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 December 31, 2023 and January 1, 2023, and the related consolidated statements of income, of comprehensive income, of stockholders’ deficit and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of condensed financial information of the registrant as of December 31, 2023 and January 1, 2023 and for each of the three years in the period ended December 31, 2023 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 December 31, 2023, 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 December 31, 2023 and January 1, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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 December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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 Casualty Insurance Reserves

As described in Note 1 to the consolidated financial statements, the Company has retention programs for workers’ compensation, general liability, and owned and non-owned automobile liabilities for certain periods prior to December 1998 and for periods after December 2001. As of December 31, 2023, the Company had accruals for these casualty insurance matters of $56.3 million. The casualty 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 casualty insurance reserves is a critical audit matter are (i) the significant judgment by management when developing the estimated reserves; (ii) a high degree of auditor judgment and effort in performing procedures relating to the actuarial valuation methods used to develop future ultimate claim costs and actuarial assumptions related to the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of casualty insurance reserves. These procedures also included, among others, obtaining and evaluating the Company’s casualty insurance program documents and testing the underlying historical claims data. Professionals with specialized skill and knowledge were used to assist in testing management’s process for estimating the valuation of casualty insurance reserves, including evaluating the appropriateness of the actuarial valuation methods and the reasonableness of actuarial assumptions related to the severity, duration and frequency of claims, legal cost associated with claims, healthcare trends and projected inflation.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 26, 2024

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

Domino’s Pizza, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

		December 31,				January 1,
		2023				2023
Assets
Current assets:
Cash and cash equivalents		$	114,098			$	60,356
Restricted cash and cash equivalents			200,870				191,289
Accounts receivable, net of reserves of $5,885 in 2023 and $4,762 in 2022			282,809				257,492
Inventories			82,964				81,570
Prepaid expenses and other			30,215				37,287
Advertising fund assets, restricted			106,335				162,660
Total current assets			817,291				790,654
Property, plant and equipment:
Land and buildings			108,791				105,659
Leasehold and other improvements			176,817				172,725
Equipment			364,620				333,787
Construction in progress			24,505				22,536
			674,733				634,707
Accumulated depreciation and amortization			(370,368	)			(332,472	)
Property, plant and equipment, net			304,365				302,235
Other assets:
Operating lease right-of-use assets			207,323				219,202
Investments in marketable securities, restricted			16,720				13,395
Goodwill			11,688				11,763
Capitalized software, net of accumulated amortization of $183,980 in 2023 and $165,457 in 2022			134,105				108,354
Investment in DPC Dash			143,553				125,840
Other assets			26,174				28,852
Deferred income tax assets, net			13,680				1,926
Total other assets			553,243				509,332
Total assets		$	1,674,899			$	1,602,221
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt		$	56,366			$	54,813
Accounts payable			106,267				89,715
Accrued compensation			54,689				40,442
Accrued interest			33,367				34,473
Operating lease liabilities			39,330				34,877
Insurance reserves			28,135				31,435
Advertising fund liabilities			104,246				157,909
Other accrued liabilities			124,950				92,957
Total current liabilities			547,350				536,621
Long-term liabilities:
Long-term debt, less current portion			4,934,062				4,967,420
Operating lease liabilities			179,548				195,244
Insurance reserves			38,559				40,179
Deferred income tax liabilities			—				7,761
Other accrued liabilities			45,747				44,061
Total long-term liabilities			5,197,916				5,254,665
Total liabilities			5,745,266				5,791,286
Commitments and contingencies (Note 6)
Stockholders' deficit
Common stock, par value $0.01 per share; 170,000,000 shares authorized;34,726,182 in 2023 and 35,419,718 in 2022 issued and outstanding			347				354
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized,none issued			—				—
Additional paid-in capital			2,801				9,693
Retained deficit			(4,069,648	)			(4,194,418	)
Accumulated other comprehensive loss			(3,867	)			(4,694	)
Total stockholders’ deficit			(4,070,367	)			(4,189,065	)
Total liabilities and stockholders’ deficit		$	1,674,899			$	1,602,221

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

Domino’s Pizza, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

		For the Years Ended
		December 31,				January 1,				January 2,
		2023				2023				2022
Revenues:
U.S. Company-owned stores		$	376,180			$	445,810			$	478,976
U.S. franchise royalties and fees			604,897				556,269				539,883
Supply chain			2,715,009				2,754,742				2,560,977
International franchise royalties and fees			310,077				295,007				298,036
U.S. franchise advertising			473,195				485,330				479,501
Total revenues			4,479,358				4,537,158				4,357,373
Cost of sales:
U.S. Company-owned stores			314,673				378,018				374,104
Supply chain			2,437,268				2,510,534				2,295,027
Total cost of sales			2,751,941				2,888,552				2,669,131
Gross margin			1,727,417				1,648,606				1,688,242
General and administrative			434,554				416,524				428,333
U.S. franchise advertising			473,195				485,330				479,501
Refranchising loss (gain)			149				(21,173	)			—
Income from operations			819,519				767,925				780,408
Other income			17,713				—				36,758
Interest income			11,683				3,162				345
Interest expense			(196,475	)			(198,254	)			(191,806	)
Income before provision for income taxes			652,440				572,833				625,705
Provision for income taxes			133,322				120,570				115,238
Net income		$	519,118			$	452,263			$	510,467
Earnings per share:
Common Stock – basic		$	14.80			$	12.66			$	13.72
Common Stock – diluted		$	14.66			$	12.53			$	13.54

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

Domino’s Pizza, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

		For the Years Ended
		December 31,				January 1,				January 2,
		2023				2023				2022
Net income		$	519,118			$	452,263			$	510,467
Currency translation adjustment			827				(1,874	)			(396	)
Comprehensive income		$	519,945			$	450,389			$	510,071

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

Domino’s Pizza, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except share and per share amounts)

																		Accumulated
		Common Stock								Additional								Other
										Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Deficit				Income (Loss)
Balance at January 3, 2021			38,868,350			$	389			$	5,122			$	(3,303,492	)		$	(2,424	)
Net income			—				—				—				510,467				—
Dividends declared on common stock and equivalents ($3.76 per share)			—				—				—				(139,588	)			—
Issuance and cancellation of stock awards, net			(1,994	)			—				—				—				—
Tax payments for restricted stock upon vesting			(14,826	)			—				(6,820	)			—				—
Purchases of common stock			(2,912,558	)			(30	)			(45,568	)			(1,275,304	)			—
Exercises of stock options			199,301				2				19,680				—				—
Non-cash equity-based compensation expense			—				—				28,670				—				—
Other			—				—				(244	)			—				—
Currency translation adjustment			—				—				—				—				(396	)
Balance at January 2, 2022			36,138,273				361				840				(4,207,917	)			(2,820	)
Net income			—				—				—				452,263				—
Dividends declared on common stock and equivalents ($4.40 per share)			—				—				—				(157,479	)			—
Issuance and cancellation of stock awards, net			15,012				—				—				—				—
Tax payments for restricted stock upon vesting			(26,699	)			—				(10,349	)			(371	)			—
Purchases of common stock			(739,847	)			(7	)			(12,819	)			(280,914	)			—
Exercises of stock options			32,979				—				3,312				—				—
Non-cash equity-based compensation expense			—				—				28,709				—				—
Currency translation adjustment			—				—				—				—				(1,874	)
Balance at January 1, 2023			35,419,718				354				9,693				(4,194,418	)			(4,694	)
Net income			—				—				—				519,118				—
Dividends declared on common stock and equivalents ($4.84 per share)			—				—				—				(170,419	)			—
Issuance and cancellation of stock awards, net			33,947				—				—				—				—
Tax payments for restricted stock upon vesting			(16,038	)			—				(5,410	)			—				—
Purchases of common stock			(789,977	)			(8	)			(47,651	)			(223,929	)			—
Exercises of stock options			78,532				1				8,655				—				—
Non-cash equity-based compensation expense			—				—				37,514				—				—
Currency translation adjustment			—				—				—				—				827
Balance at December 31, 2023			34,726,182			$	347			$	2,801			$	(4,069,648	)		$	(3,867	)

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

Domino’s Pizza, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

		For the Years Ended
		December 31,				January 1,				January 2,
		2023				2023				2022
Cash flows from operating activities:
Net income		$	519,118			$	452,263			$	510,467
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			80,640				80,251				72,923
Refranchising loss (gain)			149				(21,173	)			—
Loss on sale/disposal of assets			1,299				1,813				1,189
Amortization of debt issuance costs			5,535				5,645				7,509
(Benefit) provision for deferred income taxes			(19,509	)			253				1,988
Non-cash equity-based compensation expense			37,514				28,709				28,670
Excess tax benefits from equity-based compensation			(3,397	)			(2,169	)			(18,911	)
Provision for losses on accounts and notes receivable			1,472				3,536				659
Unrealized gain on investments			(17,713	)			—				(36,758	)
Changes in operating assets and liabilities:
Changes in accounts receivable			(26,515	)			(6,333	)			(8,107	)
Changes in inventories, prepaid expenses and other			160				(17,059	)			(9,420	)
Changes in accounts payable and accrued liabilities			69,373				(36,605	)			51,346
Changes in insurance reserves			(5,163	)			1,507				6,216
Changes in operating lease assets and liabilities			632				2,174				1,210
Changes in advertising fund assets and liabilities, restricted			(52,731	)			(17,495	)			45,225
Net cash provided by operating activities			590,864				475,317				654,206
Cash flows from investing activities:
Capital expenditures			(105,396	)			(87,234	)			(94,172	)
Proceeds from sale of assets			161				41,089				16
Purchases of franchise operations and other assets			—				(6,814	)			—
Purchase of investments			—				—				(49,082	)
Other			(1,682	)			(722	)			515
Net cash used in investing activities			(106,917	)			(53,681	)			(142,723	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			14,898				120,000				1,850,000
Repayments of long-term debt and finance lease obligations			(55,705	)			(175,676	)			(910,212	)
Proceeds from exercise of stock options			8,656				3,312				19,682
Purchases of common stock			(269,025	)			(293,740	)			(1,320,902	)
Tax payments for restricted stock upon vesting			(5,410	)			(10,720	)			(6,820	)
Payments of common stock dividends and equivalents			(169,772	)			(157,531	)			(139,399	)
Cash paid for financing costs			—				(1,594	)			(14,938	)
Other			—				—				(244	)
Net cash used in financing activities			(476,358	)			(515,949	)			(522,833	)
Effect of exchange rate changes on cash			340				(963	)			(316	)
Change in cash and cash equivalents, restricted cash and cash equivalents			7,929				(95,276	)			(11,666	)
Cash and cash equivalents, beginning of period			60,356				148,160				168,821
Restricted cash and cash equivalents, beginning of period			191,289				180,579				217,453
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period			143,559				161,741				115,872
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period			395,204				490,480				502,146
Cash and cash equivalents, end of period			114,098				60,356				148,160
Restricted cash and cash equivalents, end of period			200,870				191,289				180,579
Cash and cash equivalents included in advertising fund assets, restricted, end of period			88,165				143,559				161,741
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period		$	403,133			$	395,204			$	490,480

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

Domino’s Pizza, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except percentages, share and per share amounts)

(1)

Description of Business and Summary of Significant Accounting Policies

Description of Business

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

Principles of Consolidation

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

Fiscal Year

The Company’s fiscal year ends on the Sunday closest to December 31. The 2023 fiscal year ended on December 31, 2023, the 2022 fiscal year ended on January 1, 2023 and the 2021 fiscal year ended on January 2, 2022. The 2023, 2022 and 2021 fiscal years each consisted of fifty-two weeks.

Cash and Cash Equivalents

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

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents at December 31, 2023 included $149.1 million of restricted cash and cash equivalents held for future principal and interest payments and other working capital requirements of the Company’s asset-backed securitization structure, $51.6 million of restricted cash equivalents held in a three-month interest reserve as required by the related debt agreements and $0.2 million of other restricted cash. As of December 31, 2023, the Company also held $88.2 million of advertising fund restricted cash and cash equivalents, which can only be used for activities that promote the Domino’s Pizza brand.

Restricted cash and cash equivalents at January 1, 2023 included $141.2 million of restricted cash and cash equivalents held for future principal and interest payments and other working capital requirements of the Company’s asset-backed securitization structure, $49.9 million of restricted cash equivalents held in a three-month interest reserve as required by the related debt agreements and $0.2 million of other restricted cash. As of January 1, 2023, the Company also held $143.6 million of advertising fund restricted cash and cash equivalents, which can only be used for activities that promote the Domino’s Pizza brand.

Allowances for Credit Losses

The Company closely monitors accounts and notes receivable balances and estimates the allowance for credit losses. These estimates are based on historical collection experience and other factors, including those related to current market conditions and events. The Company’s allowances for accounts and notes receivable have not historically been material.

The Company also monitors its off-balance sheet exposures under its letters of credit (Note 3), lease guarantees (Note 5) and surety bonds. Total conditional commitments under surety bonds were $14.7 million in each of December 31, 2023 and January 1, 2023, respectively. None of these arrangements has had or is likely to have a material effect on the Company’s results of operations, financial condition, revenues, expenses or liquidity.

Inventories

Inventories are valued at the lower of cost (on a first-in, first-out basis) or net realizable value. Inventories at December 31, 2023 and January 1, 2023 were comprised of the following:

		December 31, 2023				January 1, 2023
Food		$	72,525			$	74,052
Equipment and supplies			10,439				7,518
Inventories		$	82,964			$	81,570

Other Assets

Current and long-term other assets primarily include prepaid expenses such as insurance, taxes, deposits, notes receivable, software licenses, implementation costs for cloud-based computing arrangements, covenants not-to-compete and other intangible assets primarily arising from franchise acquisitions.

Other long-term assets included implementation costs for cloud-based computing arrangements (primarily related to certain enterprise systems) of $11.1 million and $11.9 million, net of accumulated amortization of $6.2 million and $3.5 million as of December 31, 2023 and January 1, 2023, respectively. Amortization expense for implementation costs for cloud-based computing arrangements was $2.7 million, $1.9 million and $1.3 million in 2023, 2022 and 2021, respectively.

Property, Plant and Equipment

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

Buildings		20
Leasehold and other improvements		5 – 15
Equipment		3 – 15

Depreciation and amortization expense on property, plant and equipment was $52.4 million, $51.8 million and $48.6 million in 2023, 2022 and 2021, respectively.

Impairments of Long-Lived Assets

The Company evaluates the potential impairment of long-lived assets at least annually based on various analyses including, on an annual basis, the projection of undiscounted cash flows and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the Company determines that the carrying amount of an asset (or asset group) may not be recoverable, the Company compares the net carrying value of the asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. For Company-owned stores, the Company performs this evaluation on an operating market basis, which the Company has determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows. If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset, the Company estimates the fair value of the assets. If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is recognized, and the asset is written down to its estimated fair value. There were no triggering events in 2023, 2022 and 2021 and accordingly, the Company did not record any impairment losses on long-lived assets in 2023, 2022 and 2021.

Investments in Marketable Securities

Investments in marketable securities consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plan (Note 8). These investments are stated at aggregate fair value, are restricted and have been placed in a rabbi trust whereby the amounts are irrevocably set aside to fund the Company’s obligations under the deferred compensation plan. The Company classifies and accounts for these investments in marketable securities as trading securities.

Goodwill

The Company’s goodwill amounts primarily relate to franchise store acquisitions. The Company performs its required impairment tests in the fourth quarter of each fiscal year and did not recognize any goodwill impairment charges in 2023, 2022 and 2021.

Capitalized Software

Capitalized software is recorded at cost and includes purchased, internally-developed and externally-developed software used in the Company’s operations. Amortization expense is provided using the straight-line method over the estimated useful lives of the software, which range from one to ten years. Capitalized software amortization expense was $28.2 million, $28.5 million and $24.3 million in 2023, 2022 and 2021, respectively.

As of December 31, 2023, scheduled amortization for capitalized software that had been placed in service as of December 31, 2023 is as follows in the table below. As of December 31, 2023, the Company also had $34.1 million of capitalized software that had not yet been placed in service.

2024		$	26,737
2025			19,426
2026			12,635
2027			8,236
2028			8,236
Thereafter			24,702
		$	99,972

Investment in DPC Dash

The Company holds a non-controlling interest in DPC Dash Ltd (“DPC Dash”), the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. Prior to March 28, 2023, the Company’s investment in DPC Dash’s senior ordinary shares, which were not in-substance common stock, represented an equity investment without a readily determinable fair value and was recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments.

On March 28, 2023, DPC Dash completed its initial public offering on the Hong Kong Exchange (HK: 1405), at which point the Company’s 18,101,019 DPC Dash senior ordinary shares automatically converted to DPC Dash ordinary shares pursuant to the terms of the investment. The Company is required to hold the DPC Dash ordinary shares for at least 360 days from the date of the initial public offering of March 28, 2023. The Company accounts for its investment in DPC Dash as a trading security and records it at fair value at the end of each reporting period, with gains and losses recorded in other income or expense in its consolidated statements of income. Refer to Note 4 for fair value disclosures related to the Company’s investment in DPC Dash.

Debt Issuance Costs

Debt issuance costs are recorded as a reduction to the Company’s debt balance and primarily include the expenses incurred by the Company as part of the 2021, 2019, 2018, 2017 and 2015 Recapitalizations. Refer to Note 3 for a description of the 2021, 2019, 2018, 2017 and 2015 Recapitalizations. Amortization is recorded on a straight-line basis (which is materially consistent with the effective interest method) over the expected terms of the respective debt instrument to which the costs relate and is included in interest expense. Debt issuance cost amortization expense was $5.5 million, $5.6 million and $7.5 million in 2023, 2022 and 2021, respectively.

Insurance Reserves

The Company has retention programs for workers’ compensation, general liability and owned and non-owned automobile liabilities for certain periods prior to December 1998 and for periods after December 2001. The Company is generally responsible for up to $2.0 million per occurrence under these retention programs for workers’ compensation and general liability exposures. The Company is also generally responsible for between $500,000 and $5.5 million per occurrence under these retention programs for owned and non-owned automobile liabilities depending on the year. Total insurance limits under these retention programs vary depending on the year covered and range up to $110.0 million per occurrence for general liability and owned and non-owned automobile liabilities and up to the applicable statutory limits for workers’ compensation.

Casualty insurance reserves relating to the Company's retention programs are based on undiscounted actuarial estimates. These estimates are based on historical information and on certain assumptions about future events. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause these estimates to change in the near term. The Company generally receives estimates of outstanding casualty insurance exposures from its independent actuary twice per year and differences between these estimated actuarial exposures and the Company’s recorded amounts are adjusted as appropriate. The Company had reserves for these programs of $56.3 million and $57.6 million as of December 31, 2023 and January 1, 2023, respectively.

In addition, the Company maintains reserves for its share of employee health costs as part of the health care benefits offered to its employees. Reserves are based on estimated claims incurred that have not yet been paid, based on historical claims and payment lag times.

Contract Liabilities

Contract liabilities consist primarily of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $5.3 million and $5.5 million were included in current other accrued liabilities as of December 31, 2023 and January 1, 2023, respectively. Deferred franchise fees and deferred development fees of $19.9 million and $22.7 million were included in long-term other accrued liabilities as of December 31, 2023 and January 1, 2023, respectively.

Changes in deferred franchise fees and deferred development fees in 2023 and 2022 were as follows:

		Fiscal Year Ended
		December 31, 2023				January 1, 2023
Deferred franchise fees and deferred development fees, beginning of period		$	28,225			$	29,694
Revenue recognized during the period			(6,468	)			(6,654	)
New deferrals due to cash received and other			3,438				5,185
Deferred franchise fees and deferred development fees, end of period		$	25,195			$	28,225

The Company expects to recognize revenue associated with deferred franchise fees and deferred development fees as follows in the table below. The Company has applied the sales-based royalty exemption which permits exclusion of variable consideration in the form of sales-based royalties from the disclosure of remaining performance obligations.

2024		$	5,301
2025			4,975
2026			4,634
2027			3,157
2028			2,025
Thereafter			5,103
		$	25,195

Other Accrued Liabilities

Current and long-term other accrued liabilities primarily include accruals for income, sales, property and other taxes, legal reserves, operating expenses, dividends payable, deferred compensation, unredeemed gift cards and contract liabilities. The Company had $38.9 million and $29.2 million included in other current accrued liabilities related to unredeemed gift cards as of December 31, 2023 and January 1, 2023, respectively.

Foreign Currency Translation

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

Revenue Recognition

U.S. Company-owned stores revenues are comprised of retail sales of food through Company-owned Domino’s Pizza stores located in the U.S. and are recognized when the items are delivered to or carried out by customers. Customer payments are generally due at the time of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of income as revenue.

U.S. franchise royalties and fees are primarily comprised of royalties and fees from Domino’s Pizza franchisees with operations in the U.S. Each franchisee is generally required to pay a 5.5% royalty fee on sales. In certain instances, the Company will collect lower rates based on area development agreements, sales initiatives, store relocation incentives and new store incentives. Royalty revenues are based on a percentage of franchise retail sales and are recognized when the items are delivered to or carried out by franchisees’ customers. U.S. franchise fee revenue primarily relates to per-transaction technology fees that are recognized as the related sales occur. Payments for U.S. royalties and fees are generally due within seven days of the prior week end date.

Supply chain revenues are primarily comprised of sales of food, equipment and supplies to franchised Domino’s Pizza stores located in the U.S. and Canada. Revenues from the sale of food are recognized upon delivery of the food to franchisees and payments for food purchases are generally due within 30 days of the shipping date. Revenues from the sale of equipment and supplies are recognized upon delivery or shipment of the related products to franchisees, based on shipping terms, and payments for equipment and supplies are generally due within 90 days of the shipping date. The Company also offers profit sharing rebates and volume discounts to its franchisees. Obligations for profit sharing rebates are calculated based on actual results of its supply chain centers and are recognized as a reduction to revenue. Volume discounts are based on annual sales. The Company estimates the amount that will be earned and records a reduction to revenue throughout the year.

International franchise royalties and fees are primarily comprised of royalties and fees from Domino’s Pizza franchisees outside of the U.S. Royalty revenues are recognized when the items are delivered to or carried out by franchisees’ customers. Franchise fees received from international franchisees are recognized as revenue on a straight-line basis over the term of each respective franchise store agreement, which is typically ten years. Development fees received from international master franchisees are also deferred when amounts are received and are recognized as revenue on a straight-line basis over the term of the respective master franchise agreement, which is typically ten years. International franchise fee revenues primarily relate to per-transaction technology fees that are recognized as the related sales occur. International franchise royalties and fees are invoiced at least quarterly, and payments are generally due within 60 days.

U.S. franchise advertising revenues are comprised of contributions from Domino’s Pizza franchisees with operations in the U.S. to the Domino’s National Advertising Fund Inc. (“DNAF”), the Company’s consolidated not-for-profit subsidiary that administers the Domino’s Pizza system’s national and market level advertising activities in the U.S. Each franchisee is generally required to contribute 6.0% of their retail sales to fund national marketing and advertising campaigns (subject, in certain instances, to lower rates based on certain incentives and waivers). Beginning on March 27, 2023, the Company effectuated a temporary reduction of 0.25% to its standard 6.0% advertising contribution, which will expire on March 24, 2024. These revenues are recognized when items are delivered to or carried out by franchisees’ customers. Payments for U.S. franchise advertising revenues are generally due within seven days of the prior week end date. Although these revenues are restricted to be used only for advertising and promotional activities to benefit franchised stores, the Company has determined there are not performance obligations associated with the franchise advertising contributions received by DNAF that are separate from its U.S. royalty payment stream and as a result, these franchise contributions and the related expenses are presented gross in the Company’s consolidated statements of income.

Disaggregation of Revenue

Current accounting standards require that companies disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company has included its revenues disaggregated in its consolidated statements of income to satisfy this requirement.

Supply Chain Profit-Sharing Arrangements

The Company enters into profit-sharing arrangements with U.S. and Canadian franchisees that purchase all of their food from the Company’s supply chain centers. These profit-sharing arrangements generally offer Company-owned stores and participating franchisees 50% of the pre-tax profit from the Company’s supply chain center operations. Profit-sharing obligations are recorded as a reduction to supply chain revenues in the same period as the related revenues and costs are recorded, and were $138.7 million, $110.0 million and $148.3 million in 2023, 2022 and 2021, respectively.

Cost of Sales

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, occupancy costs (including rent, telephone, utilities and depreciation) and insurance expense.

General and Administrative

General and administrative expense consists primarily of labor cost (including variable performance-based compensation expense and non-cash equity-based compensation expense), depreciation and amortization, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.

Advertising

U.S. stores are generally required to contribute 6.0% of sales to DNAF (subject, in certain instances, to lower rates based on certain incentives and waivers). Beginning on March 27, 2023, the Company effectuated a temporary reduction of 0.25% to its standard 6.0% advertising contribution, which will expire on March 24, 2024.

U.S. franchise advertising costs are accrued and expensed when the related U.S. franchise advertising revenues are recognized, as DNAF is obligated to expend such revenues on advertising and other activities that promote the Domino’s brand. U.S. franchise advertising costs expended by DNAF are included in U.S. franchise advertising expenses in the Company’s consolidated statements of income. Advertising costs funded by Company-owned stores are generally expensed as incurred and are included in general and administrative expense. Contributions from Company-owned stores that have not yet been expended are included in advertising fund assets, restricted on the Company’s consolidated balance sheets.

Advertising expense included $473.2 million, $485.3 million and $479.5 million of U.S. franchise advertising expense in 2023, 2022 and 2021, respectively. Advertising expense also included $33.5 million, $33.8 million and $42.1 million in 2023, 2022 and 2021, respectively, primarily related to advertising costs funded by U.S. Company-owned stores and other general marketing expenses which are included in general and administrative expense in the consolidated statements of income.

As of December 31, 2023, advertising fund assets, restricted of $106.3 million consisted of $88.2 million of cash and cash equivalents, $14.0 million of accounts receivable and $4.1 million of prepaid expenses. As of December 31, 2023, advertising fund cash and cash equivalents included $2.1 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

As of January 1, 2023, advertising fund assets, restricted of $162.7 million consisted of $143.6 million of cash and cash equivalents, $13.1 million of accounts receivable and $6.0 million of prepaid expenses. As of January 1, 2023, advertising fund cash and cash equivalents included $4.8 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

Leases

The Company leases certain retail store and supply chain center locations, vehicles, equipment and its corporate headquarters. The Company determines whether an arrangement is or contains a lease at contract inception. The majority of the Company’s leases are classified as operating leases, which are included in operating lease right-of-use assets and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt on the Company’s consolidated balance sheets.

Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement, as well as any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Lease terms may include options to renew when it is reasonably certain that the Company will exercise that option.

The Company estimates its incremental borrowing rate for each lease using a portfolio approach based on the respective weighted average term of the agreements. This estimation considers the market rates of the Company’s outstanding collateralized borrowings and interpolations of rates outside of the terms of the outstanding borrowings, including comparisons to comparable borrowings of similarly rated companies with longer term borrowings.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Interest expense for finance leases is recognized using the effective interest method. Variable lease payments that do not depend on a rate or index, payments associated with non-lease components and short-term rentals (leases with terms less than 12 months) are expensed as incurred.

Common Stock Dividends

The Company declared dividends of $170.4 million (or $4.84 per share) in 2023, $157.5 million (or $4.40 per share) in 2022 and $139.6 million (or $3.76 per share) in 2021. The Company paid dividends of $169.8 million, $157.5 million, and $139.4 million in 2023, 2022 and 2021, respectively.

Subsequent to the end of fiscal 2023, on February 21, 2024, the Company’s Board of Directors declared a quarterly dividend of $1.51 per common share payable on March 29, 2024 to shareholders of record at the close of business on March 15, 2024.

Stock Options and Other Equity-Based Compensation Arrangements

The cost of all of the Company’s stock options, as well as other equity-based compensation arrangements, is reflected in the financial statements based on the estimated fair value of the awards (Note 9).

Earnings Per Share

The Company discloses two calculations of earnings per share (“EPS”): basic EPS and diluted EPS (Note 2). The numerator in calculating common stock basic and diluted EPS is consolidated net income. The denominator in calculating common stock basic EPS is the weighted average shares outstanding. The denominator in calculating common stock diluted EPS includes the additional dilutive effect of outstanding stock options, unvested restricted stock awards and units and unvested performance-based restricted stock awards and units.

Supplemental Disclosures of Cash Flow Information

The Company paid interest of $186.8 million, $188.5 million and $174.6 million during 2023, 2022 and 2021, respectively, on its Notes (Note 3). Cash paid for income taxes was $136.3 million, $134.4 million and $106.3 million in 2023, 2022 and 2021, respectively.

The Company had non-cash investing activities related to accruals for capital expenditures of $6.7 million, $6.9 million and $5.4 million at December 31, 2023, January 1, 2023 and January 2, 2022, respectively. As of December 31, 2023, the Company also had $2.6 million in non-cash financing activity related to accruals for excise taxes on share repurchases. The Company had $0.1 million, $0.1 million and $0.4 million of non-cash investing activities related to lease incentives in 2023, 2022 and 2021 respectively.

New Accounting Pronouncements

Recently Adopted Accounting Standards

The Company has considered all new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and adopted the following accounting standards.

Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, updated by ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”)

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. On May 15, 2023, certain of the Company’s subsidiaries executed an amendment to the Company’s 2021 variable funding notes to affect the transition from LIBOR to the Secured Overnight Financing Rate (“Term SOFR”), plus a spread adjustment. In connection with this contract amendment, the Company adopted ASU 2020-04 (as updated by ASU 2022-06) in the second quarter of 2023. The amendment to the Company’s 2021 variable funding notes and the adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements.

ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual sale restrictions. ASU 2022-03 also requires disclosure of the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions. The Company’s investment in DPC Dash (Note 5) is subject to contractual restrictions that prohibit the Company from selling the security for 360 days following DPC Dash’s initial public offering. The Company early adopted ASU 2022-03 in the second quarter of 2023 and the adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Not Yet Adopted

The Company has considered all new accounting pronouncements issued by the FASB. The Company has not yet adopted the following standards:

ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within the reported measure of segment profit or loss. In addition, the ASU requires disclosure of other segment expenses by reportable segment and a description of their composition to permit the reconciliation between segment revenue, significant segment expenses and the reported segment measure of profit or loss. The ASU also requires disclosure of the name and title of the chief operating decision maker.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, a tabular reconciliation, including both reporting currency and percentages of specific categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits. Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax rate. The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

Use of Estimates

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

(2)

Earnings per Share

The computation of basic and diluted earnings per common share for 2023, 2022 and 2021 is as follows:

		2023				2022				2021
Net income available to common stockholders – basic and diluted		$	519,118			$	452,263			$	510,467
Weighted average number of common shares			35,081,779				35,724,325				37,198,292
Earnings per common share – basic		$	14.80			$	12.66			$	13.72
Diluted weighted average number of common shares			35,401,313				36,093,754				37,691,351
Earnings per common share – diluted		$	14.66			$	12.53			$	13.54

The denominators used in calculating diluted earnings per share for common stock for 2023, 2022 and 2021 do not include the following because the effect of including these shares would be anti-dilutive or because the performance targets for these awards had not yet been met:

		2023				2022				2021
Anti-dilutive shares underlying stock-based awards
Stock options			216,128				115,187				41,215
Restricted stock awards and units			7,060				1,470				1,010
Performance condition not met
Restricted stock awards and units			44,750				22,353				29,704

(3)

Recapitalizations and Financing Arrangements

The 2021 Notes, 2019 Notes, 2018 Notes, 2017 Notes and 2015 Notes (each, as defined below) are collectively referred to as the “Notes.” The Company made payments of $51.5 million, $51.5 million and $907.0 million in 2023, 2022 and 2021, respectively on the Notes. The Company borrowed and repaid $120.0 million under its 2021 Variable Funding Notes (as defined below) in 2022.

2021 Recapitalization

On April 16, 2021, the Company completed a recapitalization transaction (the “2021 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist of $850.0 million Series 2021-1 2.662% Fixed Rate Senior Secured Notes, Class A-2-I with an anticipated term of 7.5 years (the “2021 7.5-Year Notes”) and $1.0 billion Series 2021-1 3.151% Fixed Rate Senior Secured Notes, Class A-2-II with an anticipated term of 10 years (the “2021 Ten-Year Notes”, and, collectively with the 2021 7.5-Year Notes, the “2021 Notes”). Gross proceeds from the issuance of the 2021 Notes were $1.85 billion.

Concurrently, certain of the Company’s subsidiaries also issued a new variable funding note facility which allows for advances of up to $200.0 million of Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 Notes and certain other credit instruments, including letters of credit (the “2021 Variable Funding Notes”). In connection with the issuance of the 2021 Variable Funding Notes, the Company’s 2019 Variable Funding Notes (as defined below) were canceled.

The proceeds from the 2021 Recapitalization were used to repay the remaining $291.0 million in outstanding principal under the Company’s 2017 Floating Rate Notes (as defined below) and $582.0 million in outstanding principal under the Company’s 2017 Five-Year Notes (as defined below), prefund a portion of the interest payable on the 2021 Notes, pay transaction fees and expenses and repurchase and retire shares of the Company’s common stock (Note 10).

2019 Recapitalization

On November 19, 2019, the Company completed a recapitalization transaction (the “2019 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist of $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 Notes”). The Company also entered into a variable funding note facility, which allowed for the issuance of up to $200.0 million Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019 Variable Funding Notes”) and certain other credit instruments, including letters of credit. Gross proceeds from the issuance of the 2019 Notes were $675.0 million.

2018 Recapitalization

On April 24, 2018, the Company completed a recapitalization transaction (the “2018 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consist 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 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 Notes” and, collectively with the 2018 7.5-Year Notes, the “2018 Notes”). Gross proceeds from the issuance of the 2018 Notes were $825.0 million.

2017 Recapitalization

On July 24, 2017, the Company completed a recapitalization transaction (the “2017 Recapitalization”) in which certain of the Company’s 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 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 Notes”) and $1.0 billion Series 2017-1 4.118% Fixed Rate Senior Secured Notes, Class A-2-III with an anticipated term of ten years (the “2017 Ten-Year Notes” and, collectively with the 2017 Floating Rate Notes and the 2017 Five-Year Notes, the “2017 Notes”). The interest rate on the 2017 Floating Rate Notes was payable at a rate equal to LIBOR plus 125 basis points. Gross proceeds from the issuance of the 2017 Notes were $1.9 billion.

2015 Recapitalization

On October 21, 2015, the Company completed a recapitalization transaction (the “2015 Recapitalization”) in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization. The notes consisted of $500.0 million Series 2015-1 3.484% Fixed Rate Senior Secured Notes, Class A-2-I (the “2015 Five-Year Notes”) and $800.0 million Series 2015-1 4.474% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Ten-Year Notes” and, together with the 2015 Five-Year Notes, the “2015 Notes”). Gross proceeds from the issuance of the 2015 Notes were $1.3 billion.

2022 Variable Funding Notes

On September 16, 2022, certain of the Company’s subsidiaries issued a new variable funding note facility which allows for advances of up to $120.0 million of Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 Notes (the “2022 Variable Funding Notes”). The facility was undrawn at closing. Interest on the 2022 Variable Funding Notes is payable at a per year rate equal to Secured Overnight Financing Rate, plus a spread adjustment (“Adjusted Term SOFR”), plus 150 basis points. The unused portion of the 2022 Variable Funding Notes is subject to a commitment fee of 50 basis points. It is anticipated that any amounts outstanding on the 2022 Variable Funding Notes will be repaid in full on or prior to April 2026, subject to two additional one-year extensions at the option of the Company, subject to certain conditions. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue on the 2022 Variable Funding Notes equal to 5% per annum.

As of December 31, 2023 and January 1, 2023, the Company had no outstanding borrowings and $120.0 million of available borrowing capacity under its 2022 Variable Funding Notes.

2021 Notes

The 2021 Notes have remaining scheduled principal payments of $18.5 million in each of 2024 through 2027, $804.8 million in 2028, $10.0 million in each of 2029 and 2030 and $905.0 million in 2031.

The legal final maturity date of the 2021 Notes is April 2051, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2021 7.5-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October 2028, and the 2021 Ten-Year Notes will be repaid on or prior to the anticipated repayment date occurring in April 2031. If the Company has not repaid or refinanced the 2021 Notes prior to the applicable anticipated repayment dates, additional interest of at least 5% per annum will accrue, as defined in the related agreements.

The 2021 Variable Funding Notes allow for advances of up to $200.0 million and issuance of certain other credit instruments, including letters of credit. The letters of credit are primarily related to our casualty insurance programs and certain supply chain center leases. On May 15, 2023, certain of the Company’s subsidiaries executed an amendment to the Company’s 2021 Variable Funding Notes to affect the transition from LIBOR to Adjusted Term SOFR. Certain clarifying amendments were effectuated on September 19, 2023. The interest rate on the 2021 Variable Funding Notes is payable at a per year rate equal to Adjusted Term SOFR, plus 150 basis points. The 2021 Variable Funding Notes were undrawn at closing of the 2021 Recapitalization. The unused portion of the 2021 Variable Funding Notes is subject to a commitment fee ranging from 50 to 100 basis points depending on utilization. It is anticipated that any amounts outstanding on the 2021 Variable Funding Notes will be repaid in full on or prior to April 2026, subject to two additional one-year extensions at the option of the Company, subject to certain conditions. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue on the 2021 Variable Funding Notes equal to 5% per annum.

As of December 31, 2023 and January 1, 2023, the Company had no outstanding borrowings and $157.8 million of available borrowing capacity under its 2021 Variable Funding Notes, net of letters of credit issued of $42.2 million.

2019 Notes

The 2019 Notes have remaining scheduled principal payments of $6.8 million in each of 2024 through 2028 and $615.9 million in 2029.

The legal final maturity date of the 2019 Notes is October 2049, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2019 Notes will be repaid on or prior to the anticipated repayment date occurring in October 2029. If the Company has not repaid or refinanced the 2019 Notes prior to the applicable anticipated repayment dates, additional interest of at least 5% per annum will accrue, as defined in the related agreements.

The 2019 Variable Funding Notes allowed for advances of up to $200.0 million and issuance of certain other credit instruments, including letters of credit. The letters of credit are primarily related to our casualty insurance programs and certain supply chain center leases. Interest on the 2019 Variable Funding Notes was payable at a per year rate equal to LIBOR plus 150 basis points. The 2019 Variable Funding Notes were cancelled in connection with the 2021 Recapitalization.

2018 Notes

The 2018 Notes have remaining scheduled principal payments of $8.3 million in 2024, $403.5 million in 2025, $4.0 million in 2026 and $368.0 million in 2027.

The legal final maturity date of the 2018 Notes is July 2048, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2018 7.5-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October 2025, and the 2018 9.25-Year Notes will be repaid on or prior to the anticipated repayment date occurring in July 2027. If the Company has not repaid or refinanced the 2018 Notes prior to the applicable anticipated repayment dates, additional interest of at least 5% per annum will accrue, as defined in the related agreements.

2017 Notes

The 2017 Five-Year Notes and the 2017 Floating Rate Notes were repaid in connection with the 2021 Recapitalization. The 2017 Ten-Year Notes have remaining scheduled principal payments of $10.0 million in each of 2024 through 2026 and $912.5 million in 2027.

The legal final maturity date of the 2017 Ten-Year Notes is October 2047, but it is anticipated that, unless earlier prepaid to the extent permitted under the related debt agreements, the 2017 Ten-Year Notes will be repaid on or prior to the anticipated repayment date occurring in July 2027. If the Company has not repaid or refinanced the 2017 Ten-Year Notes prior to the applicable anticipated repayment dates, additional interest of at least 5% per annum will accrue, as defined in the related agreements.

2015 Notes

The 2015 Five-Year Notes were repaid in connection with the 2018 Recapitalization. The 2015 Ten-Year Notes have original remaining scheduled principal payments of $8.0 million in 2024 and $736.0 million in 2025.

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

Debt Issuance Costs and Transaction-Related Expenses

During 2022 and in connection with the issuance of the 2022 Variable Funding Notes, the Company capitalized $1.6 million of financing costs, which are recorded in long-term other assets in the Company’s consolidated balance sheets and are being amortized into interest expense over the remaining term of the 2022 Variable Funding Notes.

During 2021 and in connection with the 2021 Recapitalization, the Company incurred approximately $2.8 million of net pre-tax expenses, primarily related to $2.0 million in expense related to the write-off of debt issuance costs associated with the repayment of the 2017 Five-Year Notes and 2017 Floating Rate Notes. The Company also incurred approximately $0.3 million of interest expense on the 2017 Five-Year Notes and the 2017 Floating Rate Notes subsequent to the closing of the Company’s 2021 Recapitalization, but prior to the repayment of the 2017 Five-Year Notes and the 2017 Floating Rate Notes, resulting in the payment of interest on both the 2017 Five-Year Notes and the 2017 Floating Rate Notes as well as the 2021 Notes for a short period of time. Further, the Company incurred $0.5 million of 2021 Recapitalization-related general and administrative expenses, including legal and professional fees. In connection with the 2021 Recapitalization, the Company recorded $14.9 million of debt issuance costs, which are being amortized into interest expense over the respective terms of the 2021 Notes.

Guarantees and Covenants of the Notes

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

The Notes are subject to certain financial and non-financial covenants, including a debt service coverage ratio calculation. The covenant requires a minimum coverage ratio of 1.75x total debt service to securitized net cash flow, as defined in the related agreements. The covenants, among other things, may limit the ability of certain of the Company’s subsidiaries to declare dividends, make loans or advances or enter into transactions with affiliates. In the event that certain covenants are not met, the Notes may become partially or fully due and payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Notes at any time, subject to certain make-whole interest obligations.

While the Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis. The payment of principal of the Notes may be suspended if the leverage ratio for the Company is less than or equal to 5.0x total debt, as defined, to adjusted EBITDA, as defined in the related agreements. Scheduled principal payments will resume upon failure to satisfy the aforementioned leverage ratio on an ongoing basis and no catch-up provisions are applicable.

As of the fourth quarter of 2020, the Company had a leverage ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payment in the first quarter of 2021. Subsequent to the closing of the 2021 Recapitalization, the Company had a leverage ratio of greater than 5.0x and, accordingly, the Company resumed making the scheduled amortization payments on its then outstanding notes in the second quarter of 2021.

Consolidated Long-Term Debt

At December 31, 2023 and January 1, 2023, consolidated long-term debt consisted of the following:

		December 31, 2023				January 1, 2023
2015 Ten-Year Notes		$	744,000			$	752,000
2017 Ten-Year Notes			942,500				952,500
2018 7.5-Year Notes			403,750				408,000
2018 9.25-Year Notes			380,000				384,000
2019 Ten-Year Notes			649,688				656,438
2021 7.5-Year Notes			828,750				837,250
2021 Ten-Year Notes			975,000				985,000
Finance lease obligations			73,482				74,199
Financing obligation from sale leaseback			14,877				—
Debt issuance costs, net of accumulated amortization of $29.2 million in 2023 and $23.6 million in 2022			(21,619	)			(27,154	)
Total debt			4,990,428				5,022,233
Current portion of long-term debt			(56,366	)			(54,813	)
Long-term debt, less current portion		$	4,934,062			$	4,967,420

At December 31, 2023, maturities of long-term debt, financing obligations and finance leases were as follows:

2024		$	56,366
2025			1,179,900
2026			45,343
2027			1,310,978
2028			815,888
Thereafter			1,603,572
		$	5,012,047

(4)

Fair Value Measurements

Fair value measurements enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Fair Value of Cash Equivalents and Marketable Securities

The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets.

Fair Value of Investments

The Company holds a non-controlling interest in DPC Dash, the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market.

As of December 31, 2023, the fair value of the Company’s investment in DPC Dash is based on the active exchange quoted price for the equity security of HK$61.95 per share. The Company recorded a total net adjustment to the carrying amount of its investment in DPC Dash of $17.7 million in 2023, with the gain recorded in other income in its consolidated statements of income. As of January 1, 2023, the fair value of the Company’s investment in DPC Dash was not readily determinable and was categorized in Level 3 of the fair value hierarchy. The Company did not record any adjustments to the carrying amount of its investment in 2022. In 2021, the Company recorded positive adjustments of $2.5 million and $34.3 million resulting from the observable change in price from the valuation of the additional investments made by the Company during the 2021 fiscal year. The Company transferred its investment from Level 3 to Level 1 on March 28, 2023, concurrent with DPC Dash’s initial public offering.

The following table summarizes the carrying amounts and fair values of certain assets at December 31, 2023:

		At December 31, 2023
						Fair Value Estimated Using
		Carrying				Level 1				Level 2				Level 3
		Amount				Inputs				Inputs				Inputs
Cash equivalents		$	50,732			$	50,732			$	—			$	—
Restricted cash equivalents			133,063				133,063				—				—
Investments in marketable securities			16,720				16,720				—				—
Advertising fund cash equivalents, restricted			69,199				69,199				—				—
Investment in DPC Dash			143,553				143,553				—				—

The following table summarizes the carrying amounts and fair values of certain assets at January 1, 2023:

		At January 1, 2023
						Fair Value Estimated Using
		Carrying				Level 1				Level 2				Level 3
		Amount				Inputs				Inputs				Inputs
Cash equivalents		$	23,779			$	23,779			$	—			$	—
Restricted cash equivalents			117,212				117,212				—				—
Investments in marketable securities			13,395				13,395				—				—
Advertising fund cash equivalents, restricted			124,496				124,496				—				—
Investment in DPC Dash			125,840				—				—				125,840

Fair Value of Debt

The estimated fair values of the Company’s Notes (Note 3) are classified as Level 2 measurements, as the Company estimates the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s Notes and, at times, trade these Notes. The Company also performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to those of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented are not necessarily indicative of the amount that the Company or the noteholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated below.

Management estimated the approximate fair values of the Notes as follows:

		December 31, 2023								January 1, 2023
		Principal Amount				Fair Value				Principal Amount				Fair Value
2015 Ten-Year Notes		$	744,000			$	727,632			$	752,000			$	717,408
2017 Ten-Year Notes			942,500				895,375				952,500				875,348
2018 7.5-Year Notes			403,750				392,041				408,000				385,968
2018 9.25-Year Notes			380,000				365,180				384,000				355,584
2019 Ten-Year Notes			649,688				591,865				656,438				564,536
2021 7.5-Year Notes			828,750				730,958				837,250				695,755
2021 Ten-Year Notes			975,000				830,700				985,000				792,925

The Company did not have any outstanding borrowings under its variable funding notes at December 31, 2023 or January 1, 2023.

(5)

Leases

The Company leases certain retail store and supply chain center locations, vehicles, equipment and its corporate headquarters with expiration dates through 2045.

The components of operating and finance lease cost for 2023, 2022 and 2021 were as follows:

		2023				2022				2021
Operating lease cost		$	47,579			$	47,039			$	44,913
Finance lease cost:
Amortization of right-of-use assets			5,545				5,235				4,373
Interest on lease liabilities			4,340				4,369				4,233
Total finance lease cost		$	9,885			$	9,604			$	8,606

Rent expense totaled $85.6 million, $79.6 million and $78.6 million in 2023, 2022 and 2021, respectively. Rent expense includes operating lease cost, as well as expense for non-lease components including common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Rent expense also includes the variable rate per mile driven and fixed maintenance charges for the Company’s supply chain center tractors and trailers and expense for short-term rentals. Rent expense for certain short-term supply chain center tractor and trailer rentals was $5.4 million, $7.0 million and $8.0 million in 2023, 2022 and 2021, respectively. Variable rent expense and rent expense for other short-term leases were immaterial for 2023, 2022 and 2021.

Supplemental balance sheet information related to the Company’s finance leases as of December 31, 2023 and January 1, 2023 was as follows:

		December 31, 2023				January 1, 2023
Land and buildings		$	83,969			$	83,902
Equipment			4,284				1,606
Finance lease assets			88,253				85,508
Accumulated depreciation and amortization			(24,159	)			(19,405	)
Finance lease assets, net		$	64,094			$	66,103
Current portion of long-term debt		$	4,778			$	3,313
Long-term debt, less current portion			68,704				70,886
Total principal payable on finance leases		$	73,482			$	74,199

As of December 31, 2023 and January 1, 2023, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:

		2023								2022
		Operating				Finance				Operating				Finance
		Leases				Leases				Leases				Leases
Weighted average remaining lease term		7 years				13 years				7 years				14 years
Weighted average discount rate			4.3	%			6.1	%			3.9	%			6.0	%

Supplemental cash flow information related to leases for 2023, 2022 and 2021 was as follows:

		2023				2022				2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	46,936			$	45,082			$	44,176
Operating cash flows from finance leases			4,340				4,369				4,233
Financing cash flows from finance leases			4,184				4,176				3,212
Cash paid for amounts included in the measurement of financing obligation from sale leaseback:
Operating cash flows from sale leaseback			201				—				—
Financing cash flows from sale leaseback			21				—				—
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases			34,313				64,660				29,549
Finance leases			3,842				478				18,991

Maturities of lease liabilities as of December 31, 2023 were as follows:

		Operating				Finance
		Leases				Leases
2024		$	49,267			$	8,954
2025			42,647				8,937
2026			41,130				9,555
2027			33,239				8,344
2028			26,278				7,214
Thereafter			64,997				60,946
Total future minimum rental commitments			257,558				103,950
Less, amounts representing interest			(38,680	)			(30,468	)
Total lease liabilities		$	218,878			$	73,482

In the fourth quarter of 2023, a subsidiary of the Company entered into a purchase and sale agreement with a developer to sell one of the Company’s owned supply chain center buildings and the associated land for $14.9 million. Concurrently, a separate subsidiary of the Company entered into a lease agreement with the developer to construct a new supply chain center which includes both the existing building as well as an adjoined new construction on the adjacent properties owned by the developer.

The leaseback of the Company’s building on a standalone basis for the construction period plus the 20-year term using the discount rate implicit in the lease resulted in a finance lease classification, and therefore, the transaction was accounted for as a failed sale leaseback. The Company retained the existing land and buildings on its consolidated balance sheet which are included in property, plant and equipment and the Company continues to depreciate the building as if it owned it. The $14.9 million cash proceeds from the transaction were recorded as a financing obligation which is classified as long-term debt in the Company’s consolidated balance sheet and will be amortized into principal and interest expense over the term of the lease agreement. The $119.5 million of future minimum rent payments associated with the new construction on a standalone basis is included in the disclosure for material leases not yet commenced, below.

As of December 31, 2023, in addition to the lease for the new supply chain construction on a standalone basis discussed above, the Company also had additional leases for certain supply chain and U.S. Company-owned store vehicles that had not yet commenced. The total estimated future minimum rental commitments for all of these arrangements is $146.3 million. These leases are expected to commence in 2024 and 2025 with lease terms of up to 20 years. These undiscounted amounts are not included in the table above.

The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $18.5 million and $24.5 million as of December 31, 2023 and January 1, 2023, respectively. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues or expenses, capital expenditures or liquidity.

(6)

Commitments and Contingencies

The Company is a party to lawsuits, revenue agent reviews by taxing authorities and legal proceedings, of which the majority involve workers’ compensation, employment practices liability, general liability and automobile and franchisee claims arising in the ordinary course of business. The Company records legal fees associated with loss contingencies when they are probable and reasonably estimable. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is unpredictable. These matters could be decided unfavorably and could require the Company to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy. However, the Company does not believe these matters, individually or in the aggregate, will have a material adverse effect on the business or financial condition of the Company, and the Company expects that the established accruals adequately provide for the estimated resolution of such claims.

(7)

Income Taxes

Income before provision for income taxes in 2023, 2022 and 2021 consisted of the following:

		2023				2022				2021
U.S.		$	640,255			$	560,115			$	611,267
Foreign			12,185				12,718				14,438
Income before provision for income taxes		$	652,440			$	572,833			$	625,705

The differences between the U.S. Federal statutory income tax provision (using the statutory rate of 21%) and the Company’s consolidated provision for income taxes for 2023, 2022 and 2021 are summarized as follows:

		2023				2022				2021
Federal income tax provision based on the statutory rate		$	137,012			$	120,295			$	131,398
State and local income taxes, net of related Federal income taxes			19,473				15,978				15,108
Non-resident withholding and foreign income taxes			25,301				23,276				21,833
Foreign tax and other tax credits			(25,786	)			(19,849	)			(23,509	)
Foreign derived intangible income			(17,850	)			(15,068	)			(16,800	)
Excess tax benefits from equity-based compensation			(3,397	)			(2,169	)			(18,911	)
Non-deductible expenses, net			5,040				3,322				4,501
Unrecognized tax provision (benefit), net of related Federal income taxes			16				(3,788	)			4,372
Other			(6,487	)			(1,427	)			(2,754	)
Provision for income taxes		$	133,322			$	120,570			$	115,238

Excess tax benefits from equity-based compensation activity resulted in a decrease in the Company’s provision for income taxes of $3.4 million, $2.2 million and $18.9 million in 2023, 2022 and 2021, respectively, primarily due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

The components of the 2023, 2022 and 2021 consolidated provision for income taxes were as follows:

		2023				2022				2021
Provision for Federal income taxes
Current provision		$	100,287			$	76,552			$	74,910
Deferred (benefit) provision			(16,467	)			4,125				(2,051	)
Total provision for Federal income taxes			83,820				80,677				72,859
Provision for state and local income taxes
Current provision			27,243				20,489				16,507
Deferred (benefit) provision			(2,991	)			577				(461	)
Total provision for state and local income taxes			24,252				21,066				16,046
Provision for non-resident withholding and foreign income taxes
Current provision			25,301				23,276				21,833
Deferred (benefit) provision			(51	)			(4,449	)			4,500
Total provision for non-resident withholding and foreign income taxes			25,250				18,827				26,333
Provision for income taxes		$	133,322			$	120,570			$	115,238

As of December 31, 2023 and January 1, 2023, the significant components of net deferred income taxes were as follows:

		December 31, 2023				January 1, 2023
Deferred income tax assets
Operating lease liabilities		$	53,720			$	56,750
Accruals and reserves			16,176				11,330
Insurance reserves			12,592				13,039
Non-cash equity-based compensation expense			10,309				8,849
Foreign tax credit			16,798				13,464
Other			13,181				12,150
Deferred income tax assets before valuation allowance			122,776				115,582
Less, valuation allowance			(18,166	)			(15,001	)
Deferred income tax assets, net			104,610				100,581
Deferred income tax liabilities
Operating lease right-of-use assets			50,883				54,057
Capitalized software			14,523				27,443
Depreciation, amortization and asset basis differences			12,155				15,851
Unrealized gain on investments			13,369				9,065
Deferred income tax liabilities			90,930				106,416
Net deferred income taxes		$	13,680			$	(5,835	)

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

As of December 31, 2023 and January 1, 2023, the Company had total foreign tax credits of $16.8 million and $13.5 million, respectively, which were fully offset with a corresponding valuation allowance. As of December 31, 2023 and January 1, 2023, the Company also had valuation allowances related to interest deductibility in separately filed states of $1.4 million and $1.5 million, respectively. Management believes the remaining deferred tax assets will be realized. For financial reporting purposes, the Company’s investment in foreign subsidiaries does not exceed its tax basis. Therefore, no deferred income taxes have been provided. In 2023 and 2021, the Company recorded certain unrealized gains on its non-controlling interest in DPC Dash as disclosed in Note 4, and accordingly, has also recorded a deferred tax liability representing the book basis over tax basis related to these unrealized gains.

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

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31, 2023, January 1, 2023 and January 2, 2022 is as follows:

		December 31, 2023				January 1, 2023				January 2, 2022
Unrecognized tax benefits at beginning of period		$	3,902			$	7,690			$	3,318
Additions for tax positions of current year			961				887				2,611
Additions for tax positions of prior years			503				958				2,624
Reductions for changes in prior year tax positions			(551	)			(4,521	)			(379	)
Reductions for lapses of applicable statute of limitations			(897	)			(1,112	)			(484	)
Unrecognized tax benefits at end of period		$	3,918			$	3,902			$	7,690

As of December 31, 2023, the amount of unrecognized tax benefits was $3.9 million of which, if ultimately recognized, $3.9 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of December 31, 2023, the Company had $0.4 million of accrued interest and no accrued penalties.

As of January 1, 2023, the amount of unrecognized tax benefits was $3.9 million of which, if ultimately recognized, $3.6 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of January 1, 2023, the Company had $0.3 million of accrued interest and no accrued penalties.

There are currently no Internal Revenue Service audits in progress for the Company. The Company continues to be under examination by certain states. The Company’s Federal statute of limitation has expired for years prior to 2020, but it varies for state and foreign locations. The Company believes appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.

(8)

Employee Benefits

The Company has a retirement savings plan which qualifies under Internal Revenue Code Section 401(k). All employees of the Company who have completed 1,000 hours of service and are at least 18 years of age are eligible to participate in the plan. Beginning in fiscal 2024, employees aged 18 or older who have also worked at least 60 days for the Company will be eligible to participate in the plan. The plan requires the Company to match 100% of the first 5% of each employee’s elective deferrals. The Company’s matching contributions are made in the form of cash and vested immediately. The expenses incurred for Company contributions to the plan were $12.5 million, $12.4 million and $12.9 million in 2023, 2022 and 2021, respectively.

The Company has established a non-qualified deferred compensation plan available for certain key employees. Under this self-funding plan, the participants may defer up to 40% of their base salary and up to 80% of their bonus compensation. The participants direct the investment of their deferred compensation within several investment funds. The Company is not required to contribute and did not contribute to this plan during 2023, 2022 and 2021.

The Company has an employee stock payroll deduction plan (the “ESPDP”). Under the ESPDP, eligible employees may deduct up to 15% of their eligible wages to purchase common stock at 85% of the market price of the stock at the purchase date. The ESPDP requires employees to hold their purchased common stock for at least one year. The Company purchases common stock on the open market for the ESPDP at the current market price. There were 18,439 shares, 17,378 shares and 16,382 shares of common stock in 2023, 2022 and 2021, respectively, purchased on the open market for participating employees at a weighted-average price of $341.76 in 2023, $391.23 in 2022 and $424.90 in 2021. The expenses incurred under the ESPDP were $0.9 million, $1.0 million, and $1.0 million in 2023, 2022 and 2021, respectively.

(9)

Equity Incentive Plans

The Company’s current equity incentive plan, named the Domino’s Pizza, Inc. 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan”), benefits certain of the Company’s employees and members of the Company’s Board of Directors. As of December 31, 2023, the maximum number of shares that may be granted under the 2004 Equity Incentive Plan is 15,600,000 shares of voting common stock of which 2,172,419 shares were authorized for grant but have not been granted.

The cost of all employee stock options, as well as other equity-based compensation arrangements, is reflected in the consolidated statements of income based on the estimated fair value of the awards and is amortized over the requisite service period of each award. All non-cash equity-based compensation expense amounts are recorded in general and administrative expense. The Company accounts for forfeitures as they occur.

The Company recorded total non-cash equity-based compensation expense of $37.5 million, $28.7 million and $28.7 million in 2023, 2022 and 2021, respectively. The Company recorded a deferred tax benefit related to non-cash equity-based compensation expense of $6.3 million, $4.9 million and $4.3 million in 2023, 2022 and 2021, respectively.

Stock Options

As of December 31, 2023, the number of stock options granted and outstanding under the 2004 Equity Incentive Plan was 686,348 options. Stock options granted in fiscal 2014 through fiscal 2020 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over four years from the date of grant, generally subject to the holder’s continued employment. Stock options granted after fiscal 2020 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over three years from the date of grant, generally subject to the holder’s continued employment. Additionally, all stock options granted become fully exercisable upon vesting. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements.

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

		Common Stock Options
		Outstanding				Weighted Average Exercise Price				Weighted Average Remaining Life				Aggregate Intrinsic Value
										(Years)				(In thousands)
Stock options at January 3, 2021			832,666			$	160.82
Stock options granted			42,742				367.79
Stock options forfeited			(11,990	)			333.61
Stock options exercised			(199,301	)			98.76
Stock options at January 2, 2022			664,117			$	189.64
Stock options granted			49,716				393.44
Stock options forfeited or expired			(8,712	)			375.23
Stock options exercised			(32,979	)			100.44
Stock options at January 1, 2023			672,142			$	206.69
Stock options granted			104,711				300.16
Stock options forfeited or expired			(11,973	)			351.89
Stock options exercised			(78,532	)			110.22
Stock options at December 31, 2023			686,348			$	229.45				4.6			$	125,516
Exercisable at December 31, 2023			543,728			$	203.70				3.5			$	113,439

The total intrinsic value of stock options exercised was $19.6 million, $8.8 million and $77.4 million in 2023, 2022 and 2021, respectively. Cash received from the exercise of stock options was $8.7 million, $3.3 million and $19.7 million in 2023, 2022 and 2021, respectively. The tax benefit realized from stock options exercised was $4.2 million, $1.9 million and $17.6 million in 2023, 2022 and 2021, respectively.

The Company recorded total non-cash equity-based compensation expense of $5.8 million, $4.2 million and $5.7 million in 2023, 2022 and 2021, respectively, related to stock option awards. As of December 31, 2023, there was $8.6 million of total unrecognized compensation cost related to unvested stock options granted under the 2004 Equity Incentive Plan which generally will be recognized on a straight-line basis over the related vesting period. This unrecognized compensation cost is expected to be recognized over a weighted average period of 1.9 years.

Management estimated the fair value of each option grant made during 2023, 2022 and 2021 as of the date of the grant using the Black-Scholes option pricing method. The risk-free interest rate is based on the estimated expected life and is estimated based on U.S. Treasury Bond rates as of the grant date. The expected life is based on several factors, including, among other things, the vesting term and contractual term as well as historical experience. The expected volatility is based principally on the historical volatility of the Company’s share price. Option valuation models require the input of highly subjective assumptions and changes in assumptions can significantly affect the estimated fair value of the Company’s stock options.

The weighted average assumptions used in estimating the fair value of each stock option granted in 2023, 2022 and 2021 using the Black-Scholes option pricing method are presented in the following table:

		2023				2022				2021
Risk-free interest rate			4.0	%			2.0	%			1.0	%
Expected life		5.25 years				5.25 years				5.25 years
Expected volatility			32.0	%			31.0	%			30.0	%
Expected dividend yield			1.6	%			1.1	%			1.0	%
Weighted average fair value per stock option		$	91.25			$	109.05			$	93.46

Other Equity-Based Compensation Arrangements

The Company granted 4,553 units, 3,792 shares and 3,292 shares of restricted stock in 2023, 2022 and 2021, respectively, to members of its Board of Directors. Restricted stock units and awards granted to members of the Company’s Board of Directors were granted with a fair value equal to the market price of the Company’s common stock on the grant date and generally vest one year from the date of grant, generally subject to the director’s continued service. These awards also contain provisions for accelerated vesting upon the retirement eligibility of holders that have achieved specified service and age requirements. The Company recorded total non-cash equity-based compensation expense of $1.6 million in 2023 and $1.4 million in each of 2022 and 2021, related to these restricted stock grants. As of December 31, 2023, there was $0.1 million of total unrecognized compensation cost related to these restricted stock grants.

The Company granted 125,285 units, 81,739 units and 49,963 units of restricted stock in 2023, 2022 and 2021, respectively, to certain employees of the Company. These restricted stock units were granted with a fair value equal to the market price of the Company’s common stock on the grant date. These restricted stock units are generally separated into three tranches and have time-based vesting conditions with the last tranche of the award vesting three years from the grant date, generally subject to the holder’s continued employment. These awards generally also contain provisions for accelerated vesting upon the retirement of holders that have achieved specified service and age requirements. The Company recorded total non-cash equity-based compensation expense of $14.1 million, $11.1 million and $5.4 million in 2023 and 2022, respectively, related to these restricted stock units. As of December 31, 2023, there was $24.9 million of total unrecognized compensation cost related to these restricted stock units.

The Company granted 37,677 units, 8,921 units and 6,546 units of performance-based restricted stock in 2023, 2022 and 2021, respectively, to certain employees of the Company. These restricted stock units were granted with a fair value equal to the market price of the Company’s common stock on the grant date, certain of which were adjusted for the estimated fair value of the market condition included in the award. These performance-based restricted stock units may vest three years from the date of grant, generally subject to the holder’s continued employment, and have time- and performance-based vesting conditions which provide for potential payouts of the target award amount between zero percent and two hundred percent, based on the Company’s three-year achievement as compared to the specified target performance conditions. Certain of the performance-based restricted stock units also include provisions for a potential modifier (upward or downward) based on the Company’s cumulative three-year common stock total shareholder return performance relative to that of a pre-established peer group. These awards contain provisions for full or partial vesting if holder retires during the performance period, after achieving specified service and age requirements. For the awards with a market condition, Management estimated the fair value of each performance-based restricted stock unit using a Monte-Carlo simulation pricing method. The risk-free interest rate is based on the estimated expected life and is estimated based on U.S. Treasury Bond rates as of the grant date. The Monte-Carlo simulation also includes assumptions for expected volatility based principally on the historical volatility of the Company’s share price, as well as the correlation of the Company’s share price as compared to that of the pre-established peer group. The Company recorded total non-cash equity-based compensation expense of $12.8 million, $3.4 million and $1.4 million in 2023, 2022 and 2021, respectively, related to these performance-based restricted stock units. As of December 31, 2023, there was $24.2 million of total estimated unrecognized compensation cost based on current attainment projections related to these performance-based restricted stock units.

The weighted average assumptions used in estimating the fair value of the performance-based restricted stock units granted in 2023, 2022 and 2021 that include a market condition using the Monte-Carlo simulation pricing method are presented in the following table:

		2023				2022				2021
Risk-free interest rate			4.3	%			1.9	%			0.3	%
Expected life		2.80 years				2.81 years				2.75 years
Expected volatility			30.2	%			33.2	%			33.9	%
Weighted average fair value per performance-based restricted stock unit		$	306.19			$	396.87			$	375.85

The Company previously granted performance-based restricted stock to certain employees of the Company. These performance-based restricted stock awards are separated into four tranches and have time-based and performance-based vesting conditions with the last tranche vesting four years from the issuance date, generally subject to the holder’s continued employment. These awards contain provisions for full or partial vesting if holder retires during the performance period, after achieving specified service and age requirements. These awards were considered granted for accounting purposes when the performance target was established, which was generally in the fourth quarter of each year. The Company recorded total non-cash equity-based compensation expense of $3.2 million, $8.0 million and $12.7 million in 2023, 2022 and 2021, respectively, related to these awards. As of December 31, 2023, there was an estimated $0.5 million of total unrecognized compensation cost related to performance-based restricted stock.

In 2018, the Company granted 28,570 shares of restricted stock to two executives of the Company. These awards had a fair value equal to the market price of the Company’s common stock on the grant date and vested in 2022, four years from the date of the grant. The Company recorded total non-cash equity-based compensation expense of $0.6 million in 2022 and $2.1 million in 2021 related to these restricted stock awards.

Activity related to restricted stock awards and units and performance-based restricted stock awards and units awarded under the 2004 Equity Incentive Plan is summarized as follows in the table below. The unrecognized compensation cost related to restricted stock awards and units and performance-based restricted stock awards and units is expected to be recognized over a weighted average period of 2.3 years.

		Shares				Weighted Average Grant Date Fair Value
Nonvested at January 3, 2021			146,762			$	304.69
Shares granted			59,801				382.79
Shares forfeited			(12,924	)			340.94
Shares vested			(48,378	)			287.41
Nonvested at January 2, 2022			145,261			$	339.37
Shares granted			94,452				389.49
Shares forfeited			(18,563	)			375.36
Shares vested			(75,506	)			312.90
Nonvested at January 1, 2023			145,644			$	381.00
Shares granted			167,515				315.51
Shares forfeited			(9,799	)			354.44
Shares vested			(54,225	)			368.41
Nonvested at December 31, 2023			249,135			$	341.86

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Capital Structure

On October 4, 2019, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company’s common stock. 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, which was fully utilized in connection with the ASR Agreement, described below. On July 20, 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, which replaced the previously approved and fully utilized $1.0 billion share repurchase program. As of December 31, 2023, the Company had $141.3 million remaining under its $1.0 billion authorization for repurchases of shares of the Company’s common stock. Subsequent to the end of fiscal 2023, on February 21, 2024, the Company’s Board of Directors authorized an additional share repurchase program to repurchase up to $1.0 billion of the Company’s common stock, in addition to the $141.3 million that was previously remaining for a total authorization of $1.14 billion for future share repurchases.

The Company’s share repurchase programs have historically been funded by excess operating cash flows, excess proceeds from the Company’s recapitalization transactions and borrowings under the Company’s variable funding notes. The Company’s policy is to recognize the difference between the purchase price and par value of the common stock in additional paid-in capital. In instances where there is no additional paid-in capital, the difference is recognized in retained deficit.

During 2023, 2022 and 2021, the Company repurchased 789,977 shares, 739,847 shares and 2,912,558 shares of the Company’s common stock for $269.0 million, $293.7 million and $1.32 billion, respectively.

On April 30, 2021, the Company entered into a $1.0 billion accelerated share repurchase agreement (the “ASR Agreement”) with a counterparty. Pursuant to the terms of the ASR Agreement, on May 3, 2021, the Company used a portion of the proceeds from the 2021 Recapitalization to pay the counterparty $1.0 billion in cash and received and retired 2,012,596 shares of its common stock. Final settlement of the ASR Agreement occurred on July 21, 2021. In connection with the ASR Agreement, the Company received and retired a total of 2,250,786 shares of its common stock at an average price of $444.29.

As of December 31, 2023, authorized common stock consists of 160,000,000 voting shares and 10,000,000 non-voting shares. The share components of outstanding common stock at December 31, 2023 and January 1, 2023 were as follows:

		December 31, 2023				January 1, 2023
Voting			34,722,988				35,416,526
Non-Voting			3,194				3,192
Total Common Stock			34,726,182				35,419,718

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Segment Information

The Company has three reportable segments: (i) U.S. stores; (ii) supply chain; and (iii) international franchise.

The Company’s operations are organized by management on the combined basis of line of business and geography. The U.S. stores segment includes operations with respect to all franchised and Company-owned stores throughout the U.S. The supply chain segment primarily includes the distribution of food, equipment and supplies to stores from the Company’s supply chain center operations in the U.S. and Canada. Over 90% of the Company's supply chain revenues are attributable to the U.S. The international franchise segment primarily includes operations related to the Company’s franchising business in foreign markets. The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its segments and allocates resources to them based on revenues and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income.

The tables below summarize the financial information concerning the Company’s reportable segments for fiscal 2023, 2022 and 2021. Intersegment revenues are comprised of sales of food, equipment and supplies from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income below primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.

		U.S. Stores				Supply Chain				International Franchise				Intersegment Revenues				Other				Total
Revenues
2023		$	1,454,272			$	2,829,224			$	310,077			$	(114,215	)		$	—			$	4,479,358
2022			1,487,409				2,898,069				295,007				(143,327	)			—				4,537,158
2021			1,498,360				2,699,863				298,036				(138,886	)			—				4,357,373
Segment Income
2023		$	520,977			$	245,430			$	259,608			N/A				$	(86,894	)		$	939,121
2022			438,604				208,799				236,144			N/A					(26,022	)			857,525
2021			454,875				229,877				241,873			N/A					(42,926	)			883,699
Capital Expenditures
2023		$	11,942			$	34,044			$	93			N/A				$	59,196			$	105,275
2022			9,830				34,625				—			N/A					44,384				88,839
2021			13,680				37,063				—			N/A					44,894				95,637

In the first quarter of 2023, the Company changed its allocation methodology for certain costs which support certain internally developed software used across the Company's franchise system. This allocation methodology change was implemented in order to reflect the way the chief operating decision maker allocates resources to the Company’s reportable segments and evaluates segment profitability, including the costs of internally developed software. The change in allocation methodology of certain software development costs resulted in an estimated increase in U.S. stores Segment Income of $65.7 million, an estimated increase in international franchise Segment Income of $8.9 million and an estimated decrease in other Segment Income of $74.6 million in 2023. The change in allocation methodology of certain software development costs had no impact on revenues, supply chain Segment Income or total Segment Income. The change in allocation methodology for certain software development costs is a prospective change and the comparative information has not been restated.

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

		2023				2022				2021
Total Segment Income		$	939,121			$	857,525			$	883,699
Depreciation and amortization			(80,640	)			(80,251	)			(72,923	)
Refranchising (loss) gain			(149	)			21,173				—
Loss on sale/disposal of assets			(1,299	)			(1,813	)			(1,189	)
Non-cash equity-based compensation expense			(37,514	)			(28,709	)			(28,670	)
Recapitalization-related expenses			—				—				(509	)
Income from operations			819,519				767,925				780,408
Other income			17,713				—				36,758
Interest income			11,683				3,162				345
Interest expense			(196,475	)			(198,254	)			(191,806	)
Income before provision for income taxes		$	652,440			$	572,833			$	625,705

The following table summarizes the Company’s identifiable asset information by reportable segment as of December 31, 2023 and January 1, 2023:

		December 31, 2023				January 1, 2023
U.S. stores		$	232,336			$	288,149
Supply chain			631,908				614,168
International franchise			37,981				36,874
Unallocated			772,674				663,030
Total assets		$	1,674,899			$	1,602,221

Unallocated assets primarily include cash and cash equivalents, restricted cash and cash equivalents, certain accounts receivable and prepaid expenses, investments in equity securities without readily determinable fair values and marketable securities, certain long-lived assets including certain property, plant and equipment, capitalized software and the operating lease right-of-use asset for the Company’s corporate headquarters and deferred income taxes. Over 95% of the Company's long-lived assets including property, plant and equipment, capitalized software and operating lease right-of-use assets are located in the U.S.

The following table summarizes the Company’s goodwill balance by reportable segment as of December 31, 2023 and January 1, 2023:

		December 31, 2023				January 1, 2023
U.S. stores		$	10,621			$	10,696
Supply chain			1,067				1,067
Consolidated goodwill		$	11,688			$	11,763

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Company-owned Store Transactions

During the first quarter of 2023, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million. The pre-tax refranchising loss associated with the sale of the related assets and liabilities, including goodwill, was approximately $0.1 million and was recorded in refranchising loss in the Company’s consolidated statements of income.

During 2022, the Company purchased 23 U.S. franchised stores in Michigan from certain of the Company’s existing U.S. franchisees for $6.8 million, which included $4.0 million of intangibles, $1.7 million of equipment and leasehold improvements and $1.1 million of goodwill.

Also during 2022, the Company refranchised 114 U.S. Company-owned stores in Arizona and Utah for proceeds of $41.1 million. In connection with the refranchising of the stores, the Company recorded a $21.2 million pre-tax gain on the sale of the related assets and liabilities, including a $4.3 million reduction in goodwill. The net gain on the sale of these stores was recorded in refranchising gain in the Company’s consolidated statements of income.