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 lowest level for which identifiable cash flows are largely independent of other cash flows. If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset, we estimate the fair value of the asset. If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is recognized, and the asset is written down to its estimated fair value.

We have not made any significant changes in the methodology used to project the future market cash flows of Company-owned stores during the years presented. Same store sales fluctuations and the rates at which operating costs will fluctuate in the future are key factors in evaluating recoverability of the related assets. If our same store sales significantly decline or if operating costs increase and we are unable to recover these costs, the carrying value of our Company-owned stores, by market, may be unrecoverable and we may be required to recognize an impairment charge.

Insurance and legal matters.

We are a party to lawsuits and legal proceedings arising in the ordinary course of business. Management closely monitors these legal matters and estimates the probable costs for the resolution of such matters. These estimates are primarily determined by consulting with both internal and external parties handling the matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Legal judgments can be volatile and difficult to predict. Accordingly, if our estimates relating to legal matters proved inaccurate for any reason, we may be required to increase or decrease the related expense in future periods. We had accruals for legal matters of approximately $1.3 million and $1.8 million at January 3, 2021 December 29, 2019, respectively.

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

non-owned

auto liabilities. We are generally responsible for up to $2.0 million per occurrence under these retention programs for workers’ compensation and general liability, depending on policy year and line of coverage. We are generally responsible for up to between $500,000 and $5.5 million per occurrence under these retention programs for owned and

non-owned

automobile liabilities, depending on policy year and line of coverage. The related insurance reserves are based on undiscounted independent actuarial estimates, which are based on historical information along with assumptions about future events. Analyses of historical trends and actuarial valuation methods are utilized to estimate the ultimate claim costs for claims incurred as of the balance sheet date and for claims incurred but not yet reported. 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.

Our methodology for determining our exposure has remained consistent throughout the years presented. Management believes that the various assumptions developed, and actuarial methods used to determine our insurance reserves are reasonable and provide meaningful data that management uses to make its best estimate of our exposure to these risks. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause our estimates to change in the near term which could result in an increase or decrease in the related expense in future periods. A 10% change in our insurance liability at January 3, 2021 would have affected our income before provision for income taxes by approximately $6.4 million in 2020. We had accruals for insurance matters of approximately $63.5 million and $58.4 million at January 3, 2021 and December 29, 2019, respectively.

Share-based payments.

We recognize compensation expense related to our share-based compensation arrangements over the requisite service period based on the grant date fair value of the awards. The grant date fair value of each restricted stock and performance-based restricted stock award is equal to the market price of our stock on the date of grant. The grant date fair value of each stock option award is estimated using the Black-Scholes option pricing model. The pricing model requires assumptions, including the expected life of the stock option, the risk-free interest rate, the expected dividend yield and expected volatility of our stock over the expected life, which significantly impact the assumed fair value. We account for forfeitures as they occur. Additionally, our stock option, restricted stock and performance-based restricted stock arrangements provide for accelerated vesting and the ability to exercise during the remainder of the

ten-year

stock option life upon the retirement of individuals holding the awards who have achieved specified service and age requirements. Management believes that the methods and various assumptions used to determine compensation expense related to these arrangements are reasonable, but if the assumptions change significantly for future grants, share-based compensation expense will fluctuate in future years.

Income taxes.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We measure deferred tax assets and liabilities using current enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid. Judgment is required in determining the provision for income taxes, related reserves and deferred tax assets and liabilities. These include establishing a valuation allowance related to the ability to realize certain deferred tax assets, if necessary. On an ongoing basis, management will assess whether it remains more likely than not that the deferred tax assets will be realized. Our accounting for deferred tax assets and liabilities represents our best estimate of future events. Our deferred tax assets assume that we will generate sufficient taxable income in specific tax jurisdictions, based on our estimates and assumptions. Changes in our current estimates due to unanticipated events could have a material impact on our financial condition and results of operations.

Fiscal 2020 Highlights

	•		Global retail sales, excluding foreign currency impact (which includes total retail sales at Company-owned and franchised stores worldwide) increased 13.2% as compared to 2019. U.S. retail sales increased 17.6% and international retail sales, excluding foreign currency impact, increased 8.8% as compared to 2019.

	•		Same store sales increased 11.5% in our U.S. stores and increased 4.4% in our international stores.

	•		Our revenues increased 13.8%.

	•		Our income from operations increased 15.3%.

	•		Our net income increased 22.6%.

	•		Our diluted earnings per share increased 29.6%.

	•		The inclusion of the 53 rd week in 2020 positively impacted our results.

During 2020, we experienced global retail sales growth and U.S. and international same store sales growth. We believe our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand. 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.

We also continued our strong U.S. and international same store sales performance with 39 straight quarters of positive U.S. same store sales and 108 straight quarters of positive international same store sales. Beginning at the end of the first quarter of 2020, changes in consumer ordering behavior due to the

COVID-19

pandemic resulted in a significant increase in U.S. same store sales. We did not experience significant temporary closures in our U.S. business. Additionally, our U.S. supply chain experienced higher volumes from the increases in U.S. store sales. The

COVID-19

pandemic negatively impacted our international franchise revenues during the second quarter of 2020 due to temporary store closures in certain markets as well as changes in operating procedures and store hours resulting from actions taken to increase social distancing across our international franchise markets. In the third and fourth quarters of 2020, these negative impacts lessened due to the reopening and resumption of normal store hours at the majority of our international franchised stores that had been temporarily closed for portions of the second quarter. Our U.S. and international same store sales growth has also been pressured by our fortressing strategy, which includes increasing store concentration in certain markets where we compete, as well as from aggressive competitive activity.

During 2020, we continued our global expansion with the opening of 624 net stores. We had 229 net stores open in the U.S and 395 net stores open internationally. Although 718 gross stores opened internationally, 323 stores closed, primarily in India and South Africa. The

COVID-19

pandemic has had a negative impact on anticipated store openings in our international business

to-date

due to delays in approvals and government restrictions in certain of the markets that our master franchisees operate.

We remained focused on improving the customer experience through our technology initiatives, including the recent launch of our GPS delivery tracking technology, 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. Additionally, 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 emphasis on technological innovation helped the Domino’s system generate more than half of global retail sales from digital channels in 2020.

Overall, we believe our global store growth, strong sales, emphasis on technology, operations and marketing initiatives have combined to strengthen our brand.

Statistical Measures

The tables below outline certain statistical measures we utilize to analyze our performance. This historical data is not necessarily indicative of results to be expected for any future period.

Global Retail Sales Growth (excluding foreign currency impact)

Global retail sales growth (excluding foreign currency impact) is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Global retail sales growth refers to total worldwide retail sales at Company-owned and franchise stores. We believe global retail sales information is useful in analyzing revenues because franchisees pay royalties and, in the U.S., advertising fees that are based on a percentage of franchise retail sales. We review comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales in the U.S. and Canada. Retail sales for franchise stores are reported to us by our franchisees and are not included in our revenues. Global retail sales growth, excluding foreign currency impact, is calculated as the change of international local currency global retail sales against the comparable period of the prior year. Global retail sales growth in 2020 includes the favorable impact of the 53

rd

week.

		2020				2019				2018
U.S. stores			17.6	%			6.9	%			11.2	%
International stores (excluding foreign currency impact)			8.8	%			9.0	%			10.4	%
Total (excluding foreign currency impact)			13.2	%			8.0	%			10.8	%

Same Store Sales Growth

Same store sales growth is a commonly used statistical measure in the quick-service restaurant industry that is important to understanding performance. Same store sales growth is calculated for a given period by including only sales from stores that also had sales in the comparable weeks of both years. International same store sales growth is calculated similarly to U.S. same store sales growth. Changes in international same store sales are reported on a constant dollar basis which reflects changes in international local currency sales. The 53

rd

week in fiscal 2020 had no impact on reported same store sales growth amounts.

		2020				2019				2018
U.S. Company-owned stores			11.0	%			2.8	%			4.8	%
U.S. franchise stores			11.5	%			3.2	%			6.8	%
U.S. stores			11.5	%			3.2	%			6.6	%
International stores (excluding foreign currency impact)			4.4	%			1.9	%			3.5	%

Store Growth Activity

Store counts and net store growth are commonly used statistical measures in the quick-service restaurant industry that are important to understanding performance.

		U.S. Company- owned Stores				U.S. Franchise Stores				Total U.S. Stores				International Stores				Total
Store count at December 31, 2017			392				5,195				5,587				9,269				14,856
Openings			12				255				267				916				1,183
Closings			—				(9	)			(9	)			(116	)			(125	)
Transfers (1)			(14	)			45				31				(31	)			—
Store count at December 30, 2018			390				5,486				5,876				10,038				15,914
Openings			12				253				265				939				1,204
Closings			(1	)			(14	)			(15	)			(83	)			(98	)
Transfers			(59	)			59				—				—				—
Store count at December 29, 2019			342				5,784				6,126				10,894				17,020
Openings			22				218				240				718				958
Closings			(1	)			(10	)			(11	)			(323	)			(334	)
Store count at January 3, 2021			363				5,992				6,355				11,289				17,644

(1)	In 2018, we began managing our franchised stores in Alaska and Hawaii as part of our U.S. Stores segment. Prior to 2018, store counts from these franchised stores were included in our international stores in the table above.

Income Statement Data

(tabular amounts in millions, except percentages)

		2020								2019								2018
U.S. Company-owned stores		$	485.6							$	453.6							$	514.8
U.S. franchise royalties and fees			503.2								428.5								391.5
Supply chain			2,416.7								2,104.9								1,943.3
International franchise royalties and fees			249.8								241.0								224.7
U.S. franchise advertising			462.2								390.8								358.5
Total revenues			4,117.4				100.0	%			3,618.8				100.0	%			3,432.9				100.0	%
U.S. Company-owned stores			379.6								346.2								398.2
Supply chain			2,143.3								1,870.1								1,732.0
Total cost of sales			2,522.9				61.3	%			2,216.3				61.2	%			2,130.2				62.1	%
Operating margin			1,594.5				38.7	%			1,402.5				38.8	%			1,302.7				37.9	%
General and administrative			406.6				9.9	%			382.3				10.6	%			372.5				10.8	%
U.S. franchise advertising			462.2				11.2	%			390.8				10.8	%			358.5				10.4	%
Income from operations			725.6				17.6	%			629.4				17.4	%			571.7				16.7	%
Interest expense, net			(170.5	)			(4.1	)%			(146.8	)			(4.1	)%			(143.0	)			(4.2	)%
Income before provision for income taxes			555.1				13.5	%			482.6				13.3	%			428.7				12.5	%
Provision for income taxes			63.8				1.6	%			81.9				2.3	%			66.7				2.0	%
Net income		$	491.3				11.9	%		$	400.7				11.1	%		$	362.0				10.5	%

2020 compared to 2019

(tabular amounts in millions, except percentages)

Revenues

		2020								2019
U.S. Company-owned stores		$	485.6				11.8	%		$	453.6				12.5	%
U.S. franchise royalties and fees			503.2				12.2	%			428.5				11.8	%
Supply Chain			2,416.7				58.7	%			2,104.9				58.2	%
International franchise royalties and fees			249.8				6.1	%			241.0				6.7	%
U.S. franchise advertising			462.2				11.2	%			390.8				10.8	%
Total revenues		$	4,117.4				100.0	%		$	3,618.8				100.0	%

Revenues primarily consist of retail sales from our Company-owned stores, advertising contributions, royalties and fees from our U.S. franchised stores, royalties and fees from our international franchised stores and sales of food, equipment and supplies from our supply chain centers to substantially all of our U.S. franchised stores and certain international franchised stores. Company-owned store and franchised store revenues may vary from period to period due to changes in store count mix. Supply chain revenues may vary significantly as a result of fluctuations in commodity prices as well as the mix of products we sell.

Consolidated revenues increased $498.6 million, or 13.8%, in 2020, due primarily to higher U.S. retail sales, which resulted in higher supply chain and U.S. franchise revenues. The inclusion of the 53

rd

week in 2020 also positively impacted revenues by an estimated $88.4 million. U.S. Company-owned stores revenues increased in 2020 due to same store sales growth, but were partially offset by lower revenues due to the sale of 59 Company-owned stores to certain of our existing U.S. franchisees during the second quarter of 2019 (the “2019 Store Sale”). These changes in revenues are described in more detail below.

U.S. Stores Revenues

		2020								2019
U.S. Company-owned stores		$	485.6				33.4	%		$	453.6				35.6	%
U.S. franchise royalties and fees			503.2				34.7	%			428.5				33.7	%
U.S. franchise advertising			462.2				31.9	%			390.8				30.7	%
Total U.S. stores revenues		$	1,451.0				100.0	%		$	1,272.9				100.0	%

U.S. Company-owned Stores

Revenues from U.S. Company-owned store operations increased $32.0 million, or 7.1%, in 2020, due primarily to same store sales growth, as well as an estimated $10.6 million impact of the 53

rd

week. The increase in revenues was partially offset by lower revenues resulting from the 2019 Store Sale. U.S. Company-owned same store sales increased 11.0% in 2020 and increased 2.8% in 2019.

U.S. Franchise Royalties and Fees

Revenues from U.S. franchise royalties and fees increased $74.7 million, or 17.4%, in 2020, due primarily to higher same store sales and an increase in the average number of U.S. franchised stores open during the period resulting from net store growth, as well as an estimated $11.4 million impact of the 53

rd

week. U.S. franchise royalties were negatively impacted by approximately $3.0 million related to funding we provided to our franchisees for an effort to donate 10 million slices of pizza to people and organizations at the frontlines of the

COVID-19

pandemic in the franchisees’ local communities. U.S. franchise same store sales increased 11.5% in 2020 and increased 3.2% in 2019. U.S. franchise royalties and fees further benefited from an increase in revenues from fees paid by franchisees for the use of our technology platforms.

U.S. Franchise Advertising

Revenues from U.S. franchise advertising increased $71.4 million, or 18.3%, in 2020, due primarily to higher same store sales and an increase in the average number of U.S. franchised stores open during the year resulting from net store growth, as well as an estimated $10.4 million impact of the 53

rd

week.

Supply Chain

Supply chain revenues increased $311.8 million, or 14.8%, in 2020, due primarily to higher volumes from increased orders resulting from U.S. franchise retail sales growth, as well as an estimated $49.6 million impact of the 53

rd

week. Our market basket pricing to stores increased 2.2% during 2020, which resulted in an estimated $42.5 million increase in supply chain revenues.

International Franchise Royalties and Fees

Revenues from international franchise operations increased $8.8 million, or 3.6%, in 2020. This increase was due primarily to an estimated $6.4 million impact of the 53

rd

week as well as same store sales growth and an increase in the average number of international franchised stores open during the period due to net store growth. Excluding the impact of foreign currency exchange rates, international same store sales increased 4.4% in 2020 and increased 1.9% in 2019. The impact of changes in foreign currency exchange rates negatively impacted revenue from international royalties and fees by approximately $3.9 million in 2020. Temporary store closures in certain markets and changes in operating procedures and store hours resulting from actions taken to increase social distancing across certain of the markets in which we operate, as well as targeted financial relief provided to certain of our master franchisees due to the

COVID-19

pandemic, also had a negative impact on international franchise revenues in 2020.

Cost of sales / Operating Margin

		2020								2019
Consolidated revenues		$	4,117.4				100.0	%		$	3,618.8				100.0	%
Consolidated cost of sales			2,522.9				61.3	%			2,216.3				61.2	%
Consolidated operating margin		$	1,594.5				38.7	%		$	1,402.5				38.8	%

Consolidated cost of sales consists primarily of U.S. Company-owned store and supply chain costs incurred to generate related revenues. Components of consolidated cost of sales primarily include food, labor, delivery and occupancy costs. We estimate the 53

rd

week resulted in an increase of approximately $50.6 million on consolidated cost of sales.

Consolidated operating margin (which we define as revenues less cost of sales) increased $192.0 million, or 13.7%, in 2020, due primarily to higher global franchise revenues and higher supply chain volumes, as well as an estimated $37.8 million impact of the 53

rd

week. Franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on the operating margin.

As a percentage of revenues, the consolidated operating margin decreased 0.1 percentage points in 2020. Company-owned store operating margin decreased 1.9 percentage points in 2020 and supply chain operating margin increased 0.1 percentage points in 2020. These changes in operating margin are more fully discussed below.

U.S. Company-owned Stores Operating Margin

		2020								2019
Revenues		$	485.6				100.0	%		$	453.6				100.0	%
Cost of sales			379.6				78.2	%			346.2				76.3	%
Store operating margin		$	106.0				21.8	%		$	107.4				23.7	%

U.S. Company-owned store operating margin (which does not include other store-level costs such as royalties and advertising) decreased $1.4 million, or 1.3%, in 2020, due primarily to higher labor costs, and to a lesser extent, higher food costs. Lower revenues resulting from the 2019 Store Sale also contributed to the decrease in U.S. Company-owned store operating margin. These decreases were partially offset by higher revenues resulting from higher same store sales, as well as an estimated $3.2 million impact of the 53

rd

week. As a percentage of store revenues, the store operating margin decreased 1.9 percentage points in 2020. These changes in operating margin as a percentage of revenues are discussed in more detail below.

	•		Food costs decreased 0.1 percentage points to 27.0% in 2020, due primarily to the leveraging of higher same store sales. This decrease was partially offset by higher food prices.

	•		Labor costs increased 1.9 percentage points to 30.9% in 2020, due primarily to additional compensation expense for frontline team members during the COVID-19 pandemic. These increases were partially offset by reduced labor costs as a percentage of store revenues resulting from the 2019 Store Sale due to the higher labor rates in the market in which the sold stores operated.

Supply Chain Operating Margin

		2020								2019
Revenues		$	2,416.7				100.0	%		$	2,104.9				100.0	%
Cost of sales			2,143.3				88.7	%			1,870.1				88.8	%
Supply chain operating margin		$	273.3				11.3	%		$	234.8				11.2	%

Supply chain operating margin increased $38.5 million, or 16.4%, in 2020, primarily driven by higher volumes from increased orders, as well as an estimated $6.4 million impact of the 53

rd

week. As a percentage of supply chain revenues, the supply chain operating margin increased 0.1 percentage points in 2020, due primarily to lower delivery costs as a percentage of revenues as a result of leveraging of higher same store sales and lower fuel prices, partially offset by higher food costs.

General and Administrative Expenses

General and administrative expenses increased $24.3 million, or 6.4%, in 2020, driven primarily by higher variable performance-based compensation expense and professional fees, as well as an estimated $5.6 million impact of the 53

rd

week. These increases were partially offset by lower travel expenses resulting from travel restrictions associated with the

COVID-19

pandemic.

U.S. Franchise Advertising Expenses

U.S. franchise advertising expenses increased $71.4 million, or 18.3%, in 2020, due to higher U.S. franchise advertising revenue, including an estimated $10.4 million impact of the 53

rd

week. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized, as our consolidated

not-for-profit

advertising fund is obligated to expend such revenues on advertising and these revenues cannot be used for general corporate purposes.

Interest Expense, Net

Interest expense, net, increased $23.7 million, or 16.1%, in 2020 driven primarily by higher average debt balances resulting from the 2019 Recapitalization and borrowings under the Company’s variable funding notes in 2020, as well as an estimated $2.6 million impact of the 53

rd

week.

Our weighted average borrowing rate decreased to 3.9% in 2020, from 4.1% in 2019, resulting from the lower interest rates on the debt outstanding in 2020 as compared to the same periods in 2019.

Provision for Income Taxes

Provision for income taxes decreased $18.1 million, or 22.1%, in 2020 and the effective tax rate decreased to 11.5% in 2020 as compared to 17.0% in 2019 due primarily to higher excess tax benefits on equity-based compensation, which are recorded as a reduction to the income tax provision. Excess tax benefits from equity-based compensation were $60.4 million in 2020 and were $25.7 million in 2019. The increase in excess tax benefits resulted from a significant increase in stock options exercised in 2020 as compared to 2019. The decrease in provision for income taxes was partially offset by higher

pre-tax

income and, to a lesser extent, an increase in the valuation allowance associated with foreign tax credits and interest deductibility in separately-filed states. We estimate the 53

rd

week resulted in an increase of $4.0 million on the provision for income taxes.

Segment Income

We evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest, taxes, depreciation, amortization and other, referred to as Segment Income. Segment Income for each of our reportable segments is summarized in the table below. Other Segment Income primarily includes corporate administrative costs that are not allocable to an operating segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.

		2020				2019
U.S. Stores		$	435.1			$	361.7
Supply Chain			238.4				199.8
International Franchise			197.6				187.3
Other			(53.3	)			(36.7	)

U.S. Stores

U.S. stores Segment Income increased $73.4 million, or 20.3%, in 2020, primarily as a result of the increase in revenues from U.S. franchise royalties and fees of $74.7 million discussed above. U.S. franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on U.S. stores Segment Income. U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized and have no impact on U.S. stores Segment Income. The increase in U.S. stores Segment Income was partially offset by the $1.4 million decrease in U.S. Company-owned store operating margin discussed above.

Supply Chain

Supply chain Segment Income increased $38.6 million, or 19.3%, in 2020, due primarily to the $38.5 million increase in operating margin described above.

International Franchise

International franchise Segment Income increased $10.3 million, or 5.5%, in 2020, due primarily to the $8.8 million increase in international franchise revenues discussed above. International franchise revenues do not have a cost of sales component, so changes in these revenues have a disproportionate effect on international franchise Segment Income. Lower travel expenses, primarily due to travel restrictions resulting from the

COVID-19

pandemic, also contributed to the increase in international franchise Segment Income.

Other

Other Segment Income decreased $16.6 million, or 45.1%, in 2020, due primarily to higher variable performance-based compensation expense. The decrease in Other Segment Income was partially offset by higher corporate administrative costs allocated to our segments as compared to 2019. The increase in allocated costs in 2020 was due primarily to higher investments in technological initiatives to support technology for our U.S. and international franchise stores.

New Accounting Pronouncements

The impact of new accounting pronouncements adopted and the estimated impact of new accounting pronouncements that we will adopt in future years is included in Note 1 to the consolidated financial statements.

COVID-19

Impact

As of January 3, 2021, nearly all of our U.S. stores were open, with stores deploying contactless delivery and carryout solutions. Based on information reported to us by our master franchisees, we estimate that as of January 3, 2021, there were fewer than 150 international stores temporarily closed.

Given the market uncertainty arising

from COVID-19,

we took a precautionary measure and borrowed $158.0 million under our variable funding notes during the second quarter of 2020, which was fully repaid throughout the remainder of 2020.

During

the COVID-19 pandemic,

we also made certain investments related to safety and cleaning equipment, enhanced sick pay and compensation for frontline team members and support for our franchisees and their communities. While we have seen an increase in sales in certain markets 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. While it is not possible at this time to estimate the full continued impact

that COVID-19

could have on our business, the continued spread

of COVID-19 and

the measures taken by the governments of countries affected could disrupt our continuing operations and supply chain and, as a result, could adversely impact our business, financial condition or results of operations.

Liquidity and Capital Resources

Historically, we have operated with minimal positive working capital or negative working capital, primarily because our receivable collection periods and inventory turn rates are faster than the normal payment terms on our current liabilities. We generally collect our receivables within three weeks from the date of the related sale and we generally experience multiple inventory turns per month. In addition, our sales are not typically seasonal, which further limits our working capital requirements. These factors, coupled with the use of our ongoing cash flows from operations to service our debt obligations, invest in our business, pay dividends and repurchase our common stock, reduce our working capital amounts. As of January 3, 2021, we had working capital of $174.6 million, excluding restricted cash and cash equivalents of $217.5 million, advertising fund assets, restricted, of $147.7 million and advertising fund liabilities of $141.2 million. Working capital includes total unrestricted cash and cash equivalents of $168.8 million.

Our primary source of liquidity is cash flows from operations and availability of borrowings under our variable funding notes. During 2020, we experienced increases in both U.S. and international same store sales versus the comparable periods in the prior year. Additionally, our U.S. and international businesses grew store counts in 2020. These factors contributed to our continued ability to generate positive operating cash flows. The Company has a variable funding note facility which allows for advances of up to $200.0 million of Series

2019-1

Variable Funding Senior Secured Notes,

Class A-1

Notes and certain other credit instruments, including letters of credit (the “2019 Variable Funding Notes”). The letters of credit are primarily related to our casualty insurance programs and certain supply chain center leases. Given the market uncertainty arising

from COVID-19,

we took a precautionary measure and borrowed $158.0 million under the 2019 Variable Funding Notes during the second quarter of 2020, which was fully repaid throughout the remainder of 2020. As of January 3, 2021, we had no outstanding borrowings and $157.5 million of available borrowing capacity under our 2019 Variable Funding Notes, net of letters of credit issued of $42.5 million.

We expect to continue to use our unrestricted cash and cash equivalents, cash flows from operations, excess cash from our recapitalization transactions and available borrowings under our 2019 Variable Funding Notes to, among other things, fund working capital requirements, invest in our core business, service our indebtedness, pay dividends and repurchase our common stock.

Our ability to continue to fund these items and continue to service our debt could be adversely affected by the occurrence of any of the events described in Item 1A. Risk Factors. There can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available under the 2019 Variable Funding Notes or otherwise to enable us to service our indebtedness, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the 2019, 2018, 2017 and 2015 Notes and to service, extend or refinance the 2019 Variable Funding Notes will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Restricted Cash

As of January 3, 2021, we had approximately $177.1 million of restricted cash and cash equivalents held for future principal and interest payments and other working capital requirements of our asset-backed securitization structure, $39.6 million of restricted cash equivalents held in a three-month interest reserve as required by the related debt agreements and $0.8 million of other restricted cash for a total of $217.5 million of restricted cash and cash equivalents. As of January 3, 2021, we also held $115.9 million of advertising fund restricted cash and cash equivalents, which can only be used for activities that promote the Domino’s brand.

Long-Term Debt

2019 Recapitalization

On November 19, 2019, we completed the 2019 Recapitalization in which certain of our subsidiaries issued $675.0 million

Series 2019-1 3.668%

Fixed Rate Senior Secured

Notes, Class A-2 with

an anticipated term of 10 years (the “2019 Fixed Rate Notes”) pursuant to an asset-backed securitization. Concurrently, we also issued the 2019 Variable Funding Notes. Our previous variable funding note facility was canceled. Gross proceeds from the issuance of the 2019 Fixed Rate Notes was $675.0 million. Additional information related to the 2019 Recapitalization transaction is included in Note 4 to our consolidated financial statements.

The proceeds from the 2019 Recapitalization were used to

pre-fund a

portion of the principal and interest payable on the 2019 Fixed Rate Notes, pay transaction fees and expenses and repurchase and retire shares of our common stock. In connection with the 2019 Recapitalization, we capitalized $8.1 million of debt issuance costs, which are being amortized into interest expense over the expected term of the 2019 Fixed Rate Notes.

2018 Recapitalization

On April 24, 2018, we completed the 2018 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of $425.0 million

Series 2018-1 4.116%

Fixed Rate Senior Secured

Notes, Class A-2-I with

an anticipated term of 7.5 years (the

“2018 7.5-Year Fixed

Rate Notes”), and $400.0 million

Series 2018-1 4.328%

Fixed Rate Senior Secured

Notes, Class A-2-II with

an anticipated term of 9.25 years (the

“2018 9.25-Year Fixed

Rate Notes” and, collectively with the

2018 7.5-Year Fixed

Rate Notes, the “2018 Notes”) in an offering exempt from registration under the Securities Act of 1933, as amended. Gross proceeds from the issuance of the 2018 Notes were $825.0 million. Additional information related to the 2018 Recapitalization transaction is included in Note 4 to our consolidated financial statements.

A portion of the proceeds from the 2018 Recapitalization was used to repay the remaining $490.1 million in outstanding principal and interest under the 2015 Five-Year Fixed Rate

Notes, pre-fund a

portion of the principal and interest payable on the 2018 Notes, pay transaction fees and expenses and repurchase and retire shares of our common stock. In connection with the repayment of the 2015 Five-Year Fixed Rate Notes, we expensed approximately $3.2 million for the remaining unamortized debt issuance costs associated with these notes. Additionally, in connection with the 2018 Recapitalization, we capitalized $8.2 million of debt issuance costs, which are being amortized into interest expense over the expected terms of the 2018 Notes.

2017 Recapitalization

On July 24, 2017, we completed the 2017 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of $300.0 million Series

2017-1

Floating Rate Senior Secured Notes,

Class A-2-I

with an anticipated term of five years (the “2017 Five-Year Floating Rate Notes”), $600.0 million Series

2017-1

3.082% Fixed Rate Senior Secured Notes,

Class A-2-II

with an anticipated term of five years (the “2017 Five-Year Fixed Rate Notes”), and $1.0 billion Series

2017-1

4.118% Fixed Rate Senior Secured Notes,

Class A-2-III

with an anticipated term of 10 years (the “2017

Ten-Year

Fixed Rate Notes” and, collectively with the 2017 Five-Year Floating Rate Notes and the 2017 Five-Year Fixed Rate Notes, the “2017 Notes”) in an offering exempt from registration under the Securities Act of 1933, as amended. The interest rate on the 2017 Five-Year Floating Rate Notes is payable at a rate equal to LIBOR plus 125 basis points. Gross proceeds from the issuance of the 2017 Notes were $1.9 billion. Additional information related to the 2017 Recapitalization transaction is included in Note 4 to our consolidated financial statements.

2015 Recapitalization

On October 21, 2015, we completed the 2015 Recapitalization in which certain of our subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of $500.0 million of Series

2015-1

3.484% Fixed Rate Senior Secured Notes,

Class A-2-I

(the “2015 Five-Year Fixed Rate Notes”), $800.0 million Series

2015-1

4.474% Fixed Rate Senior Secured Notes,

Class A-2-II

(the “2015

Ten-Year

Fixed Rate Notes” and collectively with the 2015 Five-Year Fixed Rate Notes, the “2015 Notes”). Gross proceeds from the issuance of the 2015 Notes were $1.3 billion. The 2015 Five-Year Fixed Rate Notes were repaid in connection with the 2018 Recapitalization. Additional information related to the 2015 Recapitalization transaction is included in Note 4 to our consolidated financial statements.

2019, 2018, 2017 and 2015 Notes

The “2019 Fixed Rate Notes,” “2018 Notes,” the “2017 Notes” and the “2015 Notes” are collectively referred to as the “2019, 2018, 2017 and 2015 Notes.”

The 2019, 2018, 2017 and 2015 Notes have original scheduled principal payments of $42.0 million in 2021, $897.0 million in 2022, $33.0 million in each of 2023 and 2024, $1.15 billion in 2025, $20.8 million in 2026, $1.28 billion in 2027, $6.8 million in 2028 and $614.3 million in 2029. However, in accordance with our debt agreements, the payment of principal on the outstanding senior notes may be suspended if our leverage ratio is less than or equal to 5.0x total debt, as defined, to adjusted EBITDA, as defined, and no

catch-up

provisions are applicable.

As of the fourth quarter of 2020, we had a leverage ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payment beginning in the first quarter of 2021. Accordingly, all principal amounts of the outstanding 2019, 2018, 2017 and 2015 Notes have been classified as long-term debt in the consolidated balance sheet as of January 3, 2021. As a result, we currently expect to make principal payments of $873.0 million in 2022, $1.18 billion in 2025, $1.36 billion in 2027 and $668.3 million in 2029 on the 2019, 2018, 2017 and 2015 Notes.

During the third quarter of 2019, we had a leverage ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payment in the fourth quarter of 2019. Subsequent to the 2019 Recapitalization, our leverage ratios exceeded the leverage ratio of 5.0x and, accordingly, we resumed making the scheduled amortization payments in the first quarter of 2020.

The 2019, 2018, 2017 and 2015 Notes are subject to certain financial and

non-financial

covenants, including a debt service coverage calculation, as defined in the related agreements. In the event that certain covenants are not met, the 2019, 2018, 2017 and 2015 Notes may become due and payable on an accelerated schedule.

Leases

We lease certain retail store and supply chain center locations, supply chain vehicles, various equipment and our World Resource Center under leases with expiration dates through 2041. The adoption of Accounting Standards Codification 842,

Leases

, on December 30, 2018 had a material impact our assets and liabilities due to the recognition of operating lease

right-of-use

assets and lease liabilities on our consolidated balance sheet. Refer to Note 5 to the consolidated financial statements for additional information regarding our leases, including future minimum rental commitments.

Capital Expenditures

In the past three years, we have spent approximately $294.2 million for capital expenditures. In 2020, we invested $88.8 million in capital expenditures which primarily related to investments in our supply chain centers, proprietary internally developed

point-of-sale

system (Domino’s PULSE), our internal enterprise systems, our digital ordering platform, new Company-owned stores and asset upgrades for our existing Company-owned stores. We did not have any material commitments for capital expenditures as of January 3, 2021.

Share Repurchase Programs

Our share repurchase programs have historically been funded by excess operating cash flows, excess proceeds from our recapitalization transactions and borrowings under our variable funding notes. We used cash of approximately $304.6 million in 2020, $699.0 million in 2019 and $591.2 million in 2018 for share repurchases. Our Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company’s common stock on October 4, 2019. We had approximately $101.6 million left under this share repurchase program as of January 3, 2021. From January 4, 2021 through February 18, 2021, we repurchased and retired 65,870 shares of common stock for approximately $25.0 million. On February 24, 2021, our Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of our common stock. This repurchase program replaces the remaining availability of approximately $76.6 million under our previously approved $1.0 billion share repurchase program.

Dividends

We declared dividends of approximately $122.2 million (or $3.12 per share) in 2020, approximately $105.6 million (or $2.60 per share) in 2019 and approximately $92.2 million (or $2.20 per share) in 2018. We paid dividends of approximately $121.9 million, $105.7 million and $92.2 million in 2020, 2019 and 2018, respectively.

On February 24, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.94 per common share payable on March 30, 2021 to shareholders of record at the close of business on March 15, 2021.

Sources and Uses of Cash

The following table illustrates the main components of our cash flows:

		Fiscal Year Ended
(In millions)		January 3, 2021				December 29, 2019
Cash Flows Provided By (Used In)
Net cash provided by operating activities		$	592.8			$	497.0
Net cash used in investing activities			(128.9	)			(27.9	)
Net cash used in financing activities			(446.4	)			(222.8	)
Exchange rate changes			0.8				0.2
Change in cash and cash equivalents, restricted cash and cash equivalents		$	18.2			$	246.5

Operating Activities

Cash provided by operating activities increased $95.8 million in 2020, due to an increase in net income of $90.6 million and higher

non-cash

amounts of $29.4 million. These increases were partially offset by a $24.2 million negative impact of changes in operating assets and liabilities in 2020 as compared to 2019, which primarily related to timing of payments on accounts payable and accrued liabilities, as well as increases in our inventory and accounts receivable balances associated with higher revenues. These operating asset and liability changes were partially offset by an increase in net advertising fund assets and liabilities, restricted, in 2020 as compared to 2019 due to the receipt of advertising contributions outpacing payments for advertising activities.

We are focused on continually improving our net income and cash flow from operations and management expects to continue to generate positive cash flows from operating activities for the foreseeable future.

Investing Activities

Cash used in investing activities was $128.9 million in 2020, which consisted primarily of capital expenditures of $88.8 million (driven primarily by investments in supply chain centers, technological initiatives and corporate stores) and the investment in Dash Brands (Note 9) of $40.0 million.

Cash used in investing activities was $27.9 million in 2019, which consisted primarily of $85.6 million of capital expenditures (driven primarily by investments in technological initiatives, supply chain centers and our Company-owned stores) and $3.4 million of purchases of franchise operations and other assets. These uses of cash were partially offset by maturities of restricted advertising fund investments of $50.2 million and the proceeds from the sale of assets of $12.3 million.

Financing Activities

Cash used in financing activities was $446.4 million in 2020. We borrowed $158.0 million under the 2019 Variable Funding Notes and repaid $202.1 million of long-term debt (of which $158.0 million related to the repayment of borrowings under the 2019 Variable Funding Notes). We also repurchased approximately $304.6 million in common stock under our Board of Directors-approved share repurchase program, made dividend payments to our shareholders of $121.9 million and made tax payments for restricted stock upon vesting of $6.8 million. These uses of cash were partially offset by proceeds from the exercise of stock options of $31.0 million.

Cash used in financing activities was $222.8 million in 2019, primarily related to repurchases of common stock of $699.0 million under our Board of Directors-approved share repurchase program, dividend payments to our shareholders of $105.7 million, repayments of long-term debt of $92.1 million (of which $65.0 million related to the repayment of borrowings under our variable funding notes), payments for financing costs of $8.1 million and tax payments for restricted stock upon vesting of $6.0 million. These uses of cash were partially offset by proceeds from the issuance of $675.0 million of debt in connection with our 2019 Recapitalization and the exercise of stock options of $13.1 million.

Impact of Inflation

Inflation did not have a material impact on our operations in 2020, 2019 and 2018. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition and results of operations. Further discussion on the impact of commodities and other cost pressures is included above, as well as in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form

10-K

includes various forward-looking statements about the Company within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) that are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act.

These forward-looking statements generally can be identified by the use of words such as “anticipate,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “predict,” “project,” “seek,” “approximately,” “potential,” “outlook” and similar terms and phrases that concern our strategy, plans or intentions, including references to assumptions. These forward-looking statements address various matters including information concerning future results of operations and business strategy, the expected demand for future pizza delivery, our expectation that we will meet the terms of our agreement with our third-party supplier of pizza cheese, our belief that alternative third-party suppliers are available for our key ingredients in the event we are required to replace any of our supply partners, our intention to continue to enhance and grow online ordering, digital marketing and technological capabilities, our expectation that there will be no material environmental compliance-related capital expenditures, our plans to expand U.S. and international operations in many of the markets where we currently operate and in selected new markets, our expectation that the contribution rate for advertising fees payable to DNAF will remain in place for the foreseeable future, and the availability of our borrowings under the 2019 Variable Funding Notes for, among other things, funding working capital requirements, paying capital expenditures and funding other general corporate purposes, including payment of dividends.

Forward-looking statements relating to our anticipated profitability, estimates in same store sales growth, the growth of our U.S. and international business, ability to service our indebtedness, our future cash flows, our operating performance, trends in our business and other descriptions of future events reflect management’s expectations based upon currently available information and data. While we believe these expectations and projections are based on reasonable assumptions, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including the risk factors listed under Item 1A. Risk Factors, as well as other cautionary language in this Form

10-K.

Actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including but not limited to, the following:

	•		our substantial increased indebtedness as a result of the 2019 Recapitalization, 2018 Recapitalization, 2017 Recapitalization and 2015 Recapitalization and our ability to incur additional indebtedness or refinance or renegotiate key terms of that indebtedness in the future;

	•		the impact a downgrade in our credit rating may have on our business, financial condition and results of operations;

	•		our future financial performance and our ability to pay principal and interest on our indebtedness;

	•		our ability to manage difficulties associated with or related to the COVID-19 pandemic and the effects of COVID-19 on our business and supply chain;

	•		the effectiveness of our advertising, operations and promotional initiatives;

	•		the strength of our brand, including our ability to compete in the U.S. and internationally in our intensely competitive industry, including the food service and food delivery markets;

	•		the impact of social media and other consumer-oriented technologies on our business, brand and reputation;

	•		the impact of new or improved technologies and alternative methods of delivery on consumer behavior;

	•		new product, digital ordering and concept developments by us, and other food-industry competitors;

	•		our ability to maintain good relationships with and attract new franchisees and franchisees’ ability to successfully manage their operations without negatively impacting our royalty payments and fees or our brand’s reputation;

	•		our ability to successfully implement cost-saving strategies;

	•		our ability and that of our franchisees to successfully operate in the current and future credit environment;

	•		changes in the level of consumer spending given general economic conditions, including interest rates, energy prices and consumer confidence;

	•		our ability and that of our franchisees to open new restaurants and keep existing restaurants in operation;

	•		changes in operating expenses resulting from changes in prices of food (particularly cheese), fuel and other commodity costs, labor, utilities, insurance, employee benefits and other operating costs;

	•		the impact that widespread illness, health epidemics or general health concerns, severe weather conditions and natural disasters may have on our business and the economies of the countries where we operate;

	•		changes in foreign currency exchange rates;

	•		changes in income tax rates;

	•		our ability to retain or replace our executive officers and other key members of management and our ability to adequately staff our stores and supply chain centers with qualified personnel;

	•		our ability to find and/or retain suitable real estate for our stores and supply chain centers;

	•		changes in government legislation or regulation, including changes in laws and regulations regarding information privacy, payment methods and consumer protection and social media;

	•		adverse legal judgments or settlements;

	•		food-borne illness or contamination of products;

	•		data breaches, power loss, technological failures, user error or other cyber risks threatening us or our franchisees;

	•		the effect of war, terrorism, catastrophic events or climate change;

	•		our ability to pay dividends and repurchase shares;

	•		changes in consumer taste, spending and traffic patterns and demographic trends;

	•		actions by activist investors;

	•		changes in accounting policies; and

	•		adequacy of our insurance coverage.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form

10-K

might not occur. All forward-looking statements speak only as of the date of this Form

10-K

and should be evaluated with an understanding of their inherent uncertainty. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission, we will not undertake, and specifically disclaim any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances arising after the date of this Form

10-K,

whether as a result of new information, future events or otherwise.

Readers are cautioned not to place undue reliance on the forward-looking statements included in this Form

10-K

or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.