filings.toolsDomino's Pizza 10-K 2021-01-03
Filed 2021-02-25. 23 sections, 410K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the fiscal year ended January 3, 2021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
Commission File Number
001-32242
Domino’s Pizza, Inc.
(Exact name of registrant as specified in its charter)
| DELAWARE | 38-2511577 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 30 Frank Lloyd Wright Drive Ann Arbor, Michigan | 48105 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (734)
930-3030
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Domino’s Pizza, Inc. Common Stock, $0.01 par value | DPZ | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities 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 Act: Yes ☐ 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 ☒ 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
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
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
12b-2
of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☐ |
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act): Yes ☐ No ☒
The aggregate market value of the voting and
non-voting
common stock held by
non-affiliates
of Domino’s Pizza, Inc. as of June 14, 2020 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 $14,785,755,999.
As of February 18, 2021, Domino’s Pizza, Inc. had 38,803,504 shares of common stock, par value $0.01 per share, outstanding.
Documents incorporated by reference:
Portions of the definitive proxy statement to be furnished to shareholders of Domino’s Pizza, Inc. in connection with the annual meeting of shareholders to be held on April 27, 2021 are incorporated by reference into Part III.
TABLE OF CONTENTS
Throughout this document, Domino’s Pizza, Inc. (NYSE: DPZ) is referred to as the “Company,” “Domino’s,” “Domino’s Pizza” or in the first-person notations of “we,” “us” and “our.”
In this document, we rely on and refer to information regarding the U.S. quick service restaurant, or QSR, sector and the U.S. QSR pizza category from CREST
®
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. Although we believe this information to be reliable, we have not independently verified it. U.S. sales information relating to the U.S. QSR sector and the U.S. QSR pizza category represent reported consumer spending obtained by The NPD Group’s CREST
®
ongoing foodservice market research from consumer surveys. This information relates to both our Company-owned and franchised stores.
Part I
Item 1. Business.
Overview
Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,600 locations in over 90 markets around the world as of January 3, 2021. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. We are a highly-recognized global brand and we focus on serving neighborhoods locally through our large global network of franchise owners and U.S. Company-owned stores. We are primarily a franchisor, with approximately 98% of Domino’s stores currently owned and operated by our independent franchisees. Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters and pricing decisions, while also benefiting from the strength of the Domino’s global brand and operating system with limited capital investment by us.
The Domino’s business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees.
Domino’s generates revenues and earnings by charging royalties and fees to our franchisees. Royalties are ongoing
percent-of-sales
fees for use of the Domino’s
®
brand marks. We also generate revenues and earnings by selling food, equipment and supplies to franchisees through our supply chain operations, primarily in the U.S. and Canada, and by operating a number of Company-owned stores in the U.S. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza
®
brand to master franchisees. These master franchisees are charged with developing their geographical area, and they may profit by
sub-franchising
and selling food and equipment to those
sub-franchisees,
as well as by running pizza stores. 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.
The Domino’s business model can yield strong returns for our franchise owners and our Company-owned stores. It can also yield significant cash flows to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases. These factors emphasize our focus on our stakeholders, including our customers, team members, franchisees, communities and shareholders.
Our History
We pioneered the pizza delivery business and have been delivering quality, affordable food to our customers since 1960. We became “Domino’s Pizza” in 1965 and opened our first franchised store in 1967. Over the last 60 years, we have built Domino’s into one of the most widely-recognized consumer brands in the world. We believe our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand.
During 2020, in the midst of the uncertain environment created by the novel coronavirus
(“COVID-19”)
pandemic, we continued to increase global retail sales, and our supply chain operations experienced higher volumes as a result of the increase in U.S. retail sales. We also launched three new products in the U.S., including new and improved chicken wings and the new chicken taco and cheeseburger specialty pizzas, each of which has been positively received by consumers. Additionally, emphasis on technological innovation helped us achieve more than half of all global retail sales in 2020 from digital channels. In the U.S., we have developed several innovative ordering platforms, including those for Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and more. In 2019, we announced a partnership with Nuro to further our exploration and testing of autonomous pizza delivery. In 2020, we added GPS to our Domino’s Tracker
®
, which allows customers to monitor the progress of their food, from the preparation stages to the time it is in the oven, to the time it arrives at their doors. Most recently, we launched a new way to order contactless carryout nationwide – via Domino’s Carside Delivery
™
, which customers can choose when placing a prepaid online order. This new service method emphasizes our commitment to serving hot and delicious pizza in a convenient, contactless manner.
Since 1998, the Company has been structured with a leveraged balance sheet and has completed a number of recapitalization transactions. The Company’s most recent recapitalization transaction in 2019 (the “2019 Recapitalization”) primarily consisted of the issuance of $675.0 million of fixed rate notes. As of January 3, 2021, the Company had $4.12 billion in total debt, which included debt from its 2019 Recapitalization and its previous recapitalization transactions in 2018, 2017 and 2015 (the “2018 Recapitalization,” “2017 Recapitalization” and the “2015 Recapitalization,” respectively, and together with the 2019 Recapitalization, the “2019, 2018, 2017 and 2015 Recapitalizations”).
Our Industry
The U.S. QSR pizza category is large and fragmented. From 2015 through 2020, the U.S. QSR pizza category has grown from $36.0 billion to $38.2 billion. It is the second-largest category within the $272.0 billion U.S. QSR sector. The U.S. QSR pizza category is primarily comprised of delivery,
dine-in
and carryout, with carryout and delivery comprising the two largest segments.
In the U.S., we compete primarily in the delivery and carryout segments of the pizza industry, and we are the dollar market share leader for delivery and a growing leader in carryout. Delivery segment dollars of $14.0 billion in 2020 (up from $10.4 billion in 2015) account for approximately 37% of total U.S. QSR pizza. The four industry leaders, including Domino’s, account for over 63% of U.S. pizza delivery, based on reported consumer spending, with the remaining dollars going to regional chains and independent establishments. From 2015 to 2020, the carryout segment grew from $17.5 billion to $20.3 billion. The four industry leaders, including Domino’s, account for approximately 48% of the carryout segment. (Source: The NPD Group/CREST
®
, year ending November 2020).
In contrast to the U.S., international pizza delivery is relatively underdeveloped, with only Domino’s and two other competitors having a significant global presence. We believe that demand for pizza delivery and pizza carryout is large and growing throughout the world, driven by international consumers’ increasing emphasis on convenience, and our proven success of more than 35 years of conducting business abroad.
Our Competition
The global pizza delivery and carryout segments, as well as the broader QSR sector, are highly competitive. In the U.S., we compete against regional and local companies as well as national chains Pizza Hut
®
, Papa John’s
®
and Little Caesars Pizza
®
. Internationally, we compete primarily with Pizza Hut
®
, Papa John’s
®
and country-specific national and local pizzerias. We generally compete on the basis of product quality, location, image, service, technology, convenience and price. Our business and those of our competitors can be affected by changes in consumer tastes, economic conditions, demographic trends, marketing, advertising, pricing and consumers’ disposable income. We also compete with other food, food delivery and order and delivery aggregation companies, which have continued to grow in size and scale in recent years. We compete not only for customers, but also for management and hourly employees, including store team members, drivers and qualified franchisees, as well as suitable real estate sites.
Our Customers
The Company’s business is not dependent upon a single retail customer or small group of customers, including franchisees. No customer accounted for more than 10% of total consolidated revenues in 2020, 2019 or 2018. As of January 3, 2021, our largest franchisee based on store count, Domino’s Pizza Enterprises (DMP: ASX), operated 2,797 stores in nine international markets, and accounted for 16% of our total store count. Revenues from this master franchisee accounted for 1.5% of our consolidated revenues in 2020. Our international franchise segment only requires a modest amount of general and administrative expenses to support its markets and does not have a cost of sales component. Therefore, the vast majority of these royalty revenues result in profits to us.
Our Menu
We offer a menu designed to present an attractive, quality offering to customers, while keeping it simple enough to minimize order errors and expedite order-taking and food preparation. Our basic menu features pizza products with varying sizes and crust types. Our typical store also offers oven-baked sandwiches, pasta, boneless chicken and chicken wings, bread side items, desserts and soft drink products. International markets vary toppings by country and culture, such as the Indi Tandoori Paneer pizza in India, featuring spicy paneer, peppers and mint mayo, or the Octopus Bomb Shrimp in Korea, featuring shrimp, octopus, vegetables, feta cream and horseradish sauce.
Store Image and Operations
We have been focused on pizza delivery for 60 years, and we also emphasize carryout as a significant component of our business. The majority of our U.S. and international stores are constructed in the carryout-friendly Pizza Theater design. Many of these stores offer casual seating and enable customers to watch the preparation of their orders, but do not offer a full-service
dine-in
experience. As a result, our stores generally do not require expensive restaurant facilities and staffing.
Our Business Segments
We operate, and report, three business segments: U.S. stores, international franchise and supply chain.
U.S. Stores
During 2020, our U.S. stores segment accounted for $1.45 billion, or 35% of our consolidated revenues. Our U.S. stores segment consists primarily of our franchise operations, which consisted of 5,992 franchised stores located in the United States as of January 3, 2021. We also operated a network of 363 U.S. Company-owned stores as of January 3, 2021.
Directly operating Domino’s stores contributes significantly to our ability to act as a credible franchisor. We also use our Company-owned stores as test sites for technological innovation and promotions as well as operational improvements. We also use them for training new store managers and operations team members, as well as developing prospective franchisees. While we are primarily a franchised business, we continuously evaluate our mix of U.S. Company-owned and franchise stores. As of January 3, 2021, franchised stores represented approximately 94% of our total store count within our U.S. stores segment.
U.S. Franchise Profile
As of January 3, 2021, our network of 5,992 U.S. franchise stores was owned and operated by 762 independent U.S. franchisees. Our franchise formula enables franchisees to benefit from our brand recognition with a relatively low initial capital investment. As of January 3, 2021, the average U.S. franchisee owned and operated approximately seven stores and had been in our franchise system for over 18 years. Additionally, 19 of our U.S. franchisees operated more than 50 stores (including our largest U.S. franchisee who operated 178 stores) and 228 of our U.S. franchisees each operated one store, each as of that date.
We apply rigorous standards to prospective U.S. franchisees. We generally require them to manage a store for at least one year and graduate from our franchise management school program before being granted the right to franchise. This enables us to observe the operational and financial performance of a potential franchisee prior to entering into a long-term agreement. Substantially all of our independent U.S. 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. In addition, we generally restrict the ability of U.S. franchisees to be involved in other businesses, which we believe helps focus our franchisees’ attention on operating their stores. We believe these characteristics and standards are largely unique within the franchise industry and have resulted in qualified and focused franchisees operating Domino’s stores. We maintain a productive relationship with our independent franchise owners through regional franchise teams, distributing materials that help franchise stores comply with our standards and using franchise advisory groups that facilitate communications between us and our franchisees. We consider our relationship with our U.S. franchisees to be good.
U.S. Franchise Agreements
We enter into franchise agreements with U.S. franchisees under which the franchisee is generally granted the right to operate a store in a particular location for a term of ten years, with an ability to renew for an additional term of ten years. We had a franchise agreement renewal rate of approximately 99% in 2020. Under the current standard franchise agreement, we assign an exclusive area of primary responsibility to each franchised store. Each franchisee is generally required to pay a 5.5% royalty fee on sales, as well as certain technology fees. In certain instances, we will collect lower rates based on certain incentives.
Our stores in the United States currently contribute 6% of their sales to fund national marketing and advertising campaigns (subject, in certain instances, to lower rates based on certain incentives and waivers). These funds are administered by Domino’s National Advertising Fund Inc. (“DNAF”), our consolidated
not-for-profit
advertising subsidiary. The funds are primarily used to purchase media for advertising, and also to support market research, field communications, public relations, commercial production, talent payments and other activities to promote the Domino’s brand. In addition to the national and market-level advertising contributions, U.S. stores generally spend additional funds on local store marketing activities.
We have the contractual right, subject to state law, to terminate a franchise agreement for a variety of reasons, including, but not limited to, a franchisee’s failure to adhere to the Company’s franchise agreement, failure to make required payments, or failure to adhere to specified Company policies and standards.
International Franchise
During 2020, our international franchise segment accounted for $249.8 million, or 6% of our consolidated revenues. This segment is comprised of a network of franchised stores in more than 90 international markets. At January 3, 2021, we had 11,289 international franchise stores. The principal sources of revenues from those operations are royalty payments generated by retail sales from franchised stores, as well as certain technology fees.
Our international franchisees employ our basic standard operating model and adapt it to satisfy the local eating habits and consumer preferences of various regions outside the U.S. Currently, the vast majority of our international stores operate under master franchise agreements.
We believe Domino’s appeals to potential international franchisees because of our recognized brand name and technological leadership, the moderate capital expenditures required to open and operate the stores and the system’s desirable store-level profitability. Stores in seven of our ten largest international markets in terms of store count are operated by master franchise companies that are publicly traded on stock exchanges as noted in the below table. The following table shows our store count as of January 3, 2021 in our ten largest international markets, which accounted for approximately 62% of our international stores as of that date.
| Market | Number of stores | |||
| India (JUBLFOOD: NS) | 1,313 | |||
| United Kingdom (DOM: L) | 1,144 | |||
| Mexico (ALSEA: MX) | 779 | |||
| Japan (DMP: ASX) | 742 | |||
| Australia (DMP: ASX) | 709 | |||
| Turkey (DPEU: L) | 560 | |||
| Canada | 541 | |||
| South Korea | 466 | |||
| France (DMP: ASX) | 431 | |||
| China | 363 |
International Franchisee Profile
The vast majority of our markets outside of the U.S. are operated by master franchisees with franchise and distribution rights for entire regions or countries. In a few select markets, we franchise directly to individual store operators. Prospective master franchisees are required to possess local market knowledge to establish and develop Domino’s stores, with the ability to identify and access targeted real estate sites, as well as expertise in local laws, customs, culture and consumer behavior. We also seek candidates that have access to sufficient capital to meet growth and development plans. We consider our relationship with our international franchisees to be good.
International Master Franchise and Other Agreements
Our international master franchise agreements generally grant the franchisee exclusive rights to develop and
sub-franchise
stores, and the right to operate supply chain centers in particular geographic areas. Agreements are generally for a term of ten years, with options to renew for additional terms. The agreements typically contain growth clauses requiring franchisees to open a minimum number of stores within a specified period. The master franchisee is generally required to pay an initial,
one-time
franchise fee as well as an additional franchise fee upon the opening of each new store. The master franchisee is also required to pay a continuing royalty fee as a percentage of sales, which varies among international markets and may also differ based on certain incentives and concessions, and averaged approximately 2.9% in 2020. We also have agreements with certain of our international master franchisees with respect to certain technology fees.
Supply Chain
During 2020, our supply chain segment accounted for $2.42 billion, or 59% of our consolidated revenues.
We operate 21 regional dough manufacturing and supply chain centers in the U.S., two thin crust manufacturing facilities and one vegetable processing center in the U.S. and five dough manufacturing and supply chain centers in Canada. Our supply chain segment leases a fleet of approximately 900 tractors and trailers. We plan to continue investing in additional supply chain capacity in the future. Our centers produce fresh dough and purchase, receive, store and deliver quality food and other complementary items to substantially all of our U.S. stores and most of our Canadian franchised stores. We regularly supply over 6,800 stores with various food and supplies.
We believe our franchisees voluntarily choose to obtain food, supplies and equipment from us because we offer the most efficient, convenient and cost-effective alternative, while also offering both quality and consistency. Our supply chain segment offers profit-sharing arrangements to U.S. and Canadian franchisees who purchase all of their food for their stores from our centers. These profit-sharing arrangements generally offer participating franchisees and Company-owned stores with 50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of the
pre-tax
profit from our supply chain center operations. We believe these arrangements strengthen our ties to and provide aligned benefits with franchisees.
Third-Party Suppliers
A significant amount of our annual food spend is with suppliers with whom we maintain long-standing partnerships. Our supply partners are required to meet strict quality standards to ensure food safety. We review and evaluate these partners’ quality assurance programs through (among other actions)
on-site
visits, third-party audits and product evaluations designed to ensure compliance with our standards. We believe the length and quality of our relationships with third-party suppliers provides us with priority service and quality products at competitive prices.
Cheese is our largest food cost. The price we charge to our U.S. franchisees for cheese is formula-based, with the Chicago Mercantile Exchange cheddar block price as the primary component, plus a supply chain markup. As cheese prices fluctuate, our revenues and margin percentages in our supply chain segment also fluctuate; however, actual supply chain dollar margins remain unchanged. We currently purchase our U.S. pizza cheese from a single supplier. Under our September 2017 agreement, our U.S. supplier agreed to provide the Company with an uninterrupted supply of cheese and the Company agreed to a seven-year pricing schedule to purchase all of its U.S. pizza cheese from this supplier. While we expect to meet the terms of this agreement, if we do not, we will be required to repay certain negotiated cost savings as provided in the agreement. The majority of our meat toppings in the U.S. come from a single supplier under a contract that expires in June 2022. We have the right to terminate these arrangements for quality failures and for certain uncured breaches.
We have entered into a multi-year agreement with Coca-Cola
®
for the U.S. This contract, renegotiated in June 2019, provides for Coca-Cola to continue to be our exclusive beverage supplier and expires on December 31, 2023 or at such time as a minimum number of cases of Coca-Cola products are purchased by Domino’s, whichever occurs later.
We believe alternative third-party suppliers are available for all of these referenced products. While we may incur additional costs if we are required to replace any of our supply partners, we do not believe such additional costs would have a material adverse effect on our business. We continually evaluate each supply category to determine the optimal sourcing strategy.
We have not experienced any significant shortages of supplies or delays in receiving our inventories or products. Prices charged to us by our supply partners are subject to fluctuation, and we have historically been able to pass increased costs and savings on to stores. We periodically enter into supplier contracts to manage the risk from changes in commodity prices. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.
Our Strengths
Strong Brand Equity
We are the largest pizza company in the world based on global retail sales. We believe our Domino’s brand is one of the most widely-recognized consumer brands in the world. We are the recognized world leader in pizza delivery and have a significant business in carryout. We believe consumers associate our brand with the timely delivery of quality, affordable food and technological innovation.
Over the past five years, our U.S. franchise and Company-owned stores have invested an estimated $2.2 billion in national,
co-operative
and local advertising. Our international franchisees also invest significant amounts in advertising efforts in their markets. We continue to reinforce our brand with extensive advertising through various media channels. We have also enhanced the strength of our brand through marketing affiliations with brands such as Coca-Cola.
We are the number one pizza delivery company in the U.S. with a 36% share of pizza delivery based on consumer spending data for the year ending November 2020. For the same period, we are also a growing leader in carryout with a 15% share of carryout pizza consumer spending (Source: The NPD Group/CREST
®
, year ending November 2020). With 6,355 stores located in the U.S., our store delivery areas cover a majority of U.S. households. Our share position and scale allow us to leverage our purchasing power, supply chain strength and marketing investments. We believe our scale and market coverage allow us to effectively serve our customers’ demands for convenience and timely delivery. Outside the U.S., we have significant market share positions in many of the markets in which we compete.
Strong and Proven Business Model
Our business model generates U.S. and international franchise royalties and fees, supply chain revenue and retail sales at Company-owned stores. We have developed this model over our many years of operation, and it is anchored by strong store-level economics, which provide an entrepreneurial incentive for our franchisees and historically has generated demand for new stores. Over the past ten years, average U.S. store profitability in the Domino’s system has increased meaningfully, resulting in higher profitability for our franchise owners. Our franchise system, in turn, has produced strong and consistent earnings for us through royalty payments and through supply chain revenues.
We developed a cost-efficient store model, characterized by a delivery- and carryout-oriented store design, with moderate capital requirements and a menu of quality, affordable items. At the store level, we believe the simplicity and efficiency of our operations give us significant advantages over our competitors, who, in many cases, also focus on
dine-in
or have broader menu offerings. At the supply chain level, we believe we provide quality, good value and consistency for our franchise customers while also driving profits for us, which we share with our franchisees under the profit-sharing arrangements described above.
Our menu simplifies and streamlines production and delivery processes and maximizes economies of scale on purchases of our principal food items. In addition, our stores, including those in our Pizza Theater image, are generally smaller and less expensive to build, furnish and maintain as compared to many other restaurant concepts, and they create a positive experience for our carryout customers. The combination of this efficient store model and strong sales volume has resulted in strong store-level economics and, we believe, makes Domino’s an attractive business opportunity for existing and prospective franchisees around the world. We and our franchisees are continuing to focus on growing our global store 2count. In recent years, we have focused specifically on increasing our presence in our existing markets to provide better service to our customers, including shrinking our delivery areas to provide better delivery service and adding locations that are closer to our carryout customers. We call this approach our fortressing strategy.
We believe our store financial returns have led to a strong, well-diversified franchise system. This established franchise system has produced strong cash flows and earnings for us, enabling us to invest in the Domino’s brand, stores, technology and supply chain centers, pay dividends, repurchase and retire shares of our common stock and service our debt obligations.
Technological Innovation
Technological innovation is vital to our brand and our long-term success, and digital ordering is critical to competing in the global pizza and broader QSR industries. Emphasis on technological innovation helped us achieve more than half of all global retail sales in 2020 from digital channels. In the U.S., we have developed several innovative ordering platforms, including those for Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and more. In 2019, we announced a partnership with Nuro to further our exploration and testing of autonomous pizza delivery. In 2020, we added GPS to our Domino’s Tracker, which allows customers to monitor the progress of their food, from the preparation stages to the time it is in the oven, to the time it arrives at their doors. In
mid-2020,
we launched a new way to order contactless carryout nationwide – via Domino’s Carside Delivery
™
, which customers can choose when placing a prepaid online order.
Our Piece of the Pie Rewards
®
loyalty program 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. Rewards members may also receive exclusive members-only discounts and bonus offers. We may also occasionally provide additional opportunities for participating customers to benefit under the Piece of the Pie Rewards program.
This improved functionality has been developed to work seamlessly with our Domino’s PULSE
™
point-of-sale
system. Our Domino’s PULSE system is designed to drive operating efficiencies for our franchisees and our corporate management and assist franchisees in independently managing their business. As of January 3, 2021, Domino’s PULSE is being used in every Company-owned store in the U.S., in more than 99% of our U.S. franchised stores and in approximately 77% of our international stores. We believe utilizing Domino’s PULSE with our integrated technology solutions throughout our system provides us with competitive advantages over other concepts.
We intend to continue to enhance and grow our online ordering, digital marketing and technological capabilities.
Product Innovation
We believe our core hand-tossed pizza recipe has contributed to long-term growth in customer reorder rates, consumer traffic and increased sales. This recipe is now in use in other markets around the world. Our 60 years of innovation have resulted in numerous new product developments. During 2020, we launched three new products in the U.S., including new and improved chicken wings and the new chicken taco and cheeseburger specialty pizzas, each of which has been positively received by consumers. Product innovation is also present in our global markets, where our master franchisees have the ability to recommend products to suit their local market tastes. Products include the Mayo Jaga in Japan (bacon, potatoes and sweet mayonnaise) and the Saumoneta in France (light cream, potatoes, onions, smoked salmon and dill).
Internal Dough Manufacturing and Supply Chain System
In addition to generating significant revenues and earnings in the U.S. and Canada, we believe our vertically integrated dough manufacturing and supply chain system enhances the quality and consistency of our products, enhances our relationships with franchisees and leverages economies of scale to offer lower costs to our stores. It also allows store managers to focus on store operations and customer service by relieving them of the responsibility of mixing dough in the stores and sourcing other ingredients. Many of our international master franchisees also profit from running supply chain businesses in their respective markets.
Human Capital
As of January 3, 2021, we had approximately 14,400 employees, including 10,400 employees supporting our U.S. Company-owned stores and U.S. franchise operations (our U.S. stores segment), approximately 2,900 employees supporting our U.S. and Canadian supply chain operations (our supply chain segment), approximately 100 employees supporting our international franchise operations (our international franchise segment) and approximately 1,000 corporate employees. Approximately 7,500 of our employees are part-time and approximately 6,900 are full-time equivalent. None of our employees are covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Environmental Responsibility
We believe in being strong stewards of the environment through initiatives to reduce the impact of energy, wastewater, land use and waste, both in packaging and food. Since 2015, we have sourced 100% sustainable mass balance palm oil, which is used in some of our products. We have also recently increased the recycled content of our pizza boxes and launched a nationwide campaign to educate municipalities on the recyclability of pizza boxes. We also introduced eBikes for delivery in certain markets around the world, helping us to reduce our carbon footprint. Domino’s is also a member of the Dairy Sustainability Alliance, the Recycling Partnership and the Food Waste Reduction Alliance. You can find more information about these initiatives at
stewardship.dominos.com
.
Community Involvement
We believe in supporting the communities we serve through donating our time, money and pizza. Our national philanthropic partner is St. Jude Children’s Research Hospital
®
. St. Jude is internationally recognized for its pioneering work in finding cures and saving children with cancer and other catastrophic diseases. Through a variety of internal and consumer-based activities, including a national fundraising campaign called
St. Jude
Thanks and Giving
®
, the Domino’s system has contributed $82.0 million to St. Jude since our partnership began in 2004, including raising $13.3 million in 2020. In 2020, we announced a
10-year,
$100 million campaign to raise funds to build Domino’s Village at St. Jude, a planned housing complex that will accommodate up to 140 patient families during long-term stays at the hospital.
We also support the Domino’s Pizza Partners Foundation (the “Partners Foundation”). Founded in 1986, the mission of the Partners Foundation is “Team Members Helping Team Members.” Primarily funded by team member and franchise contributions, the Partners Foundation is a separate,
not-for-profit
organization that has disbursed $8.2 million over the past five years. The Partners Foundation is committed to meeting the needs of Domino’s team members facing crisis situations, such as fire, illness, natural disasters or other personal tragedies. In 2020, Domino’s made a $500,000 donation to the Partners Foundation.
Also in 2020, Domino’s announced a pledge of $3.0 million to support the Black community in the U.S., including $1.0 million to create the Company’s first Black Franchise Opportunity Fund. You can find more information about our community involvement at
stewardship.dominos.com
.
Additional Disclosures
Working Capital
Information about the Company’s working capital is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7., pages 27 through 41.
Government Regulation
We, along with our franchisees, are subject to various federal, state and local laws affecting the operation of our business. Each store is subject to licensing and regulation by a number of governmental authorities, which include zoning, health, safety, sanitation, building and fire agencies in the jurisdiction in which the store is located. In connection with maintaining our stores, we may be required to expend funds to meet certain federal, state and local regulations, including regulations requiring that remodeled or altered stores be accessible to persons with disabilities. Difficulties in obtaining, or the failure to obtain, required licenses or approvals could delay or prevent the opening of a new store in a particular area or cause an existing store to cease operations. Our supply chain facilities are also licensed and subject to similar regulations by federal, state and local health and fire codes.
We are also subject to the Fair Labor Standards Act and various other federal and state laws governing such matters as minimum wage requirements, overtime and other working conditions and citizenship requirements. A significant number of both our and our franchisees’ food service personnel are paid at rates related to the applicable minimum wage, and past increases in the minimum wage have increased labor costs, as would future increases.
We are subject to the rules and regulations of the Federal Trade Commission (“FTC”) and various state laws regulating the offer and sale of franchises. The FTC and various state laws require that we furnish a franchise disclosure document containing certain information to prospective franchisees, and a number of states require registration of the franchise disclosure document with state authorities. We are operating under exemptions from registration in several states based on the net worth of our subsidiary, Domino’s Pizza Franchising LLC, and experience. We believe our franchise disclosure document, together with any applicable state versions or supplements, and franchising procedures comply in all material respects with both the FTC guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises.
Internationally, our franchise stores are subject to national and local laws and regulations that are often similar to those affecting our U.S. stores, including laws and regulations concerning franchises, labor, health, sanitation and safety. Our international stores are also often subject to tariffs and regulations on imported commodities and equipment, and laws regulating foreign investment. We believe our international disclosure statements, franchise offering documents and franchising procedures comply in all material respects with the laws of the foreign countries in which we have offered franchises.
Privacy and Data Protection
We are subject to a number of privacy and data protection laws and regulations both in the U.S. and globally. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increase in attention given to privacy and data protection issues with the potential to directly affect our business. This includes recently-enacted laws and regulations in the U.S. and internationally requiring notification to individuals and government authorities of security breaches involving certain categories of personal information. We have a privacy policy posted on our website at
. The security of our financial data, customer information and other personal information is a priority for us.
Trademarks
We have many registered trademarks and believe that the Domino’s mark and Domino’s Pizza names and logos, in particular, have significant value and are important to our business. Our policy is to pursue registration of our trademarks and to vigorously oppose the infringement of any of our trademarks. We license the use of our registered marks to franchisees through franchise agreements.
Environmental Matters
We are not aware of any federal, state or local environmental laws or regulations that we would expect to materially affect our earnings or competitive position or result in material capital expenditures. However, we cannot predict the effect of possible future environmental legislation or regulations. During 2020, there were no material environmental compliance-related capital expenditures, and no such material expenditures are anticipated in 2021.
Seasonal Operations
The Company’s business is not typically seasonal.
Backlog Orders
The Company had no backlog orders as of January 3, 2021.
Government Contracts
No material portion of the Company’s business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.
Available Information
The Company makes available, free of charge, through its internet website
biz.dominos.com
, its Annual Report on Form
10-K,
Quarterly Reports on Form
10-Q,
Current Reports on Form
8-K,
proxy statements and amendments to those reports filed or furnished pursuant to Section 13(a), 15(d), or 16 of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such material with the Securities and Exchange Commission. Materials filed with the Securities and Exchange Commission are available at
. Retail orders from Domino’s stores can be made through its internet website
. The reference to these website addresses anywhere in this Annual Report on Form
10-K
(the “Form
10-K”)
does not constitute incorporation by reference of the information contained on the websites and information appearing on those websites, including
biz.dominos.com
,
stewardship.dominos.com
and
, should not be considered a part of this document.
Item 1A. Risk Factors.
| --- | --- |
For a business as large and globally diverse as the Company, a wide range of factors could materially affect future developments and performance. In addition to the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in this report and our other filings with the SEC, we believe the most significant risk factors affecting our business include the following:
Business, Operational and Industry Risks
The quick service restaurant pizza category and the food service and food delivery markets in general are highly competitive and such competition could adversely affect our operating results.
In the U.S., we compete primarily against regional and local companies as well as national chains Pizza Hut
®
, Papa John’s
®
and Little Caesars Pizza
®
. Internationally, we compete primarily with Pizza Hut
®
, Papa John’s
®
and country-specific national and local companies. We could experience increased competition from existing or new companies in the delivery and carryout pizza category 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 and meal kit offerings, expansion in meal delivery platforms and services and the trend towards convergence in grocery, deli, retail and restaurant services.
We also compete on a broader scale with quick service and other international, national, regional and local restaurants. Competition from order and delivery aggregators and other food delivery services has also increased in recent years and order and delivery aggregators have continued to grow in size and scale. The overall food service market, food delivery market and the quick service restaurant market are intensely competitive with respect to food quality, price, service, image, convenience and concept, and are often affected by changes in:
| • | consumer tastes; |
|---|
| • | international, national, regional or local economic conditions; |
|---|
| • | disposable purchasing power; |
|---|
| • | marketing, advertising and pricing, including discounting; |
|---|
| • | demographic trends; and |
|---|
| • | currency fluctuations related to international operations. |
|---|
We compete within the food service market and the quick service restaurant market not only for customers, but also for management and hourly employees, including store team members, drivers and qualified franchisees, as well as suitable real estate sites. Our supply chain segment is also subject to competition from outside suppliers. While substantially all U.S. franchisees purchased food, equipment and supplies from us in 2020, U.S. franchisees are not required to purchase food, equipment or supplies from us and they may choose to purchase from outside suppliers. If other suppliers who meet our qualification standards were to offer lower prices or better service to our franchisees for their ingredients and supplies and, as a result, our franchisees chose not to purchase from our U.S. supply chain centers, our financial condition, business and results of operations would be adversely affected.
If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for our products, reduced margins, loss of management or hourly employees, 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.
Worldwide economic activity has been and is expected to continue to be adversely affected by the
COVID-19
pandemic, the scale and scope of which is ultimately unknown, which could adversely affect our business, financial condition and results of operations.
The global
COVID-19
pandemic continues to impact worldwide economic activity. A public health pandemic such as
COVID-19
poses the risk that we and/or our employees, franchisees, supply chain centers, suppliers, customers and other partners may be, or may continue to be, prevented from conducting business activities for an indefinite period of time, including due to shutdowns, travel restrictions, social distancing requirements, stay at home orders and advisories and other restrictions that have been or may be suggested or mandated by governmental authorities, or due to the impact of the disease itself on a business’ workforces. In addition,
COVID-19
may impact the willingness of customers to purchase food prepared outside of the home. The
COVID-19
pandemic may also have the effect of heightening many of the other risks described throughout this report, including but not limited to those relating to our growth strategy, our supply chain and increased food and labor costs, disruption in operations, loss of key employees, our indebtedness, general economic conditions and our international operations.
In response to governmental requirements, we and our franchisees have implemented a number of measures, including, among others, temporarily closing certain of our stores, modifying certain stores’ hours and closing locations to
in-store
dining, and we continue to monitor additional developments. We have also made additional operating changes in response to changes in consumer behavior and preferences resulting from
COVID-19,
including offering contactless delivery and carryout options to our customers. While it is not possible at this time to estimate the full impact that
COVID-19
could have on our business going forward, the continued spread of the virus and the measures taken in response have disrupted our operations and could disrupt our supply chain, including our access to face coverings for use in our operations, which could adversely impact our business, financial condition and results of operations. The
COVID-19
pandemic and mitigation measures have also had an adverse impact on global economic conditions, which could have an adverse effect on our business and financial condition. The Company’s sales and operating results may be affected by uncertain or changing economic and market conditions arising in connection with and in response to the
COVID-19
pandemic, including inflation, deflation, prolonged weak consumer demand, political instability or other changes. While the Company has seen an increase in sales in certain markets, including within the U.S., during the
COVID-19
pandemic, including increased sales related to heightened reliance on delivery and
carry-out
businesses, future sales are not possible to estimate and it is unclear whether and to what extent sales will return to more normalized levels if and when consumer behavior and general economic and business activity return to
pre-pandemic
levels. The significance of the operational and financial impact to the Company will depend on how long and widespread the disruptions caused by
COVID-19,
and the corresponding response to contain the virus and treat those affected by it, prove to be.
If we fail to successfully implement our growth strategy, which includes opening new U.S. and international stores, our ability to increase our revenues and operating profits could be adversely affected.
A significant component of our growth strategy includes the opening of new U.S. (both Company-owned as well as franchised stores) and international franchised stores. We and our franchisees face many challenges in opening new stores, including, among others:
| | • | | construction, permitting or development delays relating to the COVID-19 pandemic; | | --- |
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Item 1B. Unresolved Staff Comments.
| --- | --- |
None.
Item 2. Properties.
| --- | --- |
We lease approximately 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. constructed a new 33,000 square foot building that was leased to the Company upon completion in 2019. The lease, as amended, expires in 2029 and has two five-year renewal options.
We own five supply chain center buildings. All other U.S. and international supply chain centers are leased by us, under leases ranging between five and 21 years with one or two five-year renewal options. All buildings for U.S. Company-owned stores are leased by us, typically under
ten-year
leases with one or two five-year renewal options. All other franchise stores are leased or owned directly by the respective franchisees. We believe that our existing headquarters and other leased and owned facilities are adequate to meet our current requirements.
Item 3. Legal Proceedings.
| --- | --- |
We are a party to lawsuits, revenue agent reviews by taxing authorities and administrative proceedings in the ordinary course of business which include, without limitation, workers’ compensation, general liability, automobile and franchisee claims. We are also subject to suits related to employment practices.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. These matters referenced above could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy. In management’s opinion, these matters, individually and in the aggregate, should not have a significant adverse effect on the financial condition of the Company, and the established accruals adequately provide for the estimated resolution of such claims.
While we may occasionally be party to large claims, including class action suits, we do not believe that any existing matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
| --- | --- |
Not applicable.
Item 4A. Executive Officers of the Registrant.
| --- | --- |
The listing of executive officers of the Company is set forth under Part III Item 10. Directors, Executive Officers and Corporate Governance on pages 76 through 79, which is incorporated herein by reference.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
| --- | --- |
As of February 18, 2021, Domino’s Pizza, Inc. had 170,000,000 authorized shares of common stock, par value $0.01 per share, of which 38,803,504 were issued and outstanding. Domino’s Pizza, Inc.’s common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “DPZ.”
Our Board of Directors declared a quarterly dividend of $0.94 per common share on February 24, 2021 payable on March 30, 2021 to shareholders of record at the close of business on March 15, 2021.
We currently anticipate continuing the payment of quarterly cash dividends. The actual amount of such dividends, if any, will depend upon future earnings, results of operations, capital requirements, our financial condition and certain other factors. There can be no assurance as to the amount of free cash flow that we will generate in future years and, accordingly, dividends will be considered after reviewing returns to shareholders, profitability expectations and financing needs and will be declared at the discretion of our Board of Directors.
As of February 18, 2021, there were 1,578 registered holders of record of Domino’s Pizza, Inc.’s common stock.
As of January 3, 2021, we had a Board of Directors-approved share repurchase program for up to $1.0 billion of our common stock, of which $101.6 million remained available for future purchases of our common stock. Any future purchases of our common stock would be funded by current cash amounts, available borrowings or future excess cash flow. The following table summarizes our repurchase activity during the fourth quarter ended January 3, 2021:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | ||||||||||||
| Period #10 (September 7, 2020 to October 4, 2020) | 933 | $ | 430.25 | — | $ | 326,552 | ||||||||||
| Period #11 (October 5, 2020 to November 1, 2020) | 503,202 | 398.39 | 501,956 | 126,552 | ||||||||||||
| Period #12 (November 2, 2020 to November 29, 2020) | 65,851 | 379.64 | 65,851 | 101,552 | ||||||||||||
| Period #13 (November 30, 2020 to January 3, 2021) | 835 | 391.53 | — | 101,552 | ||||||||||||
| Total | 570,821 | $ | 396.27 | 567,807 | $ | 101,552 | ||||||||||
| (1) | 3,014 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 $398.48. |
|---|
| (2) | From January 4, 2021 through February 18, 2021, the Company repurchased and retired an additional 65,870 shares of common stock for approximately $25.0 million, or an average price of $379.53 per share. |
|---|
On February 24, 2021, the Company’s Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of the Company’s common stock. This repurchase program replaces the remaining availability of approximately $76.6 million under the Company’s previously approved $1.0 billion share repurchase program.
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, 2015 and December 31, 2020, with cumulative total return on (i) the Standard & Poor’s 500 Index (the “S&P 500”) and (ii) the peer group, the Standard & Poor’s 400 Restaurant Index (the “S&P 400 Restaurant Index”). Management believes that the companies included in the S&P 400 Restaurant Index appropriately reflect the scope of the Company’s operations and match the competitive market in which the Company operates. The cumulative total return computations set forth in the performance graph assume the investment of $100 in the Company’s common stock, the S&P 500 Index and the S&P 400 Restaurant Index on December 31, 2015.
Item 6. Selected Financial Data.
| --- | --- |
The Company has applied the amendment to Regulation
S-K
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
| --- | --- |
Overview
Our fiscal year typically includes 52 weeks, comprised of three twelve-week quarters and one sixteen-week quarter. Every five or six years our fiscal year includes an extra (or 53
rd
) week in the fourth quarter. Fiscal 2020 consisted of 53 weeks and fiscal 2019 and 2018 each consisted of 52 weeks.
In this section, we discuss the results of our operations for the year ended January 3, 2021 compared to the year ended December 29, 2019. For a discussion of the year ended December 29, 2019 compared to the year ended December 30, 2018, 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 29, 2019.
Description of the Business
Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,600 locations in over 90 markets around the world. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Although we are a highly-recognized global brand, we focus on serving neighborhoods locally through our large network of franchise owners and Company-owned stores.
Our business model is straightforward: Domino’s stores handcraft and serve quality food at a competitive price, with easy ordering access and efficient service, enhanced by our technological innovations. Our hand-tossed dough is made fresh and distributed to stores around the world by us and our franchisees.
Domino’s generates revenues and earnings by charging royalties and fees to our independent franchisees. We also generate revenues and earnings by selling food, equipment and supplies to franchisees primarily in the U.S. and Canada, and by operating a number of Company-owned stores in the U.S. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza brand to master franchisees. These master franchisees are charged with developing their geographical area, and they can profit by
sub-franchising
and selling food and equipment to those
sub-franchisees,
as well as by running pizza stores directly. Everyone in the system can benefit, including the end consumer, who can feed their family conveniently and economically.
Our financial results are driven largely by retail sales at our franchise and Company-owned stores. Changes in retail sales are driven by changes in same store sales and store counts. We monitor both of these metrics very closely, as they directly impact our revenues and profits, and we strive to consistently increase both metrics. Retail sales drive royalty payments from franchisees, as well as Company-owned store and supply chain revenues. Retail sales are primarily impacted by the strength of the Domino’s Pizza
®
brand, the results of our extensive advertising through various media channels, the impact of technological innovation and digital ordering, our ability to execute our strong and proven business model and the overall global economic environment.
Our business model can yield strong returns for our franchise owners and our Company-owned stores. It can also yield significant cash flow to us, through a consistent franchise royalty payment and supply chain revenue stream, with moderate capital expenditures. We have historically returned cash to shareholders through dividend payments and share repurchases since becoming a publicly-traded company in 2004. These factors emphasize our focus on our stakeholders, including our customers, team members, franchisees, communities and shareholders.
Critical accounting policies and estimates
The following discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, our management evaluates its estimates, including those related to revenue recognition, long-lived assets, insurance and legal matters, share-based payments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. Changes in our accounting policies and estimates could materially impact our results of operations and financial condition for any particular period. We believe that our most critical accounting policies and estimates are:
Revenue recognition
. We earn revenues through our network of U.S. Company-owned and franchised stores, dough manufacturing and supply chain centers and international operations. Retail sales from franchised stores are reported to us by our franchisees and are not included in our revenues. Retail sales from Company-owned stores and royalty revenues resulting from the retail sales from franchised stores are recognized as revenues when the items are delivered to or carried out by customers. Retail sales are generally reported, and the related royalties paid to 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 were on average, 2.9% of international franchise retail sales in 2020). U.S. and international franchise fee revenue primarily relates to
per-transaction
technology fees that are recognized as the related sales occur. We also generate revenues from U.S. franchise advertising contributions to DNAF, our consolidated
not-for-profit
advertising fund (generally 6.0% of U.S. franchise retail sales). Although these revenues are restricted to be used only for advertising and promotional activities to benefit franchised stores, we have determined there are not performance obligations associated with the franchise advertising contributions received by DNAF that are separate from our U.S. royalty payment stream and as a result, these franchise contributions and the related expenses are presented gross in the consolidated 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
time-to-time
as a result of store count and sales level changes. Sales of food from our supply chain centers are recognized as revenues upon delivery of the food to franchisees, while sales of equipment and supplies are generally recognized as revenues upon shipment of the related products to franchisees.
Long-lived assets.
We record long-lived assets, including property, plant and equipment and capitalized software, at cost. For acquisitions of franchise operations, we estimate the fair values of the assets and liabilities acquired based on physical inspection of assets, historical experience and other information available to us regarding the acquisition. We depreciate and amortize long-lived assets using useful lives determined by us based on historical experience and other information available to us. We evaluate the potential impairment of long-lived assets at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Our evaluation is based on various analyses, including the projection of undiscounted cash flows. For Company-owned stores, we perform related impairment tests on an operating market basis, which we have determined to be the
Showing the first 8K of 72K characters. Open the full section
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
| --- | --- |
Market risk
We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. We are exposed to interest rate risk on borrowings under our 2017 Five-Year Floating Rate Notes and our 2019 Variable Funding Notes. As of January 3, 2021, we did not have any outstanding borrowings under our 2019 Variable Funding Notes. Our 2017 Five-Year Floating Rate Notes and our 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 $3.2 million in 2020.
There is currently uncertainty around whether LIBOR will continue to exist after 2021. If LIBOR ceases to exist, we may need to renegotiate our loan documents and we cannot predict what alternative index would be negotiated with our lenders. As a result, our interest expense could increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.
Our fixed rate debt exposes the Company to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.
We are exposed to market risks from changes in commodity prices. During the normal course of business, we purchase cheese and certain other food products that are affected by changes in commodity prices and, as a result, we are subject to volatility in our food costs. We may periodically enter into financial instruments to manage this risk. We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. In instances when we use fixed pricing agreements with our suppliers, these agreements cover our physical commodity needs, are not
net-settled
and are accounted for as normal purchases.
Foreign currency exchange rate risk
We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside the U.S., which can adversely impact our net income and cash flows. Approximately 6.1% of our total revenues in 2020, 6.7% of our total revenues in 2019 and 6.5% of our total revenues in 2018 were derived from our international franchise segment, a majority of which were denominated in foreign currencies. We also operate dough manufacturing and distribution facilities in Canada, which generate revenues denominated in Canadian dollars. We do not enter into financial instruments to manage this foreign currency exchange risk. A hypothetical 10% adverse change in the foreign currency rates for our international markets would have resulted in a negative impact on royalty revenues of approximately $22.2 million in 2020.
Item 8. Financial Statements and Supplementary Data.
| --- | --- |
Report of Independent Registered Public Accounting Firm
To the
Stockholders and Board of Directors
of Domino’s Pizza, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Domino’s Pizza, Inc. and its subsidiaries (the “Company”) as of January 3, 2021 and December 29, 2019, and the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for each of the three years in the period ended January 3, 2021, including the related notes and the schedule of condensed financial information of the registrant as of January 3, 2021 and December 29, 2019 and for each of the three years in the period ended January 3, 2021 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of January 3, 2021, based on criteria established in
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 January 3, 2021 and December 29, 2019,
and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2021
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 January 3, 2021, based on criteria established in
Internal Control—Integrated Framework
(2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue in 2018.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated 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 January 3, 2021, the Company had accruals for these insurance matters of $54.6 million. The insurance reserves are based on undiscounted independent actuarial estimates, which are based on historical information along with assumptions about future events. Management 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 (i) the significant judgment by management when developing the estim
Showing the first 8K of 139K characters. Open the full section
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
| --- | --- |
None.
Item 9A. Controls and Procedures.
| --- | --- |
(a) Evaluation of Disclosure Controls and Procedures.
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 13a-15
and
15d-15
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that all information required in the reports it files or submits under the Exchange Act was accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission.
(b) Changes in Internal Control over Financial Reporting.
There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
(c) Management’s Annual Report on Internal Control over Financial Reporting.
The management of Domino’s Pizza, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in
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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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 January 3, 2021 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 January 3, 2021. The effectiveness of the Company’s internal control over financial reporting as of January 3, 2021, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Item 9B. Other Information.
| --- | --- |
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
| --- | --- |
The following table sets forth information about our executive officers and directors.
| Name | Age | Position | ||
| David A. Brandon | 68 | Chairman of the Board of Directors | ||
| Richard E. Allison, Jr. | 54 | Chief Executive Officer and Director | ||
| Stuart A. Levy | 49 | Executive Vice President, Chief Financial Officer | ||
| Russell J. Weiner | 52 | Chief Operating Officer and President—Domino’s U.S. | ||
| Thomas B. Curtis | 57 | Executive Vice President, U.S. Operations and Support | ||
| Arthur P. D’Elia | 43 | Executive Vice President, Chief Marketing Officer | ||
| Kelly E. Garcia | 45 | Executive Vice President, Chief Technology Officer | ||
| Cynthia A. Headen | 52 | Executive Vice President, Supply Chain Services | ||
| Joseph H. Jordan | 47 | Executive Vice President, International | ||
| Timothy P. McIntyre | 58 | Executive Vice President, Communications and Legislative Affairs | ||
| Kevin S. Morris | 60 | Executive Vice President, General Counsel and Corporate Secretary | ||
| Lisa V. Price | 48 | Executive Vice President, Chief Human Resources Officer | ||
| C. Andrew Ballard | 48 | Director | ||
| Andrew B. Balson | 54 | Director | ||
| Corie S. Barry | 45 | Director | ||
| Diana F. Cantor | 63 | Director | ||
| Richard L. Federico | 66 | Director | ||
| James A. Goldman | 62 | Director | ||
| Patricia E. Lopez | 59 | Director |
David A. Brandon
has served as the Chairman of the Domino’s Board of Directors since March 1999. Mr. Brandon most recently served as Chairman and Chief Executive Officer of Toys “R” Us, Inc., formerly the world’s largest specialty retailer of toy and baby products, a position he held from July 2015 to December 2018. Previously, Mr. Brandon was the Director of Athletics at the University of Michigan from March 2010 to October 2014. Mr. Brandon served as Domino’s Chief Executive Officer from March 1999 to March 2010. Mr. Brandon was retained by the Company as a Special Advisor from March 2010 to January 2011. Prior to joining Domino’s, Mr. Brandon was President and Chief Executive Officer of Valassis, Inc., a company in the sales promotion and coupon industries, from 1989 to 1998 and Chairman of the Board of Directors of Valassis, Inc. from 1997 to 1998. In addition to serving on the Board of Directors of Domino’s, Mr. Brandon also serves on the Boards of Directors of DTE Energy Co. and Herman Miller, Inc. He previously served on the Boards of Directors of Toys “R” Us, Inc., Burger King Corporation, Kaydon Corporation, Northwest Airlines and the TJX Companies, Inc.
Richard E. Allison, Jr.
has served as Chief Executive Officer of Domino’s since July 2018. Mr. Allison oversees all company operations, strategy and vision in his role as Chief Executive Officer. He previously served as President, Domino’s International from October 2014 to July 2018, after joining the Company in March 2011 as Executive Vice President of International. Prior to joining Domino’s, Mr. Allison worked at Bain & Company, Inc. for more than 13 years, serving as a Partner from 2004 to December 2010, and as
co-leader
of Bain’s restaurant practice, working with some of the world’s most well-known restaurant brands. Mr. Allison has served on Domino’s Board of Directors since July 2018, when he was elected in conjunction with his appointment as Chief Executive Officer. Mr. Allison also serves on the Board of Directors of Starbucks Corporation.
Stuart A. Levy
has served as Domino’s Executive Vice President and Chief Financial Officer since August 2020. Mr. Levy joined Domino’s as Executive Vice President, Supply Chain Services in January 2019. Prior to joining Domino’s, Mr. Levy served as Executive Vice President, Chief Transformation Officer for Republic Services, Inc. from January 2015 to November 2017. Prior to joining Republic Services, Mr. Levy was employed by Bain & Company from 2001 to 2014, serving most recently as a Partner from 2008 to 2014.
Russell J. Weiner
has served as Chief Operating Officer and President, Domino’s U.S. since July 2020 and as Chief Operating Officer and President of the Americas from July 2018 to July 2020. He previously served as President, Domino’s USA from October 2014 to July 2018. Mr. Weiner served as Executive Vice President and Chief Marketing Officer, from September 2008 to October 2014. 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. Mr. Weiner serves on the Board of Directors of The Clorox Company.
Thomas B. Curtis
has served as Domino’s Executive Vice President, U.S. Operations and Support since March 2020 and as Executive Vice President, Corporate Operations from July 2018 to March 2020. Prior to this, Mr. Curtis served as Vice President of Franchise Relations and Operations Innovation from March 2017 to July 2018, after serving as Vice President of Operations Support from August 2016 to March 2017 and as West Region Vice President from November 2012 to August 2016. Mr. Curtis joined Domino’s in 2006, after being a Domino’s franchisee since 1987.
Arthur P. D’Elia
has served as Domino’s Executive Vice President, Chief Marketing Officer since July 2020 and as Senior Vice President, Chief Marketing Officer from February 2020 to July 2020. Mr. D’Elia joined Domino’s in January 2018 as Senior Vice President, Chief Brand and Innovation Officer. Prior to Domino’s, Mr. D’Elia served as Chief Marketing Officer for Danone Dairy’s UBN business unit from July 2017 to January 2018, after joining Danone U.S. in 2010.
Kelly E. Garcia
has served as Domino’s Executive Vice President, Chief Technology Officer since October 2020. Prior to his current role, Mr. Garcia served as Senior Vice President, Chief Technology Officer from April 2020 to October 2020. Mr. Garcia joined Domino’s in July 2012 as Vice President, eCommerce Development. Prior to Domino’s, Mr. Garcia was with R.L. Polk & Co. from 2004 to 2012, most recently as Vice President of Business Intelligence and North American Operations.
Cynthia A. Headen
has served as Domino’s Executive Vice President, Supply Chain Services since August 2020. Ms. Headen previously served as Senior Vice President, Global Procurement and Supply Chain Operations from January 2019 to August 2020, after joining Domino’s as Vice President of Procurement and Product Management in November 2015. Prior to Domino’s, Ms. Headen spent nearly 15 years with PepsiCo, where she was responsible for global procurement.
Joseph H. Jordan
has served as Domino’s Executive Vice President of International since April 2018. Prior to his current role, Mr. Jordan had served as Senior Vice President and Chief Marketing Officer since May 2015, after joining Domino’s as Vice President of Innovation in September 2011. Prior to joining Domino’s, Mr. Jordan served as Senior Director of Marketing at Pepsi-Cola North America for six years, held marketing roles at Philips Electronics and Unilever and was a consultant for Accenture.
Timothy P. McIntyre
has served as Domino’s Executive Vice President, Communications and Legislative Affairs since May 2016. Mr. McIntyre served as Vice President of Communication from August 1997 to May 2016. Mr. McIntyre serves as Chair of the Domino’s Pizza Partners Foundation and as Chair of the American Pizza Community. He also serves on the Communications Committee of the Innovation Center for U.S. Dairy. Mr. McIntyre served on the Board of Food Gatherers from 2015 to December 2017. Mr. McIntyre joined Domino’s in 1985.
Kevin S. Morris
has served as Domino’s Executive Vice President, General Counsel since January 2017 and also as Corporate Secretary since October 2018. Prior to joining Domino’s, Mr. Morris 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. Mr. Morris operated his own private legal practice from July 2009 to November 2012. Prior to 2009, Mr. Morris served as Vice President and Associate General Counsel at Global Hyatt Corporation (the predecessor in interest to Hyatt Hotels Corporation) from 1999 to 2008. Prior to 1999, Mr. Morris served as a Senior International Attorney and Staff Director at McDonald’s Corporation after beginning his career as an attorney at Rudnick & Wolfe LLP.
Lisa V. Price
has served as Domino’s Executive Vice President, Chief Human Resources Officer since September 2019. Prior to joining Domino’s, Ms. Price served as Senior Vice President of Human Resources at Nordstrom from December 2015 to August 2019. Prior to her time at Nordstrom, she spent over 15 years at Starbucks Corporation in a variety of human resources roles, most recently as Vice President of Partner Resources.
C. Andrew Ballard
has served on Domino’s Board of Directors since July 2015. Mr. Ballard serves as the Chairperson of the Inclusion and Diversity Committee and is a member of the Compensation Committee of the Board of Directors. Mr. Ballard
currently serves as the Chief Executive Officer and
Co-Founder
of Wiser Solutions, Inc., a technology and data company, a position he has held since December 2012. Mr. Ballard is also Founder of Figtree Partners, an investment firm focused on software and technology, and has served as its Managing Partner since November 2012. He was previously a Senior Advisor at the private equity firm Hellman & Friedman LLC from 2012 to 2019, where he also served as Managing Director from 2006 to 2012 and as a Director from 2004 to 2006. Prior to joining Hellman & Friedman in 2003, Mr. Ballard worked at Bain Capital, LLC in San Francisco and Boston, as well as Bain & Company, Inc. from 1994 to 2002.
In addition to serving on Domino’s Board of Directors, Mr. Ballard is currently Chairman of Datacor, Inc. and Vice Chairman of Zignal Labs, and has held previous board roles at Activant Solutions Inc., Catalina Marketing Corporation, DoubleClick Inc., Getty Images, Inc., Internet Brands, Inc. and Vertafore, Inc. Mr. Ballard was the Chair of the Board of Trustees and Chair of the Investment Committee of the San Francisco Foundation.
Andrew B. Balson
has served on Domino’s Board of Directors since March 1999 and serves as the Chairperson of the Compensation Committee of the Board of Directors. Mr. Balson is currently the Managing Partner of Cove Hill Partners, L.P., a firm formed to make private equity investments. Previously, Mr. Balson was the Chief Executive Officer of Match Beyond, an innovative college completion program that helps
low-income
young adults attain college degrees and prepare for the workforce, a position he held from January 2015 to June 2016. Prior to becoming the Chief Executive Officer of Match Beyond, Mr. Balson was a Managing Director at Bain Capital, LLC, a global investment company, from 2001 to 2013. Mr. Balson became a Principal of Bain Capital in January 1998. Mr. Balson previously served on the Boards of Directors of Bloomin’ Brands, Inc., FleetCor Technologies, Inc., Dunkin’ Brands, Inc., Skylark Co., Ltd., BELLSYSTEM24, Inc., Burger King Corporation and Bright Horizons Family Solutions, Inc., as well as numerous private companies.
Corie S. Barry
has served on Domino’s Board of Directors since July 2018 and is a member of the Audit Committee and the Inclusion and Diversity Committee of the Board of Directors. Ms. Barry currently serves as Chief Executive Officer and as a member of the Board of Directors of Best Buy Co., Inc., a specialty retailer of consumer electronics, personal computers, entertainment software and appliances, roles held since June 2019. Prior to becoming CEO, Ms. Barry served as Best Buy’s Senior Executive Vice President and Chief Financial and Strategic Transformation Officer from June 2016 to June 2019, Chief Strategic Growth Officer from October 2015 to June 2016, Interim President of Geek Squad Services from March 2015 to May 2016, Senior Vice President of Domestic Finance from May 2013 to October 2015 and in a variety of financial and operational roles, both in the field and at the corporate campus, since joining Best Buy in 1999. Prior to Best Buy, Ms. Barry worked at Deloitte Touche Tohmatsu Limited from 1997 to 1999.
Diana F. Cantor
has served on Domino’s Board of Directors since October 2005 and serves as the Chairperson of the Audit Committee of the Board of Directors. Ms. Cantor is currently a Partner at Alternative Investment Management, LLC, a position she has held since January 2010, and is a past Chairman of the Virginia Retirement System, where she served as a Trustee and a member of the Audit and Compliance Committee from 2010 through 2020. Ms. Cantor was a Managing Director with New York Private Bank and Trust from January 2008 to the end of 2009. Ms. Cantor served as the founding Chief Executive Officer of the Virginia College Savings Plan, the state’s 529 college savings program, from 1996 to January 2008. Ms. Cantor served as Vice President of Richmond Resources, Ltd. from 1990 to 1996, and as Vice President of Goldman, Sachs & Co. from 1985 to 1990. In addition to serving on Domino’s Board of Directors, Ms. Cantor serves on the Boards of Directors of Universal Corporation (Chairman of the Nominating and Corporate Governance Committee) and VICI Properties Inc. (Chairman of the Audit Committee), and she previously served on the Boards of Directors of Media General, Inc., Revlon, Inc., The Edelman Financial Group Inc., Vistage International, Inc., Knowledge Universe Education LLC, Edelman Financial Services, LLC and Service King Body and Paint LLC.
Richard L. Federico
has served on Domino’s Board of Directors since February 2011 and is a member of the Compensation Committee and the Nominating and Corporate Governance Committee of the Board of Directors. Mr. Federico served as
Non-Executive
Chairman of P.F. Chang’s China Bistro, Inc. based in Scottsdale, AZ, from February 2016 until its acquisition in March 2019. Mr. Federico previously served as Executive Chairman of P.F. Chang’s from March 2015 to February 2016 and as Chief Executive Officer or
Co-Chief
Executive Officer from September 1997 to March 2015. Mr. Federico joined P.F. Chang’s as President in 1996, when he also began his service on its Board of Directors. Mr. Federico started his career in the restaurant industry as a Manager at Steak & Ale, and later at Orville Beans and Bennigan’s restaurants. He went on to develop Grady’s Goodtimes, serving as
Co-Founder/Partner
and Vice President of Operations until Brinker International, Inc. acquired Grady’s in 1989. Upon joining Brinker International, Mr. Federico served as Senior Vice President and concept head for Macaroni Grill before being promoted to President of the Italian Concept division. As President, he directed operations and development for Macaroni Grill and Spageddies. In addition to serving on Domino’s Board of Directors, Mr. Federico currently serves on the Boards of RPT Realty and Tastemaker Acquisition Corp. He also currently serves of the Boards of Directors of Prime Steak Concepts, True Food Kitchen and Boqueria, all privately-held restaurant concepts. Mr. Federico previously served as Chairman of the Board of Directors of Jamba, Inc. He is a Founding Director of Chances for Children.
James A. Goldman
has served on Domino’s Board of Directors since March 2010, serves as Chairperson of the Nominating and Corporate Governance Committee and serves on the Audit Committee of the Board of Directors. Mr. Goldman is currently a Senior Advisor at Eurazeo SE, a private equity firm listed on the Paris Stock Exchange, and serves on the Boards of Directors of several of its portfolio companies: Q Mixers, a leading premium carbonated mixer brand, Waterloo Sparkling Water Corp., a carbonated beverage company, and Dewey’s Bakery, a premium baked goods company. Mr. Goldman served as President and Chief Executive Officer and as a member of the Board of Directors of Godiva Chocolatier, Inc. from 2004 to 2014. Mr. Goldman was President of the Food and Beverage Division at Campbell Soup Company from 2001 to 2004 and served in various executive positions at Nabisco, Inc. from 1992 to 2000. Prior to his work at Nabisco, Mr. Goldman was a senior consulting associate at McKinsey & Company, Inc. In addition to serving on Domino’s Board of Directors, Mr. Goldman serves on the Board of Directors of Abercrombie & Fitch Co. where he is a member of the Compensation Committee and Nominating and Corporate Governance Committee. He is on the Executive Board of the International Tennis Hall of Fame in Newport, RI and the Advisory Board of FEED Projects in New York, NY. Mr. Goldman previously served on the Board of Directors of The Children’s Place, Inc. He also served on the Board of Trustees and Executive Committee of Save the Children in Fairfield, CT and the Board of Trustees at the YMCA Camps Becket and Chimney Corners in Becket, MA.
Patricia E. Lopez
has served on Domino’s Board of Directors since July 2018 and is a member of the Nominating and Corporate Governance Committee and the Inclusion and Diversity Committee of the Board of Directors. Ms. Lopez
most recently served as Chief Executive Officer and as a member of the Board of Directors of High Ridge Brands Co. from July 2017 to March 2020. Ms. Lopez served as a Senior Vice President at Estée Lauder Companies Inc. from January 2015 to July 2016, a Senior Vice President at Avon Products, Inc. from December 2012 to November 2014 and previously held various positions at The Procter & Gamble Co. for 25 years, most recently serving as a Vice President and General Manager overseeing its Eastern Europe business.
The remaining information required by this item is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of January 3, 2021.
Item 11. Executive Compensation.
| --- | --- |
Information regarding executive compensation is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of January 3, 2021. However, no information set forth in the proxy statement regarding the Audit Committee Report shall be deemed incorporated by reference into this Form
10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
| --- | --- |
Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of January 3, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
| --- | --- |
Information regarding certain relationships and related transactions is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of January 3, 2021.
Item 14. Principal Accountant Fees and Services.
| --- | --- |
Information regarding principal accountant fees and services is incorporated by reference from Domino’s Pizza, Inc.’s definitive proxy statement, which will be filed within 120 days of January 3, 2021.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
| --- | --- |
| (a)1. | Financial Statements: The following financial statements for Domino’s Pizza, Inc. and subsidiaries are included in Item 8, “Financial Statements and Supplementary Data”: |
|---|
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 3, 2021 and December 29, 2019
Consolidated Statements of Income for the Years Ended January 3, 2021, December 29, 2019 and December 30, 2018
Consolidated Statements of Comprehensive Income for the Years Ended January 3, 2021, December 29, 2019 and December 30, 2018
Consolidated Statements of Stockholders’ Deficit for the Years Ended January 3, 2021, December 29, 2019 and December 30, 2018
Consolidated Statements of Cash Flows for the Years Ended January 3, 2021, December 29, 2019 and December 30, 2018
Notes to Consolidated Financial Statements
| 2. | Financial Statement Schedules: The following financial statement schedule is attached to this report. |
|---|
Schedule I – Condensed Financial Information of the Registrant
All other schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or the notes thereto.
| 3. | Exhibits: Certain of the following Exhibits have been previously filed with the Securities and Exchange Commission pursuant to the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such exhibits are identified by the parenthetical references following the listing of each such exhibit and are incorporated herein by reference. |
|---|
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
|---|---|---|
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 104 | Cover page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101). |
| * | A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(b) of Form 10-K. |
|---|
SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
Domino’s Pizza, Inc.
PARENT COMPANY CONDENSED BALANCE SHEETS
(In thousands, except share and per share amounts)
| January 3, | December 29, | |||||||
| 2021 | 2019 | |||||||
| ASSETS | ||||||||
| ASSETS: | ||||||||
| Cash | $ | 6 | $ | 6 | ||||
| Total assets | $ | 6 | $ | 6 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES: | ||||||||
| Equity in net deficit of subsidiaries | $ | 3,300,405 | $ | 3,415,759 | ||||
| Due to subsidiary | 6 | 6 | ||||||
| Total liabilities | 3,300,411 | 3,415,765 | ||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Common stock, par value $0.01 per share; 170,000,000 shares authorized; 38,868,350 in 2020 and 38,934,009 in 2019 issued and outstanding | 389 | 389 | ||||||
| Preferred stock, par value $0.01 per share; 5,000,000 shares authorized, none issued | — | — | ||||||
| Additional paid-in capital | 5,122 | 243 | ||||||
| Retained deficit | (3,303,492 | ) | (3,412,649 | ) | ||||
| Accumulated other comprehensive loss | (2,424 | ) | (3,742 | ) | ||||
| Total stockholders’ deficit | (3,300,405 | ) | (3,415,759 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 6 | $ | 6 | ||||
See accompanying notes to the Schedule I.
Domino’s Pizza, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except share and per share amounts)
| For the Years Ended | ||||||||||||
| January 3, | December 29, | December 30, | ||||||||||
| 2021 | 2019 | 2018 | ||||||||||
| REVENUES | $ | — | $ | — | $ | — | ||||||
| Total revenues | — | — | — | |||||||||
| OPERATING EXPENSES | — | — | — | |||||||||
| Total operating expenses | — | — | — | |||||||||
| INCOME FROM OPERATIONS | — | — | — | |||||||||
| Equity earnings in subsidiaries | 491,296 | 400,709 | 361,972 | |||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 491,296 | 400,709 | 361,972 | |||||||||
| PROVISION FOR INCOME TAXES | — | — | — | |||||||||
| NET INCOME | $ | 491,296 | $ | 400,709 | $ | 361,972 | ||||||
| COMPREHENSIVE INCOME | $ | 492,614 | $ | 401,396 | $ | 359,924 | ||||||
| EARNINGS PER SHARE: | ||||||||||||
| Common Stock – basic | $ | 12.61 | $ | 9.83 | $ | 8.65 | ||||||
| Common Stock – diluted | $ | 12.39 | $ | 9.56 | $ | 8.35 |
See accompanying notes to the Schedule I.
Domino’s Pizza, Inc.
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Years Ended | ||||||||||||
| January 3, | December 29, | December 30, | ||||||||||
| 2021 | 2019 | 2018 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net cash provided by operating activities | $ | 402,348 | $ | 421,661 | $ | 382,716 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| D ividends from subsidiaries | — | 375,948 | 297,792 | |||||||||
| Net cash provided by investing activities | — | 375,948 | 297,792 | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Payments of common stock dividends and equivalents | (121,925 | ) | (105,715 | ) | (92,166 | ) | ||||||
| Purchases of common stock | (304,590 | ) | (699,007 | ) | (591,212 | ) | ||||||
| Other | 24,167 | 7,113 | 2,870 | |||||||||
| Net cash used in financing activities | (402,348 | ) | (797,609 | ) | (680,508 | ) | ||||||
| CHANGE IN CASH | — | — | — | |||||||||
| CASH, AT BEGINNING OF PERIOD | 6 | 6 | 6 | |||||||||
| CASH, AT END OF PERIOD | $ | 6 | $ | 6 | $ | 6 | ||||||
See accompanying notes to the Schedule I.
Domino’s Pizza, Inc.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
| (1) | Introduction and Basis of Presentation |
|---|
Domino’s Pizza, Inc., on a stand-alone basis, (the “Parent Company”) has accounted for majority-owned subsidiaries using the equity method of accounting. The accompanying condensed financial statements of the Parent Company should be read in conjunction with the consolidated financial statements of Domino’s Pizza, Inc. and its subsidiaries (the “Company”) and the notes thereto included in Item 8 of this Form
10-K.
These financial statements have been provided to comply with Rule
4-08(e)
of Regulation
S-X.
Use of Estimates
The use of estimates is inherent in the preparation of financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates.
New Accounting Pronouncements
The Company has adopted the below new accounting pronouncements that impacted the Parent Company financial statements.
Accounting Standards Update (“ASU”)
2016-13,
Financial Instruments – Credit Losses (Topic 326)
In June 2016, the Financial Accounting Standards Board (“FASB”) issued
ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASC 326”). ASC 326 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. On December 30, 2019, the Company adopted ASC 326 using the modified retrospective method.
The Parent Company recorded a $1.1 million adjustment to equity in net deficit of subsidiaries and recorded a $1.1 million adjustment to retained deficit related to this new accounting standard in 2020. See Note 1 to the Company’s consolidated financial statements as filed in this Form
10-K
for additional information related to the adoption of this new accounting standard.
ASU
2014-09, Revenue from
Contracts with Customers (Topic 606)
In May 2014, the Financial Accounting Standards Board (“FASB”) issued
ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
and has since issued various amendments which provide additional clarification and implementation guidance. This standard has been codified as ASC 606. This guidance outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most revenue recognition guidance issued by the FASB, including industry specific guidance. On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method.
The Parent Company recorded a $6.7 million adjustment to equity in net deficit of subsidiaries and recorded a $6.7 million adjustment to retained deficit related to this new accounting standard in 2018. See Note 1 to the Company’s consolidated financial statements as filed in this Form
10-K
for additional information related to the adoption of this new accounting standard.
ASU 2018-02, Income
Statement – Reporting Comprehensive Income (Topic 220)
In February 2018, the FASB
issued ASU 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. The amendments in this updated standard allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Parent Company adopted this standard in 2018 and, as a result, recorded a $0.4 million reclassification from accumulated other comprehensive loss to the beginning balance of retained deficit in 2018.
| (2) | Supplemental Disclosures of Cash Flow Information |
|---|
During 2020, 2019 and 2018, the Parent Company received dividends from its subsidiaries primarily consisting of amounts received to pay dividends and repurchase common stock in connection with the Company’s recapitalization transactions. See Note 4 to the Company’s consolidated financial statements as filed in this Form
10-K
for a description of these recapitalization transactions. In 2019 and 2018, the amount of dividends received was in excess of current year equity in earnings from its subsidiaries, and thus a portion of these dividends was considered to be a return of Investment and is classified as a cash inflow from investing
activities.
Item 16. Form 10-K Summary.
| --- | --- |
Not applicable
.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DOMINO’S PIZZA, INC. |
| /s/ Stuart A. Levy |
| Stuart A. Levy |
| Executive Vice President, Chief Financial Officer |
| (Principal Financial Officer) |
| February 25, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the dates indicated.
| /s/ Richard E. Allison, Jr. | ||||
| Richard E. Allison, Jr. | Chief Executive Officer and Director | |||
| February 25, 2021 | (Principal Executive Officer) | |||
| /s/ Stuart A. Levy | ||||
| Stuart A. Levy | Executive Vice President, Chief Financial Officer | |||
| February 25, 2021 | (Principal Financial Officer) | |||
| /s/ Jessica L. Parrish | ||||
| Jessica L. Parrish | Vice President, Corporate Controller | |||
| February 25, 2021 | ||||
| /s/ David A. Brandon | ||||
| David A. Brandon | Chairman of the Board of Directors | |||
| February 25, 2021 | ||||
| /s/ C. Andrew Ballard | ||||
| C. Andrew Ballard | Director | |||
| February 25, 2021 | ||||
| /s/ Andrew B. Balson | ||||
| Andrew B. Balson | Director | |||
| February 25, 2021 | ||||
| /s/ Corie S. Barry | ||||
| Corie S. Barry | Director | |||
| February 25, 2021 | ||||
| /s/ Diana F. Cantor | ||||
| Diana F. Cantor | Director | |||
| February 25, 2021 | ||||
| /s/ Richard L. Federico | ||||
| Richard L. Federico | Director | |||
| February 25, 2021 | ||||
| /s/ James A. Goldman | ||||
| James A. Goldman | Director | |||
| February 25, 2021 | ||||
| /s/ Patricia E. Lopez | ||||
| Patricia E. Lopez | Director | |||
| February 25, 2021 |