margin | | | [removed: 1,302.7] [added: 1,402.5] | | | | [removed: 866.0] [added: 1,302.7] | | | | [removed: 767.7] [added: 866.0] | | | | [removed: 683.1] [added: 767.7] | | | | [removed: 594.8] [added: 683.1] | |

| General and administrative expense | | | [removed: 372.5] [added: 382.3] | | | | [removed: 344.8] [added: 372.5] | | | | [removed: 313.6] [added: 344.8] | | | | [removed: 277.7] [added: 313.6] | | | | [removed: 249.4] [added: 277.7] | |

| Income from operations | | | [removed: 571.7] [added: 629.4] | | | | [removed: 521.2] [added: 571.7] | | | | [removed: 454.0] [added: 521.2] | | | | [removed: 405.4] [added: 454.0] | | | | [removed: 345.4] [added: 405.4] | |

| Interest income | | | [removed: 3.3] [added: 4.0] | | | | [removed: 1.5] [added: 3.3] | | | | [removed: 0.7] [added: 1.5] | | | | [removed: 0.3] [added: 0.7] | | | | [removed: 0.1] [added: 0.3] | |

| Interest expense | | | [removed: (146.3] [added: (150.8] | ) | | | [removed: (122.5] [added: (146.3] | ) | | | [removed: (110.1] [added: (122.5] | ) | | | [removed: (99.5] [added: (110.1] | ) | | | [removed: (86.9] [added: (99.5] | ) |

| Income before provision for income taxes | | | [removed: 428.7] [added: 482.6] | | | | [removed: 400.2] [added: 428.7] | | | | [removed: 344.7] [added: 400.2] | | | | [removed: 306.2] [added: 344.7] | | | | [removed: 258.6] [added: 306.2] | |

| Provision for income taxes | | | [removed: 66.7] [added: 81.9] | | | | [removed: 122.2] [added: 66.7] | | | | [removed: 130.0] [added: 122.2] | | | | [removed: 113.4] [added: 130.0] | | | | [removed: 96.0] [added: 113.4] | |

| Net income | | $ | [removed: 362.0] [added: 400.7] | | | $ | [removed: 277.9] [added: 362.0] | | | $ | [removed: 214.7] [added: 277.9] | | | $ | [removed: 192.8] [added: 214.7] | | | $ | [removed: 162.6] [added: 192.8] | |

| Common stock – basic | | $ | [removed: 8.65] [added: 9.83] | | | $ | [removed: 6.05] [added: 8.65] | | | $ | [removed: 4.41] [added: 6.05] | | | $ | [removed: 3.58] [added: 4.41] | | | $ | [removed: 2.96] [added: 3.58] | |

| Common stock – diluted | | | [removed: 8.35] [added: 9.56] | | | | [removed: 5.83] [added: 8.35] | | | | [removed: 4.30] [added: 5.83] | | | | [removed: 3.47] [added: 4.30] | | | | [removed: 2.86] [added: 3.47] | |

| Dividends declared per share | | $ | [removed: 2.20] [added: 2.60] | | | $ | [removed: 1.84] [added: 2.20] | | | $ | [removed: 1.52] [added: 1.84] | | | $ | [removed: 1.24] [added: 1.52] | | | $ | [removed: 1.00] [added: 1.24] | |

| [removed: Balance] [added: Balance] sheet data (at end of [removed: period):] [added: period):] | | | | | | | | | | | | | | | | | | | | |

| Cash and cash equivalents | | $ | [removed: 25.4] [added: 190.6] | | | $ | [removed: 35.8] [added: 25.4] | | | $ | [removed: 42.8] [added: 35.8] | | | $ | [removed: 133.4] [added: 42.8] | | | $ | [removed: 30.9] [added: 133.4] | |

| Restricted cash and cash equivalents | | | [removed: 167.0] [added: 209.3] | | | | [removed: 191.8] [added: 167.0] | | | | [removed: 126.5] [added: 191.8] | | | | [removed: 180.9] [added: 126.5] | | | | [removed: 121.0] [added: 180.9] | |

| Cash and cash equivalents included in advertising fund assets, restricted | | | [removed: 45.0] [added: 84.0] | | | | [removed: 27.3] [added: 45.0] | | | | [removed: 25.1] [added: 27.3] | | | | [removed: 19.9] [added: 25.1] | | | | [removed: 25.1] [added: 19.9] | |

| Working capital (2) | | | [added: 121.0 | | | |] 14.6 | | | | (10.3 | ) | | | (34.3 | ) | | | 45.7 | | [removed: | | 41.8 | |]

| Total assets [added: (3)] | | | [removed: 907.4] [added: 1,382.1] | | | | [removed: 836.8] [added: 907.4] | | | | [removed: 716.3] [added: 836.8] | | | | [removed: 799.8] [added: 716.3] | | | | [removed: 596.3] [added: 799.8] | |

| Total debt net of debt issuance cost | | | [removed: 3,531.6] [added: 4,114.4] | | | | [removed: 3,153.8] [added: 3,531.6] | | | | [removed: 2,187.9] [added: 3,153.8] | | | | [removed: 2,240.8] [added: 2,187.9] | | | | [removed: 1,500.6] [added: 2,240.8] | |

| Total stockholders’ deficit | | | [removed: (3,039.9] [added: (3,415.8] | ) | | | [removed: (2,735.4] [added: (3,039.9] | ) | | | [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: (dollars] [added: (dollars] in [removed: millions)] [added: millions, except per share data)] | | [removed: December 30, 2018 (4) (5)] [added: December 29, 2019] | | | | [removed: December 31, 2017 (6)] [added: December 30, 2018 (4)] | | | | [removed: January 1, 2017] [added: December 31, 2017] | | | | [removed: January 3, 2016 (7)] [added: January 1, 2017] | | | | [removed: December 28, 2014] [added: January 3, 2016] | | |

| [removed: Other] [added: Other] financial [removed: data:] [added: data:] | | | | | | | | | | | | | | | | | | | | |

| Depreciation and amortization | | $ | [removed: 53.7] [added: 59.9] | | | $ | [removed: 44.4] [added: 53.7] | | | $ | [removed: 38.1] [added: 44.4] | | | $ | [removed: 32.4] [added: 38.1] | | | $ | [removed: 35.8] [added: 32.4] | |

| Capital expenditures [added: (5)] | | [added: $] | [removed: 119.7] [added: 88.7] | | | [added: $] | [removed: 90.3] [added: 119.7] | | | [added: $] | [removed: 61.5] [added: 90.3] | | | [added: $] | [removed: 62.4] [added: 61.5] | | | [added: $] | [removed: 71.8] [added: 62.4] | |

| [removed: Same] [added: Same] store sales growth [removed: (3):] [added: (7):] | | | | | | | | | | | | | | | | | | | | |

| U.S. Company-owned stores | | | [removed: 4.8] [added: 2.8] | % | | | [removed: 8.7] [added: 4.8] | % | | | [removed: 10.4] [added: 8.7] | % | | | [removed: 12.2] [added: 10.4] | % | | | [removed: 6.2] [added: 12.2] | % |

| U.S. franchise stores | | | [removed: 6.8] [added: 3.2] | % | | | [removed: 7.6] [added: 6.8] | % | | | [removed: 10.5] [added: 7.6] | % | | | [removed: 11.9] [added: 10.5] | % | | | [removed: 7.7] [added: 11.9] | % |

| U.S. stores | | | [removed: 6.6] [added: 3.2] | % | | | [removed: 7.7] [added: 6.6] | % | | | [removed: 10.5] [added: 7.7] | % | | | [removed: 12.0] [added: 10.5] | % | | | [removed: 7.5] [added: 12.0] | % |

10-K.

| U.S. franchise advertising (1) | | | 390.8 | | | | 358.5 | | | | — | | | | — | | | | — | |

| | | Fiscal year ended (8) | | | | | | | | | | | | | | | | | | |

| Global retail sales growth (versus prior year period, excluding foreign currency impact) (6) | | | 8.0 | % | | | 10.8 | % | | | 13.0 | % | | | 12.8 | % | | | 18.6 | % |

| (3) | Total assets as of December 29, 2019 reflects the adoption of Accounting Standards Codification 842, Leases (“ASC 842”). |

| (5) | Includes non-cash investing activities related to accruals for capital expenditures. |

| (6) | Global retail sales growth refers to total worldwide retail sales at Company-owned and franchise stores. We believe global retail sales information is useful in analyzing revenues because franchisees pay royalties and advertising fees that are based on a percentage of franchise retail sales. We review comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza ® brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales. Retail sales for franchise stores are reported to us by our franchisees and are not included in our revenues. Global retail sales growth, excluding foreign currency impact, is calculated as the change of international local currency global retail sales against the comparable period of the prior year. Global retail sales growth in 2015 includes the favorable impact of the 53rd week. |

| --- | --- |

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

| (5) | In connection with our 2018 Recapitalization, the Company issued $825.0 million of fixed rate notes. A portion of the proceeds from the 2018 Recapitalization was used to repay the remaining $490.1 million in outstanding principal and interest under the Company’s 2015 five-year fixed rate notes, pre-fund a portion of the principal and interest payable on the 2018 Notes, pay transaction fees and expenses and repurchase and retire shares of the Company’s common stock. Refer to Note 4 of the consolidated financial statements for additional detail related to the 2018 Recapitalization. |

| (6) | In connection with our 2017 Recapitalization, the Company issued $1.9 billion of fixed and floating rate notes. A portion of the proceeds from the 2017 Recapitalization was used to repay the remaining $910.2 million in outstanding principal under the Series 2012-1 5.216% Fixed Rate Senior Secured Notes, Class A-2 (the “2012 Fixed Rate Notes”), pre-fund a portion of the principal and interest payable on the 2017 fixed and floating rate notes and pay transaction fees and expenses. The Company also used a portion of the proceeds from the 2017 Recapitalization to enter into a $1.0 billion accelerated share repurchase agreement to repurchase the Company’s common stock. Refer to Note 4 of the consolidated financial statements for additional detail related to the 2017 Recapitalization. |

| (7) | 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 was used to make an optional prepayment of approximately $551.3 million in aggregate principal amount of its 2012 Fixed Rate Notes, at par, pay scheduled principal catch-up amounts on 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. The Company also used a portion of the proceeds from the 2015 Recapitalization to enter into a $600.0 million accelerated share repurchase agreement to repurchase the Company’s common stock. Refer to Note 4 of the consolidated financial statements for additional detail related to the 2015 Recapitalization. |

[removed: Report] [added: Report] of Independent Registered Public Accounting [removed: Firm][added: Firm]

[removed: To the] Stockholders and Board of Directors

of Domino’s Pizza, [removed: Inc.:][added: Inc.]

[removed: _Opinions] [added: Opinions] on the Financial Statements and Internal Control over Financial [removed: Reporting_][added: Reporting]

We have audited the accompanying consolidated balance sheets of Domino’s Pizza, Inc. and its subsidiaries (the “Company”) as of December [removed: 30, 2018] [added: 29, 2019] and December [removed: 31, 2017,] [added: 30, 2018,] and the related consolidated statements of income, [removed: statements of] comprehensive income, [removed: statements of] stockholders’ [removed: deficit,] [added: deficit] and [removed: statements of] cash flows for each of the three years in the period ended December [removed: 30, 2018,] [added: 29, 2019,] including the related notes, the schedules of condensed financial information of the registrant as of December [removed: 30, 2018] [added: 29, 2019] and December [removed: 31, 2017] [added: 30, 2018] and for [added: each of] the three years in the period ended December [removed: 30, 2018] [added: 29, 2019] and [added: of] valuation and qualifying accounts for each of the three years in the period [added: ended] December [removed: 30, 2018] [added: 29, 2019] appearing under Item 16 (collectively referred to as [removed: the] “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December [removed: 30, 2018,] [added: 29, 2019,] based on criteria established in [removed: Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).]

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December [removed: 30, 2018 and December 31, 2017, and the results of its operations] [added: 29, 2019] and [removed: its cash flows for each of the three years in the period ended] December 30, [removed: 2018 in conformity with accounting principles generally accepted in the United States of America.][added: 2018,]

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December [removed: 30, 2018,] [added: 29, 2019,] based on criteria established in [removed: Internal Control – Integrated Framework (2013) issued by the COSO.]

[removed: _Change] [added: Changes] in Accounting [removed: Principles_][added: Principles]

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for [removed: revenue] [added: leases in 2019,] and the manner in which it accounts for [removed: restricted cash and cash equivalents] [added: revenue] in 2018.

[removed: _Basis] [added: Basis] for [removed: Opinions_][added: Opinions]

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial [removed: Reporting,] [added: Reporting] appearing under [removed: item] [added: Item] 9A.

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

[removed: _Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting_][added: Reporting]

[added: |] /s/ PricewaterhouseCoopers LLP [added: |]

[added: |] Detroit, Michigan [added: |]

[removed: February 21,] 2019

[removed: Domino’s] [added: Domino’s] Pizza, Inc. and [removed: Subsidiaries][added: Subsidiaries]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

[removed: (In] [added: (In] thousands, except share and per share [removed: amounts)][added: amounts)]

| | | [removed: December] [added: December 29, 2019 | | | | December] 30, [removed: 2018] [added: 2018] | | | | [removed: December] [added: December] 31, [removed: 2017] [added: 2017] | | |

| [removed: Assets] [added: Assets] | | | | | | | | |

| Cash and cash [removed: equivalents] [added: equivalents, beginning of period] | | [removed: $] | 25,438 | | | [removed: $] | 35,768 | | [added: | | 42,815 | |]

| Restricted cash and cash [removed: equivalents] [added: equivalents, beginning of period] | | | 166,993 | | | | 191,762 | | [added: | | 126,496 | |]

| Accounts receivable, net of reserves of [removed: $1,879] [added: $2,856] in [removed: 2018] [added: 2019] and [removed: $1,424] [added: $1,879] in [removed: 2017] [added: 2018] | | | [removed: 190,091] [added: 210,260] | | | | [removed: 173,677] [added: 190,091] | |

| Inventories | | | [removed: 45,975] [added: 52,955] | | | | [removed: 39,961] [added: 45,975] | |

| Prepaid expenses and other | | | [removed: 25,710] [added: 19,129] | | | | [removed: 18,389] [added: 25,710] | |

| Advertising fund assets, restricted | | | [removed: 112,744] [added: 105,389] | | | | [removed: 120,223] [added: 112,744] | |

| Total current assets | | | [removed: 566,951] [added: 787,617] | | | | [removed: 579,780] [added: 566,951] | |

| Land and buildings | | | [removed: 41,147] [added: 44,845] | | | | [removed: 29,171] [added: 41,147] | |

| Leasehold and other improvements | | | [removed: 170,498] [added: 164,071] | | | | [removed: 128,613] [added: 170,498] | |

| Equipment | | | [removed: 243,654] [added: 243,708] | | | | [removed: 216,599] [added: 243,654] | |

| Construction in progress | | | [removed: 31,822] [added: 42,705] | | | | [removed: 32,482] [added: 31,822] | |

| Accumulated depreciation and amortization | | | [removed: (252,182] [added: (252,448] | ) | | | [removed: (237,279] [added: (252,182] | ) |

| Property, plant and equipment, net | | | [removed: 234,939] [added: 242,881] | | | | [removed: 169,586] [added: 234,939] | |

| Investments in marketable securities, restricted | | | [removed: 8,718] [added: 11,982] | | | | [removed: 8,119] [added: 8,718] | |

| Goodwill | | | [removed: 14,919] [added: 15,093] | | | | [removed: 15,423] [added: 14,919] | |

| Capitalized software, net of accumulated amortization of [removed: $89,161] [added: $104,237] in [removed: 2018] [added: 2019] and [removed: $78,696] [added: $89,161] in [removed: 2017] [added: 2018] | | | [removed: 63,809] [added: 73,140] | | | | [removed: 52,823] [added: 63,809] | |

| Other assets, net of accumulated amortization of [removed: $776] [added: $56] in [removed: 2018] [added: 2019] and $776 in [removed: 2017] [added: 2018] | | | [removed: 12,523] [added: 12,521] | | | | [removed: 8,272] [added: 12,523] | |

| Deferred income taxes | | | [removed: 5,526] [added: 10,073] | | | | [removed: 2,750] [added: 5,526] | |

To the

Internal Control - Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019

in conformity with accounting principles generally accepted in the United States of America.

Internal Control - Integrated Framework

(2013) issued by the COSO.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated

financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Insurance Reserves

As described in Note 1 to the consolidated financial statements, the Company has retention programs for workers’ compensation, general liability, and owned and

non-owned

automobile liabilities for certain periods prior to December 1998 and for periods after December 2001.

As of December 29, 2019, the Company had accruals for these insurance matters of $50.3 million.

The insurance reserves are based on undiscounted independent actuarial estimates, which are based on historical information along with assumptions about future events.

The Company utilizes various methods, including analyses of historical trends and actuarial valuation methods, to estimate the cost to settle reported claims and claims incurred but not yet reported.

The actuarial valuation methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date.

When estimating these liabilities, several factors are considered, including the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.

The principal considerations for our determination that performing procedures relating to the valuation of insurance reserves is a critical audit matter are there was significant judgment by management when developing the estimated reserves.

This in turn led to a high degree of auditor judgment and effort in performing procedures relating to the auditing of the actuarial valuation methods used to develop future ultimate claim costs, including assumptions related to the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the valuation of insurance reserves, including controls over the assumptions and data used in the actuarial valuation methods.

These procedures also included, among others, obtaining and evaluating the Company’s insurance program documents and testing the underlying historical claims data.

Professionals with specialized skill and knowledge were used to assist in testing management’s process for estimating the valuation of insurance reserves, including evaluating the appropriateness of the actuarial valuation methods and the reasonableness of assumptions related to the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.

| |

| --- |

| |

| February 20, 2020 |

| Cash and cash equivalents | | $ | 190,615 | | | $ | 25,438 | |

| | | | 495,329 | | | | 487,121 | |

| Operating lease right-of-use assets | | | 228,785 | | | | — | |

| Operating lease liabilities | | | 33,318 | | | | — | |

| Operating lease liabilities | | | 202,731 | | | | — | |

Domino’s Pizza, Inc. and Subsidiaries

Domino’s Pizza, Inc. and Subsidiaries

| | | For the Years Ended | | | | | | | | | | |

| Net income | | $ | 400,709 | | | $ | 361,972 | | | $ | 277,905 | |

As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2017.

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

| | | | 487,121 | | | | 406,865 | |

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

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

| Dividends declared per share | | $ | 2.20 | | | $ | 1.84 | | | $ | 1.52 | |

| Other comprehensive income (loss), before tax: | | | | | | | | | | | | |

| Tax attributes of items in other comprehensive income (loss): | | | | | | | | | | | | |

| Other comprehensive income (loss), net of tax | | | (2,048 | ) | | | 1,080 | | | | 438 | |

| Balance at January 3, 2016 | | | 49,838,221 | | | $ | 498 | | | $ | 6,942 | | | $ | (1,804,143 | ) | | $ | (3,548 | ) |

| Net income | | | — | | | | — | | | | — | | | | 214,678 | | | | — | |

| Issuance of common stock, net | | | 80,267 | | | | 1 | | | | — | | | | — | | | | — | |

| Purchases of common stock | | | (2,816,716 | ) | | | (28 | ) | | | (82,125 | ) | | | (218,097 | ) | | | — | |

| Exercises of stock options | | | 1,045,648 | | | | 10 | | | | 15,224 | | | | — | | | | — | |

| Currency translation adjustment, net of tax | | | — | | | | — | | | | — | | | | — | | | | 438 | |

| Excess tax benefits from equity-based compensation | | | — | | | | — | | | | 48,129 | |

| Other | | | — | | | | (205 | ) | | | — | |

| Cash and cash equivalents, beginning of period | | | 35,768 | | | | 42,815 | | | | 133,449 | |

Restricted cash and cash equivalents at December 31, 2017 includes $122.9 million of cash and cash equivalents held for future principal and interest payments, $32.1 million of cash equivalents held in a three-month interest reserve, $36.7 million of cash held as collateral for outstanding letters of credit and $0.1 million of other restricted cash.

| | | | | |

Included in land and buildings as of December 30, 2018 are capital lease assets of approximately $22.2 million, which are related to the leases of five supply chain centers and the lease of one Company-owned store.

Included in accumulated depreciation and amortization as of December 30, 2018 is $6.7 million of accumulated amortization related to these leases.

Included in land and buildings as of December 31, 2017 are capital lease assets of approximately $10.5 million, which are related to the lease of one supply chain center building and the lease of one Company-owned store.

Included in accumulated depreciation and amortization as of December 31, 2017 is $6.2 million of accumulated amortization related to these leases.

The capital lease assets are being amortized using the straight-line method over the respective lease terms.

As of December 30, 2018, scheduled amortization for the next five fiscal years for capitalized software that has been placed in service was approximately $16.6 million, $11.5 million, $7.7 million, $4.2 million and $1.7 million for 2019, 2020, 2021, 2022 and 2023, respectively.

The Company expensed debt issuance costs of approximately $3.4 million, $5.7 million and $0.6 million in 2018, 2017 and 2016, respectively in connection with the write-off of debt issuance costs resulting from the repayment of the Company’s outstanding notes, including scheduled principal payments.

On January 1, 2018, the Company recorded a contract liability of approximately $15.0 million (of which $2.4 million was current and $12.6 million was long-term) associated with deferred franchise fees received through December 31, 2017 in connection with the adoption of new revenue recognition guidance, which is discussed in the new accounting pronouncements section below.

Reclassification of Revenues

Certain costs incurred by the Company on behalf of DNAF were included in general and administrative expense in years prior to 2018.

Refer to the New Accounting Pronouncements section within Note 1 for the full impact of the adoption of ASC 606 on the Company’s financial statements.

Rent

Rent expenses totaled approximately $62.5 million, $57.9 million and $49.9 million during 2018, 2017 and 2016, respectively.

As a result, the Company recorded non-cash financing activities of $12.0 million for the increase in capital lease assets and liabilities during 2018.

The Company also recorded $1.9 million in non-cash financing activities related to a build-to-suit arrangement in which the Company’s landlord is constructing a new building that will be leased to the Company upon completion, which is expected to occur in 2019.

| Other assets: | | | | | | | | | | | | |

| Deferred income taxes | | $ | 2,750 | | | $ | 1,878 | | | $ | 4,628 | |

| Liabilities and stockholders’ deficit | | | | | | | | | | | | |

| Current liabilities: | | | | | | | | | | | | |

| Advertising fund liabilities | | | 120,223 | | | | (6,425 | ) | | | 113,798 | |

| --- | --- |

[added: |] (a) [added: |] Evaluation of Disclosure Controls and Procedures. [added: |]

The Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules [removed: 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).]

[added: |] (b) [added: |] Changes in Internal Control over Financial Reporting. [added: |]

[added: |] (c) [added: |] Management’s Annual Report on Internal Control over Financial Reporting. [added: |]

[removed: Internal control over financial reporting is defined in Rule 13a-15(f)] promulgated under the Exchange Act, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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 December [removed: 30, 2018] [added: 29, 2019] based on the framework in [removed: _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 December [removed: 30, 2018.][added: 29, 2019.]

The effectiveness of the Company’s internal control over financial reporting as of December [removed: 30, 2018,] [added: 29, 2019,] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

| --- | --- |

| --- | --- |

13a-15

and

15d-15

of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

| --- | --- |

| --- | --- |

Internal control over financial reporting is defined in Rule

13a-15(f)

Internal Control — Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

[removed: Part III][added: Part III]

| --- | --- |

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

| [removed: Name] [added: Name] | | [removed: Age] [added: Age] | | [removed: Position] | [added: | Position |]

| David A. Brandon | | [removed: 66] | [added: 67] | [added: | |] Chairman of the Board of Directors |

| Richard E. Allison, Jr. | | [removed: 52] | [added: 53] | [added: | |] Chief Executive Officer |

| Jeffrey D. Lawrence | | [removed: 45] | [added: 46] | [added: | |] Executive Vice President, Chief Financial Officer |

| Russell J. Weiner | | [removed: 50] | [added: 51] | [added: | |] Chief Operating Officer and President of the Americas |

| Thomas B. Curtis | | [removed: 55] | [added: 56] | [added: | |] Executive Vice President, [removed: Team USA] [added: Corporate Operations] |

| Scott R. Hinshaw | | [removed: 56] | [added: 57] | [added: | |] Executive Vice President, Franchise Operations and Development |