filings.toolsItem 1. Financial Statements.
47K characters. Original on sec.gov ·
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Conden****sed Consolidated Balance Sheets
(Unaudited)
| (In thousands) | June 16, 2024 | December 31, 2023 (1) | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 283,699 | $ | 114,098 | ||||
| Restricted cash and cash equivalents | 197,019 | 200,870 | ||||||
| Accounts receivable, net | 285,961 | 282,809 | ||||||
| Inventories | 69,279 | 82,964 | ||||||
| Prepaid expenses and other | 50,291 | 30,215 | ||||||
| Advertising fund assets, restricted | 99,849 | 106,335 | ||||||
| Total current assets | 986,098 | 817,291 | ||||||
| Property, plant and equipment: | ||||||||
| Land and buildings | 108,653 | 108,791 | ||||||
| Leasehold and other improvements | 183,647 | 176,817 | ||||||
| Equipment | 381,036 | 364,620 | ||||||
| Construction in progress | 14,188 | 24,505 | ||||||
| 687,524 | 674,733 | |||||||
| Accumulated depreciation and amortization | (391,121 | ) | (370,368 | ) | ||||
| Property, plant and equipment, net | 296,403 | 304,365 | ||||||
| Other assets: | ||||||||
| Operating lease right-of-use assets | 210,919 | 207,323 | ||||||
| Goodwill | 11,578 | 11,688 | ||||||
| Capitalized software, net | 147,677 | 134,105 | ||||||
| Investment in DPC Dash | 136,252 | 143,553 | ||||||
| Deferred income tax assets, net | 19,940 | 13,680 | ||||||
| Other assets | 47,139 | 42,894 | ||||||
| Total other assets | 573,505 | 553,243 | ||||||
| Total assets | $ | 1,856,006 | $ | 1,674,899 | ||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 4,938 | $ | 56,366 | ||||
| Accounts payable | 110,556 | 106,267 | ||||||
| Operating lease liabilities | 39,955 | 39,330 | ||||||
| Insurance reserves | 27,574 | 28,135 | ||||||
| Dividends payable | 54,478 | 1,514 | ||||||
| Advertising fund liabilities | 97,845 | 104,246 | ||||||
| Other accrued liabilities | 172,482 | 211,492 | ||||||
| Total current liabilities | 507,828 | 547,350 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt, less current portion | 4,973,676 | 4,934,062 | ||||||
| Operating lease liabilities | 183,429 | 179,548 | ||||||
| Insurance reserves | 35,707 | 38,559 | ||||||
| Other accrued liabilities | 46,491 | 45,747 | ||||||
| Total long-term liabilities | 5,239,303 | 5,197,916 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock | 350 | 347 | ||||||
| Additional paid-in capital | 30,008 | 2,801 | ||||||
| Retained deficit | (3,916,008 | ) | (4,069,648 | ) | ||||
| Accumulated other comprehensive loss | (5,475 | ) | (3,867 | ) | ||||
| Total stockholders’ deficit | (3,891,125 | ) | (4,070,367 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 1,856,006 | $ | 1,674,899 |
(1) The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
Condense****d Consolidated Statements of Income
(Unaudited)
| Fiscal Quarter Ended | Two Fiscal Quarters Ended | |||||||||||||||
| June 16, | June 18, | June 16, | June 18, | |||||||||||||
| (In thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Revenues: | ||||||||||||||||
| U.S. Company-owned stores | $ | 92,264 | $ | 87,694 | $ | 184,913 | $ | 172,605 | ||||||||
| U.S. franchise royalties and fees | 147,576 | 139,268 | 298,094 | 272,132 | ||||||||||||
| Supply chain | 659,244 | 615,711 | 1,318,458 | 1,239,937 | ||||||||||||
| International franchise royalties and fees | 73,696 | 70,495 | 145,662 | 140,166 | ||||||||||||
| U.S. franchise advertising | 124,956 | 111,459 | 235,256 | 224,185 | ||||||||||||
| Total revenues | 1,097,736 | 1,024,627 | 2,182,383 | 2,049,025 | ||||||||||||
| Cost of sales: | ||||||||||||||||
| U.S. Company-owned stores | 76,059 | 71,423 | 152,517 | 141,995 | ||||||||||||
| Supply chain | 584,646 | 548,548 | 1,170,965 | 1,116,827 | ||||||||||||
| Total cost of sales | 660,705 | 619,971 | 1,323,482 | 1,258,822 | ||||||||||||
| Gross margin | 437,031 | 404,656 | 858,901 | 790,203 | ||||||||||||
| General and administrative | 115,947 | 97,794 | 216,971 | 192,983 | ||||||||||||
| U.S. franchise advertising | 124,956 | 111,459 | 235,256 | 224,185 | ||||||||||||
| Refranchising loss | 25 | — | 158 | 149 | ||||||||||||
| Income from operations | 196,103 | 195,403 | 406,516 | 372,886 | ||||||||||||
| Other income (expense) | 11,398 | (14,964 | ) | (7,301 | ) | (14,964 | ) | |||||||||
| Interest income | 4,219 | 2,537 | 7,958 | 4,928 | ||||||||||||
| Interest expense | (44,721 | ) | (44,932 | ) | (90,567 | ) | (91,479 | ) | ||||||||
| Income before provision for income taxes | 166,999 | 138,044 | 316,606 | 271,371 | ||||||||||||
| Provision for income taxes | 25,021 | 28,664 | 48,804 | 57,221 | ||||||||||||
| Net income | $ | 141,978 | $ | 109,380 | $ | 267,802 | $ | 214,150 | ||||||||
| Earnings per share: | ||||||||||||||||
| Common stock - basic | $ | 4.07 | $ | 3.11 | $ | 7.68 | $ | 6.07 | ||||||||
| Common stock - diluted | $ | 4.03 | $ | 3.08 | $ | 7.61 | $ | 6.02 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolida****ted Statements of Comprehensive Income
(Unaudited)
| Fiscal Quarter Ended | Two Fiscal Quarters Ended | |||||||||||||||
| June 16, | June 18, | June 16, | June 18, | |||||||||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net income | $ | 141,978 | $ | 109,380 | $ | 267,802 | $ | 214,150 | ||||||||
| Currency translation adjustment | (483 | ) | 1,378 | (1,608 | ) | 927 | ||||||||||
| Comprehensive income | $ | 141,495 | $ | 110,758 | $ | 266,194 | $ | 215,077 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Two Fiscal Quarters Ended | ||||||||
| June 16, | June 18, | |||||||
| (In thousands) | 2024 | 2023 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 267,802 | $ | 214,150 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 40,218 | 36,731 | ||||||
| Refranchising loss | 158 | 149 | ||||||
| Loss on sale/disposal of assets | 327 | 402 | ||||||
| Amortization of debt issuance costs | 2,475 | 2,578 | ||||||
| Benefit for deferred income taxes | (6,246 | ) | (7,596 | ) | ||||
| Non-cash equity-based compensation expense | 22,024 | 17,065 | ||||||
| Excess tax benefits from equity-based compensation | (20,238 | ) | (133 | ) | ||||
| Provision for losses on accounts and notes receivable | 111 | 1,166 | ||||||
| Unrealized loss on investments | 7,301 | 14,964 | ||||||
| Changes in operating assets and liabilities | (31,660 | ) | (33,794 | ) | ||||
| Changes in advertising fund assets and liabilities, restricted | (8,122 | ) | (3,391 | ) | ||||
| Net cash provided by operating activities | 274,150 | 242,291 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (43,683 | ) | (37,980 | ) | ||||
| Other | (1,277 | ) | (1,211 | ) | ||||
| Net cash used in investing activities | (44,960 | ) | (39,191 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of long-term debt and finance lease obligations | (14,764 | ) | (27,186 | ) | ||||
| Proceeds from exercise of stock options | 31,467 | 1,051 | ||||||
| Purchases of common stock | (25,000 | ) | (120,847 | ) | ||||
| Tax payments for restricted stock upon vesting | (9,260 | ) | (3,068 | ) | ||||
| Payments of common stock dividends and equivalents | (53,100 | ) | (42,930 | ) | ||||
| Net cash used in financing activities | (70,657 | ) | (192,980 | ) | ||||
| Effect of exchange rate changes on cash | (990 | ) | 494 | |||||
| Change in cash and cash equivalents, restricted cash and cash equivalents | 157,543 | 10,614 | ||||||
| Cash and cash equivalents, beginning of period | 114,098 | 60,356 | ||||||
| Restricted cash and cash equivalents, beginning of period | 200,870 | 191,289 | ||||||
| Cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 88,165 | 143,559 | ||||||
| Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 403,133 | 395,204 | ||||||
| Cash and cash equivalents, end of period | 283,699 | 77,020 | ||||||
| Restricted cash and cash equivalents, end of period | 197,019 | 189,694 | ||||||
| Cash and cash equivalents included in advertising fund assets, restricted, end of period | 79,958 | 139,104 | ||||||
| Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period | $ | 560,676 | $ | 405,818 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Domino’s Pizza, Inc. and Subsidiaries
Notes t****o Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except share and per share amounts)
June 16, 2024
- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 26, 2024 (the “2023 Form 10-K”).
In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter and two fiscal quarters ended June 16, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2024.
- Segment Information
The tables below summarize the financial information concerning the Company’s reportable segments for the second quarter and two fiscal quarters of 2024 and the second quarter and two fiscal quarters of 2023. 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.
| Fiscal Quarters Ended June 16, 2024 and June 18, 2023 | ||||||||||||||||||||||||
| U.S. | Supply | International | Intersegment | |||||||||||||||||||||
| Stores | Chain | Franchise | Revenues | Other | Total | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| 2024 | $ | 364,796 | $ | 686,464 | $ | 73,696 | $ | (27,220 | ) | $ | — | $ | 1,097,736 | |||||||||||
| 2023 | 338,421 | 641,481 | 70,495 | (25,770 | ) | — | 1,024,627 | |||||||||||||||||
| Segment Income | ||||||||||||||||||||||||
| 2024 | $ | 129,482 | $ | 64,986 | $ | 59,097 | N/A | $ | (26,165 | ) | $ | 227,400 | ||||||||||||
| 2023 | 123,592 | 60,026 | 58,865 | N/A | (18,865 | ) | 223,618 |
| Two Fiscal Quarters Ended June 16, 2024 and June 18, 2023 | ||||||||||||||||||||||||
| U.S. | Supply | International | Intersegment | |||||||||||||||||||||
| Stores | Chain | Franchise | Revenues | Other | Total | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| 2024 | $ | 718,263 | $ | 1,373,390 | $ | 145,662 | $ | (54,932 | ) | $ | — | $ | 2,182,383 | |||||||||||
| 2023 | 668,922 | 1,291,605 | 140,166 | (51,668 | ) | — | 2,049,025 | |||||||||||||||||
| Segment Income | ||||||||||||||||||||||||
| 2024 | $ | 265,590 | $ | 129,563 | $ | 118,429 | N/A | $ | (44,339 | ) | $ | 469,243 | ||||||||||||
| 2023 | 236,275 | 108,541 | 117,004 | N/A | (34,587 | ) | 427,233 |
The following table reconciles total Segment Income to consolidated income before provision for income taxes.
| Fiscal Quarter Ended | Two Fiscal Quarters Ended | |||||||||||||||
| June 16, | June 18, | June 16, | June 18, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Total Segment Income | $ | 227,400 | $ | 223,618 | $ | 469,243 | $ | 427,233 | ||||||||
| Depreciation and amortization | (20,349 | ) | (18,561 | ) | (40,218 | ) | (36,731 | ) | ||||||||
| Refranchising loss | (25 | ) | — | (158 | ) | (149 | ) | |||||||||
| Loss on sale/disposal of assets | (237 | ) | (127 | ) | (327 | ) | (402 | ) | ||||||||
| Non-cash equity-based compensation expense | (10,686 | ) | (9,527 | ) | (22,024 | ) | (17,065 | ) | ||||||||
| Income from operations | 196,103 | 195,403 | 406,516 | 372,886 | ||||||||||||
| Other income (expense) | 11,398 | (14,964 | ) | (7,301 | ) | (14,964 | ) | |||||||||
| Interest income | 4,219 | 2,537 | 7,958 | 4,928 | ||||||||||||
| Interest expense | (44,721 | ) | (44,932 | ) | (90,567 | ) | (91,479 | ) | ||||||||
| Income before provision for income taxes | $ | 166,999 | $ | 138,044 | $ | 316,606 | $ | 271,371 |
- Earnings Per Share
| Fiscal Quarter Ended | Two Fiscal Quarters Ended | |||||||||||||||
| June 16, | June 18, | June 16, | June 18, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income available to common stockholders - basic and diluted | $ | 141,978 | $ | 109,380 | $ | 267,802 | $ | 214,150 | ||||||||
| Basic weighted average number of shares | 34,904,786 | 35,199,067 | 34,852,548 | 35,295,346 | ||||||||||||
| Earnings per share – basic | $ | 4.07 | $ | 3.11 | $ | 7.68 | $ | 6.07 | ||||||||
| Diluted weighted average number of shares | 35,224,080 | 35,492,423 | 35,199,277 | 35,601,335 | ||||||||||||
| Earnings per share – diluted | $ | 4.03 | $ | 3.08 | $ | 7.61 | $ | 6.02 |
The denominators used in calculating diluted earnings per share for common stock for the fiscal quarters and two fiscal quarters each ended June 16, 2024 and June 18, 2023 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:
| Fiscal Quarter Ended | Two Fiscal Quarters Ended | |||||||||||||||
| June 16, | June 18, | June 16, | June 18, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Anti-dilutive shares underlying stock-based awards | ||||||||||||||||
| Stock options | 44,305 | 227,276 | 46,669 | 229,156 | ||||||||||||
| Restricted stock awards and units | — | 35,064 | — | 36,378 | ||||||||||||
| Performance condition not met | ||||||||||||||||
| Restricted stock awards and units | 49,908 | 59,675 | 49,908 | 59,675 |
- Stockholders’ Deficit
The following table summarizes the changes in stockholders’ deficit for the second quarter of 2024.
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | ||||||||||||||||
| Balance at March 24, 2024 | 34,801,757 | $ | 348 | $ | 1,191 | $ | (4,004,877 | ) | $ | (4,992 | ) | |||||||||
| Net income | — | — | — | 141,978 | — | |||||||||||||||
| Dividends declared on common stock and equivalents ($1.51 per share) | — | — | — | (53,109 | ) | — | ||||||||||||||
| Issuance and cancellation of stock awards, net | 17,616 | — | — | — | — | |||||||||||||||
| Tax payments for restricted stock upon vesting | (5,175 | ) | — | (2,560 | ) | — | — | |||||||||||||
| Exercise of stock options | 142,425 | 2 | 20,691 | — | — | |||||||||||||||
| Non-cash equity-based compensation expense | — | — | 10,686 | — | — | |||||||||||||||
| Currency translation adjustment | — | — | — | — | (483 | ) | ||||||||||||||
| Balance at June 16, 2024 | 34,956,623 | $ | 350 | $ | 30,008 | $ | (3,916,008 | ) | $ | (5,475 | ) |
The following table summarizes the changes in stockholders’ deficit for the two fiscal quarters of 2024.
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | ||||||||||||||||
| Balance at December 31, 2023 | 34,726,182 | $ | 347 | $ | 2,801 | $ | (4,069,648 | ) | $ | (3,867 | ) | |||||||||
| Net income | — | — | — | 267,802 | — | |||||||||||||||
| Dividends declared on common stock and equivalents ($3.02 per share) | — | — | — | (106,063 | ) | — | ||||||||||||||
| Issuance and cancellation of stock awards, net | 61,669 | 1 | — | — | — | |||||||||||||||
| Tax payments for restricted stock upon vesting | (20,388 | ) | — | (9,260 | ) | — | — | |||||||||||||
| Purchases of common stock | (56,372 | ) | (1 | ) | (17,021 | ) | (8,099 | ) | — | |||||||||||
| Exercise of stock options | 245,532 | 3 | 31,464 | — | — | |||||||||||||||
| Non-cash equity-based compensation expense | — | — | 22,024 | — | — | |||||||||||||||
| Currency translation adjustment | — | — | — | — | (1,608 | ) | ||||||||||||||
| Balance at June 16, 2024 | 34,956,623 | $ | 350 | $ | 30,008 | $ | (3,916,008 | ) | $ | (5,475 | ) |
Subsequent to the end of the second quarter of 2024, on July 16, 2024, the Company’s Board of Directors declared a $1.51 per share quarterly dividend on its outstanding common stock for shareholders of record as of September 13, 2024 to be paid on September 30, 2024.
The following table summarizes the changes in stockholders’ deficit for the second quarter of 2023.
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | ||||||||||||||||
| Balance at March 26, 2023 | 35,330,133 | $ | 353 | $ | 1,474 | $ | (4,148,455 | ) | $ | (5,145 | ) | |||||||||
| Net income | — | — | — | 109,380 | — | |||||||||||||||
| Dividends declared on common stock and equivalents ($1.21 per share) | — | — | — | (42,645 | ) | — | ||||||||||||||
| Issuance and cancellation of stock awards, net | 14,078 | — | — | — | — | |||||||||||||||
| Tax payments for restricted stock upon vesting | (4,596 | ) | — | (1,515 | ) | — | — | |||||||||||||
| Purchases of common stock | (292,030 | ) | (2 | ) | (6,824 | ) | (84,800 | ) | — | |||||||||||
| Exercise of stock options | 10,000 | — | 708 | — | — | |||||||||||||||
| Non-cash equity-based compensation expense | — | — | 9,527 | — | — | |||||||||||||||
| Currency translation adjustment | — | — | — | — | 1,378 | |||||||||||||||
| Balance at June 18, 2023 | 35,057,585 | $ | 351 | $ | 3,370 | $ | (4,166,520 | ) | $ | (3,767 | ) |
The following table summarizes the changes in stockholders’ deficit for the two fiscal quarters of 2023.
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | ||||||||||||||||
| Balance at January 1, 2023 | 35,419,718 | $ | 354 | $ | 9,693 | $ | (4,194,418 | ) | $ | (4,694 | ) | |||||||||
| Net income | — | — | — | 214,150 | — | |||||||||||||||
| Dividends declared on common stock and equivalents ($2.42 per share) | — | — | — | (85,650 | ) | — | ||||||||||||||
| Issuance and cancellation of stock awards, net | 28,573 | — | — | — | — | |||||||||||||||
| Tax payments for restricted stock upon vesting | (9,669 | ) | — | (3,068 | ) | — | — | |||||||||||||
| Purchases of common stock | (392,545 | ) | (3 | ) | (21,371 | ) | (100,602 | ) | — | |||||||||||
| Exercise of stock options | 11,508 | — | 1,051 | — | — | |||||||||||||||
| Non-cash equity-based compensation expense | — | — | 17,065 | — | — | |||||||||||||||
| Currency translation adjustment | — | — | — | — | 927 | |||||||||||||||
| Balance at June 18, 2023 | 35,057,585 | $ | 351 | $ | 3,370 | $ | (4,166,520 | ) | $ | (3,767 | ) |
- Leverage Ratio
In accordance with the Company’s debt agreements, the payment of principal on the outstanding senior notes may be suspended if the Holdco Leverage Ratio is less than or equal to 5.0x total debt to adjusted EBITDA, as defined in the related agreements, and no catch-up provisions are applicable. As of the end of the first and second quarters of 2024, the Company had a Holdco Leverage Ratio of less than 5.0x, and accordingly, did not make the previously scheduled debt amortization payments for its outstanding notes beginning in the second quarter of 2024. Accordingly, all principal amounts of the Company’s outstanding notes have been classified as long-term debt in the condensed consolidated balance sheet as of June 16, 2024.
- 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 Ltd (“DPC Dash”), the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. 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 condensed consolidated statements of income. As of June 16, 2024, the fair value of the Company’s investment in 18,101,019 DPC Dash ordinary shares is based on the active exchange quoted price for the equity security of HK$58.80 per share (HK: 1405).
The Company recorded a positive adjustment of $11.4 million in the second quarter of 2024 and a negative adjustment of $7.3 million in the two fiscal quarters of 2024 to the carrying amount of its investment in DPC Dash. These amounts were recorded in other income (expense) in the Company’s condensed consolidated statements of income. The Company recorded a negative adjustment to the carrying amount of its investment in DPC Dash of $15.0 million in the second quarter of 2023 and did not record any adjustments to the carrying amount of its investment in the first quarter of 2023.
The following tables summarize the carrying amounts and fair values of certain assets at June 16, 2024 and December 31, 2023:
| At June 16, 2024 | ||||||||||||||||
| Fair Value Estimated Using | ||||||||||||||||
| Carrying | Level 1 | Level 2 | Level 3 | |||||||||||||
| Amount | Inputs | Inputs | Inputs | |||||||||||||
| Cash equivalents | $ | 231,511 | $ | 231,511 | $ | — | $ | — | ||||||||
| Restricted cash equivalents | 132,579 | 132,579 | — | — | ||||||||||||
| Investments in marketable securities | 19,063 | 19,063 | — | — | ||||||||||||
| Advertising fund cash equivalents, restricted | 56,881 | 56,881 | — | — | ||||||||||||
| Investment in DPC Dash | 136,252 | 136,252 | — | — |
| 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 | — | — |
Fair Value of Debt
The estimated fair values of the Company’s fixed rate notes 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 fixed rate 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 Company’s 2015, 2017, 2018, 2019 and 2021 notes as follows:
| June 16, 2024 | December 31, 2023 | |||||||||||||||
| Principal Amount | Fair Value | Principal Amount | Fair Value | |||||||||||||
| 2015 Ten-Year Notes | $ | 742,000 | $ | 727,902 | $ | 744,000 | $ | 727,632 | ||||||||
| 2017 Ten-Year Notes | 940,000 | 899,580 | 942,500 | 895,375 | ||||||||||||
| 2018 7.5-Year Notes | 402,688 | 393,023 | 403,750 | 392,041 | ||||||||||||
| 2018 9.25-Year Notes | 379,000 | 365,735 | 380,000 | 365,180 | ||||||||||||
| 2019 Ten-Year Notes | 648,000 | 592,920 | 649,688 | 591,865 | ||||||||||||
| 2021 7.5-Year Notes | 826,625 | 735,696 | 828,750 | 730,958 | ||||||||||||
| 2021 Ten-Year Notes | 972,500 | 840,240 | 975,000 | 830,700 |
The Company did not have any outstanding borrowings under its variable funding notes at June 16, 2024 or December 31, 2023.
- Revenue Disclosures
Contract Liabilities
Contract liabilities primarily consist of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $5.3 million were included in current other accrued liabilities as of both June 16, 2024 and December 31, 2023. Deferred franchise fees and deferred development fees of $18.9 million and $19.9 million were included in long-term other accrued liabilities as of June 16, 2024 and December 31, 2023, respectively.
Changes in deferred franchise fees and deferred development fees for the two fiscal quarters of 2024 and 2023 were as follows:
| Two Fiscal Quarters Ended | ||||||||
| June 16, | June 18, | |||||||
| 2024 | 2023 | |||||||
| Deferred franchise fees and deferred development fees, beginning of period | $ | 25,195 | $ | 28,225 | ||||
| Revenue recognized during the period | (2,737 | ) | (2,716 | ) | ||||
| New deferrals due to cash received and other | 1,769 | 1,400 | ||||||
| Deferred franchise fees and deferred development fees, end of period | $ | 24,227 | $ | 26,909 |
Advertising Fund Assets
As of June 16, 2024, advertising fund assets, restricted of $99.8 million consisted of $80.0 million of cash and cash equivalents, $10.9 million of accounts receivable and $8.9 million of prepaid expenses. As of June 16, 2024, advertising fund cash and cash equivalents included $2.0 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
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.
Change in Advertising Fund Contributions and Technology Fees
As previously announced, as of March 27, 2023, Domino's National Advertising Fund Inc., the Company’s consolidated not-for-profit advertising subsidiary, effectuated a temporary reduction of 0.25% to its standard 6.0% advertising contribution rate. This temporary reduction expired at the beginning of the second quarter of 2024 and the advertising contribution rate returned to its standard 6.0% as of March 25, 2024.
Additionally, as of March 25, 2024, the Company decreased the U.S. digital per-transaction technology fees that are recognized as the related U.S. franchise retail sales occur by $0.04 to $0.355.
- Leases
The Company leases certain retail store and supply chain center locations, vehicles, equipment and its corporate headquarters with expiration dates through 2045. Rent expense totaled $21.0 million and $42.2 million in the second quarter and two fiscal quarters of 2024, respectively. Rent expense totaled $19.7 million and $39.0 million in the second quarter and two fiscal quarters of 2023, 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 $1.9 million and $3.9 million in the second quarter and two fiscal quarters of 2024, respectively. Rent expense for certain short-term supply chain center tractor and trailer rentals was $1.3 million and $2.7 million in the second quarter and two fiscal quarters of 2023, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in each of the second quarter and two fiscal quarters of 2024 and 2023.
The components of operating and finance lease cost for the second quarter and two fiscal quarters of 2024 and the second quarter and two fiscal quarters 2023 were as follows:
| Fiscal Quarter Ended | Two Fiscal Quarters Ended | |||||||||||||||
| June 16, | June 18, | June 16, | June 18, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease cost | $ | 11,462 | $ | 10,867 | $ | 22,715 | $ | 21,675 | ||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | 1,322 | 1,313 | 2,646 | 2,512 | ||||||||||||
| Interest on lease liabilities | 973 | 1,015 | 1,957 | 1,998 | ||||||||||||
| Total finance lease cost | $ | 2,295 | $ | 2,328 | $ | 4,603 | $ | 4,510 |
Supplemental cash flow information related to leases for the two fiscal quarters of 2024 and the two fiscal quarters of 2023 was as follows:
| Two Fiscal Quarters Ended | ||||||||
| June 16, | June 18, | |||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 21,736 | $ | 20,092 | ||||
| Operating cash flows from finance leases | 1,957 | 1,998 | ||||||
| Financing cash flows from finance leases | 1,853 | 1,436 | ||||||
| Cash paid for amounts included in the measurement of financing obligation from sale leaseback: | ||||||||
| Operating cash flows from sale leaseback | 598 | — | ||||||
| Financing cash flows from sale leaseback | 36 | — | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | 26,469 | 12,175 | ||||||
| Finance leases | 1,296 | 3,054 |
As of June 16, 2024, the Company had additional leases for certain supply chain real estate and certain supply chain vehicles that had not yet commenced with estimated future minimum rental commitments of $154.8 million. These leases are expected to commence in 2024 and 2025 with lease terms of up to 20 years. These undiscounted amounts will be included in the Company’s condensed consolidated balance sheet at the respective commencement dates.
The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $15.6 million and $18.5 million as of June 16, 2024 and December 31, 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, expenses or liquidity.
- Supplemental Disclosures of Cash Flow Information
The Company had non-cash investing activities related to accruals for capital expenditures of $8.8 million at June 16, 2024 and $6.7 million at December 31, 2023. The Company also had $2.7 million and $2.6 million in non-cash financing activity related to accruals for excise taxes on share repurchases as of June 16, 2024 and December 31, 2023, respectively.
- Company-owned Store Transactions
During each of the first and second quarters of 2024, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million each. The pre-tax refranchising losses associated with the sale of the related assets and liabilities, including goodwill, were approximately $0.1 million each and were recorded in refranchising loss in the Company’s condensed consolidated statements of income.
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 condensed consolidated statements of income.
- New Accounting Pronouncements
The Company has considered all new accounting standards issued by the Financial Accounting Standards Board (“FASB”). The Company has not yet adopted the following standards:
Accounting Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2020-04, 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, of 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, of a tabular reconciliation, including both amount and percentage 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.
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