filings.toolsItem 1. Financial Statements.
45K characters. Original on sec.gov · Markdown
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Conden****sed Consolidated Balance Sheets
(Unaudited)
| (In thousands) | March 23, 2025 | December 29, 2024 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 304,320 | $ | 186,126 | ||||
| Restricted cash and cash equivalents | 197,412 | 195,370 | ||||||
| Accounts receivable, net | 302,837 | 309,104 | ||||||
| Inventories | 73,236 | 70,919 | ||||||
| Prepaid expenses and other | 38,528 | 40,363 | ||||||
| Advertising fund assets, restricted | 99,601 | 103,396 | ||||||
| Total current assets | 1,015,934 | 905,278 | ||||||
| Property, plant and equipment: | ||||||||
| Land and buildings | 104,355 | 104,793 | ||||||
| Leasehold and other improvements | 196,227 | 191,718 | ||||||
| Equipment | 398,077 | 390,542 | ||||||
| Construction in progress | 16,336 | 22,717 | ||||||
| 714,995 | 709,770 | |||||||
| Accumulated depreciation and amortization | (420,069 | ) | (408,591 | ) | ||||
| Property, plant and equipment, net | 294,926 | 301,179 | ||||||
| Other assets: | ||||||||
| Operating lease right-of-use assets | 217,097 | 210,302 | ||||||
| Goodwill | 12,117 | 11,578 | ||||||
| Capitalized software, net | 156,119 | 155,025 | ||||||
| Investment in DPC Dash | 106,726 | 82,699 | ||||||
| Deferred income tax assets, net | 25,722 | 23,432 | ||||||
| Other assets | 48,978 | 47,520 | ||||||
| Total other assets | 566,759 | 530,556 | ||||||
| Total assets | $ | 1,877,619 | $ | 1,737,013 | ||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 1,149,764 | $ | 1,149,679 | ||||
| Accounts payable | 123,086 | 85,898 | ||||||
| Operating lease liabilities | 42,194 | 39,920 | ||||||
| Insurance reserves | 24,646 | 25,658 | ||||||
| Dividends payable | 61,429 | 2,246 | ||||||
| Advertising fund liabilities | 97,403 | 101,567 | ||||||
| Other accrued liabilities | 198,238 | 207,494 | ||||||
| Total current liabilities | 1,696,760 | 1,612,462 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt, less current portion | 3,825,995 | 3,825,659 | ||||||
| Operating lease liabilities | 188,547 | 181,983 | ||||||
| Insurance reserves | 32,667 | 33,229 | ||||||
| Other accrued liabilities | 46,338 | 45,971 | ||||||
| Total long-term liabilities | 4,093,547 | 4,086,842 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock | 342 | 343 | ||||||
| Additional paid-in capital | 892 | 1,272 | ||||||
| Retained deficit | (3,906,833 | ) | (3,956,474 | ) | ||||
| Accumulated other comprehensive loss | (7,089 | ) | (7,432 | ) | ||||
| Total stockholders’ deficit | (3,912,688 | ) | (3,962,291 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 1,877,619 | $ | 1,737,013 |
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 | ||||||||
| March 23, | March 24, | |||||||
| (In thousands, except per share data) | 2025 | 2024 | ||||||
| Revenues: | ||||||||
| U.S. Company-owned stores | $ | 91,598 | $ | 92,649 | ||||
| U.S. franchise royalties and fees | 151,000 | 150,518 | ||||||
| Supply chain | 669,924 | 659,214 | ||||||
| International franchise royalties and fees | 75,559 | 71,966 | ||||||
| U.S. franchise advertising | 123,975 | 110,300 | ||||||
| Total revenues | 1,112,056 | 1,084,647 | ||||||
| Cost of sales: | ||||||||
| U.S. Company-owned stores | 76,911 | 76,458 | ||||||
| Supply chain | 591,998 | 586,319 | ||||||
| Total cost of sales | 668,909 | 662,777 | ||||||
| Gross margin | 443,147 | 421,870 | ||||||
| General and administrative | 109,077 | 101,024 | ||||||
| U.S. franchise advertising | 123,975 | 110,300 | ||||||
| Refranchising loss | — | 133 | ||||||
| Income from operations | 210,095 | 210,413 | ||||||
| Other income (expense) | 24,027 | (18,699 | ) | |||||
| Interest income | 3,945 | 3,739 | ||||||
| Interest expense | (45,585 | ) | (45,846 | ) | ||||
| Income before provision for income taxes | 192,482 | 149,607 | ||||||
| Provision for income taxes | 42,831 | 23,783 | ||||||
| Net income | $ | 149,651 | $ | 125,824 | ||||
| Earnings per share: | ||||||||
| Common stock - basic | $ | 4.37 | $ | 3.62 | ||||
| Common stock - diluted | $ | 4.33 | $ | 3.58 |
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 | ||||||||
| March 23, | March 24, | |||||||
| (In thousands) | 2025 | 2024 | ||||||
| Net income | $ | 149,651 | $ | 125,824 | ||||
| Currency translation adjustment | 343 | (1,125 | ) | |||||
| Comprehensive income | $ | 149,994 | $ | 124,699 |
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)
| Fiscal Quarter Ended | ||||||||
| March 23, | March 24, | |||||||
| (In thousands) | 2025 | 2024 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 149,651 | $ | 125,824 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 20,362 | 19,869 | ||||||
| Refranchising loss | — | 133 | ||||||
| Loss on sale/disposal of assets | 266 | 90 | ||||||
| Amortization of debt issuance costs | 1,210 | 1,266 | ||||||
| Benefit for deferred income taxes | (2,290 | ) | (3,757 | ) | ||||
| Non-cash equity-based compensation expense | 10,381 | 11,338 | ||||||
| Excess tax benefits from equity-based compensation | (1,569 | ) | (8,104 | ) | ||||
| Benefit for losses on accounts and notes receivable | (57 | ) | (8 | ) | ||||
| Unrealized (gain) loss on investments | (24,027 | ) | 18,699 | |||||
| Changes in operating assets and liabilities | 34,244 | (9,961 | ) | |||||
| Changes in advertising fund assets and liabilities, restricted | (9,095 | ) | (31,925 | ) | ||||
| Net cash provided by operating activities | 179,076 | 123,464 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (14,745 | ) | (20,181 | ) | ||||
| Other | (1,225 | ) | (1,305 | ) | ||||
| Net cash used in investing activities | (15,970 | ) | (21,486 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of long-term debt and finance lease obligations | (646 | ) | (13,525 | ) | ||||
| Proceeds from exercise of stock options | 7,529 | 10,774 | ||||||
| Purchases of common stock | (50,000 | ) | (25,000 | ) | ||||
| Tax payments for restricted stock upon vesting | (8,158 | ) | (6,700 | ) | ||||
| Payments of common stock dividends and equivalents | (617 | ) | (343 | ) | ||||
| Net cash used in financing activities | (51,892 | ) | (34,794 | ) | ||||
| Effect of exchange rate changes on cash | 296 | (672 | ) | |||||
| Change in cash and cash equivalents, restricted cash and cash equivalents | 111,510 | 66,512 | ||||||
| Cash and cash equivalents, beginning of period | 186,126 | 114,098 | ||||||
| Restricted cash and cash equivalents, beginning of period | 195,370 | 200,870 | ||||||
| Cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 80,928 | 88,165 | ||||||
| Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period | 462,424 | 403,133 | ||||||
| Cash and cash equivalents, end of period | 304,320 | 203,894 | ||||||
| Restricted cash and cash equivalents, end of period | 197,412 | 209,752 | ||||||
| Cash and cash equivalents included in advertising fund assets, restricted, end of period | 72,202 | 55,999 | ||||||
| Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period | $ | 573,934 | $ | 469,645 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Domino’s Pizza, Inc**. and Subsidiaries**
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except share and per share amounts)
March 23, 2025
- 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. Additionally, the condensed consolidated balance sheet at December 29, 2024 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. Certain captions have been conformed to the current period presentation. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 29, 2024 included in the Company’s 2024 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2025 (the “ 2024 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 first quarter ended March 23, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2025.
- 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 and, to a lesser extent, other products, from the Company’s supply chain center operations in the U.S. and Canada. The international franchise segment includes operations related to the Company’s franchising business in foreign markets. The Company’s chief operating decision maker is its Chief Executive Officer, and he evaluates the performance of the Company’s segments and allocates resources to them based on revenues and earnings before interest, taxes, depreciation, amortization and other, referred to as Segment Income. The Company uses Segment Income to determine future business objectives and targets and for long-range planning for the reportable segments, as well as to evaluate their operating performance.
The tables below summarize the financial information, including revenues, significant segment expenses, Segment Income and capital expenditures, concerning the Company’s reportable segments for the first quarters ended March 23, 2025 and March 24, 2024. Intersegment revenues are comprised of sales of food and, to a lesser extent, other products, from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based.
The Company adopted Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) in the fourth quarter of 2024. The Company has included the relevant interim disclosures retrospectively for all periods presented in the condensed consolidated financial statements.
| Fiscal Quarter Ended March 23, 2025 | ||||||||||||||||
| U.S. Stores | Supply Chain | International Franchise | Total | |||||||||||||
| U.S. Company-owned stores | $ | 91,598 | $ | — | $ | — | $ | 91,598 | ||||||||
| U.S. franchise royalties and fees | 151,000 | — | — | 151,000 | ||||||||||||
| Supply chain | — | 697,910 | — | 697,910 | ||||||||||||
| Supply chain - intersegment revenues | — | (27,986 | ) | — | (27,986 | ) | ||||||||||
| International franchise royalties and fees | — | — | 75,559 | 75,559 | ||||||||||||
| U.S. franchise advertising | 123,975 | — | — | 123,975 | ||||||||||||
| Segment revenues | $ | 366,573 | $ | 669,924 | $ | 75,559 | $ | 1,112,056 | ||||||||
| Cost of sales - food | 27,211 | 471,616 | — | 498,827 | ||||||||||||
| Cost of sales - labor | 29,181 | 61,882 | — | 91,063 | ||||||||||||
| Cost of sales - other (1) | 17,752 | 49,347 | — | 67,099 | ||||||||||||
| U.S. franchise advertising | 123,975 | — | — | 123,975 | ||||||||||||
| General and administrative (2) | 36,636 | 14,259 | 11,780 | 62,675 | ||||||||||||
| Segment Income | $ | 131,818 | $ | 72,820 | $ | 63,779 | $ | 268,417 | ||||||||
| Segment capital expenditures (3) | $ | 976 | $ | 5,510 | $ | — | $ | 6,486 |
| Fiscal Quarter Ended March 24, 2024 | ||||||||||||||||
| U.S. Stores | Supply Chain | International Franchise | Total | |||||||||||||
| U.S. Company-owned stores | $ | 92,649 | $ | — | $ | — | $ | 92,649 | ||||||||
| U.S. franchise royalties and fees | 150,518 | — | — | 150,518 | ||||||||||||
| Supply chain | — | 686,642 | — | 686,642 | ||||||||||||
| Supply chain - intersegment revenues | — | (27,428 | ) | — | (27,428 | ) | ||||||||||
| International franchise royalties and fees | — | — | 71,966 | 71,966 | ||||||||||||
| U.S. franchise advertising | 110,300 | — | — | 110,300 | ||||||||||||
| Segment revenues | $ | 353,467 | $ | 659,214 | $ | 71,966 | $ | 1,084,647 | ||||||||
| Cost of sales - food | 26,642 | 469,937 | — | 496,579 | ||||||||||||
| Cost of sales - labor | 29,674 | 62,218 | — | 91,892 | ||||||||||||
| Cost of sales - other (1) | 17,186 | 46,016 | — | 63,202 | ||||||||||||
| U.S. franchise advertising | 110,300 | — | — | 110,300 | ||||||||||||
| General and administrative (2) | 33,557 | 16,467 | 12,634 | 62,658 | ||||||||||||
| Segment Income | $ | 136,108 | $ | 64,576 | $ | 59,332 | $ | 260,016 | ||||||||
| Segment capital expenditures (3) | $ | 2,597 | $ | 2,775 | $ | — | $ | 5,372 |
| (1) | Cost of sales - other, includes delivery, occupancy costs (including rent, telephone and utilities) and insurance expense. Depreciation and amortization is not included in the measurement of Segment Income. |
| (2) | General and administrative expense consists primarily of labor cost (including variable performance-based compensation expense), computer expenses, professional fees, travel and entertainment, rent, insurance and other. Depreciation and amortization, non-cash equity-based compensation expense and gains and losses from the sale of assets are not included in the measurement of Segment Income. |
| (3) | The Company also had $8.7 million and $14.2 million of other capital expenditures not attributable to the reportable segments primarily representing capitalized software in the first quarters of 2025 and 2024, respectively. |
The following table reconciles total Segment Income to income before provision for income taxes:
| Fiscal Quarter Ended | ||||||||
| March 23, 2025 | March 24, 2024 | |||||||
| Total Segment Income | $ | 268,417 | $ | 260,016 | ||||
| General and administrative - other (1) | (27,313 | ) | (18,173 | ) | ||||
| Depreciation and amortization | (20,362 | ) | (19,869 | ) | ||||
| Non-cash equity-based compensation expense | (10,381 | ) | (11,338 | ) | ||||
| Loss on sale/disposal of assets | (266 | ) | (90 | ) | ||||
| Refranchising loss | — | (133 | ) | |||||
| Income from operations | 210,095 | 210,413 | ||||||
| Other income (expense) | 24,027 | (18,699 | ) | |||||
| Interest income | 3,945 | 3,739 | ||||||
| Interest expense | (45,585 | ) | (45,846 | ) | ||||
| Income before provision for income taxes | $ | 192,482 | $ | 149,607 |
| (1) | Represents corporate administrative costs that have not been allocated to a reportable segment including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs. |
The Company’s chief operating decision maker is not regularly provided financial information related to the assets of the reportable segments, and he does not evaluate their performance or allocate resources to them based on assets. Therefore, total assets by reportable segment are not included in the Company’s segment disclosures.
- Earnings Per Share
| Fiscal Quarter Ended | ||||||||
| March 23, | March 24, | |||||||
| 2025 | 2024 | |||||||
| Net income available to common stockholders - basic and diluted | $ | 149,651 | $ | 125,824 | ||||
| Basic weighted average number of shares | 34,284,052 | 34,800,310 | ||||||
| Earnings per share – basic | $ | 4.37 | $ | 3.62 | ||||
| Diluted weighted average number of shares | 34,553,820 | 35,154,232 | ||||||
| Earnings per share – diluted | $ | 4.33 | $ | 3.58 |
The denominators used in calculating diluted earnings per share for common stock for the first quarters ended March 23, 2025 and March 24, 2024 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 | ||||||||
| March 23, | March 24, | |||||||
| 2025 | 2024 | |||||||
| Anti-dilutive shares underlying stock-based awards | ||||||||
| Stock options | 91,269 | 87,419 | ||||||
| Restricted stock awards and units | — | 51,587 | ||||||
| Performance condition not met | ||||||||
| Restricted stock awards and units | 41,957 | 62,114 |
- Stockholders’ Deficit
The following table summarizes the changes in stockholders’ deficit for the first quarter of 2025.
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | ||||||||||||||||
| Balance at December 29, 2024 | 34,281,927 | $ | 343 | $ | 1,272 | $ | (3,956,474 | ) | $ | (7,432 | ) | |||||||||
| Net income | — | — | — | 149,651 | — | |||||||||||||||
| Dividends declared on common stock and equivalents ($1.74 per share) | — | — | — | (59,800 | ) | — | ||||||||||||||
| Issuance and cancellation of stock awards, net | 54,516 | — | — | — | — | |||||||||||||||
| Tax payments for restricted stock upon vesting | (18,630 | ) | — | (8,158 | ) | — | — | |||||||||||||
| Purchases of common stock | (115,280 | ) | (1 | ) | (10,132 | ) | (40,210 | ) | — | |||||||||||
| Exercise of stock options | 28,280 | — | 7,529 | — | — | |||||||||||||||
| Non-cash equity-based compensation expense | — | 10,381 | — | — | ||||||||||||||||
| Currency translation adjustment | — | — | — | — | 343 | |||||||||||||||
| Balance at March 23, 2025 | 34,230,813 | $ | 342 | $ | 892 | $ | (3,906,833 | ) | $ | (7,089 | ) |
Subsequent to the end of the first quarter of 2025, on April 23, 2025, the Company’s Board of Directors declared a $1.74 per share quarterly dividend on its outstanding common stock for shareholders of record as of June 13, 2025 to be paid on June 30, 2025.
The following table summarizes the changes in stockholders’ deficit for the first quarter 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 | — | — | — | 125,824 | — | |||||||||||||||
| Dividends declared on common stock and equivalents ($1.51 per share) | — | — | — | (52,954 | ) | — | ||||||||||||||
| Issuance and cancellation of stock awards, net | 44,053 | 1 | — | — | — | |||||||||||||||
| Tax payments for restricted stock upon vesting | (15,213 | ) | — | (6,700 | ) | — | — | |||||||||||||
| Purchases of common stock | (56,372 | ) | (1 | ) | (17,021 | ) | (8,099 | ) | — | |||||||||||
| Exercise of stock options | 103,107 | 1 | 10,773 | — | — | |||||||||||||||
| Non-cash equity-based compensation expense | — | — | 11,338 | — | — | |||||||||||||||
| Currency translation adjustment | — | — | — | — | (1,125 | ) | ||||||||||||||
| Balance at March 24, 2024 | 34,801,757 | $ | 348 | $ | 1,191 | $ | (4,004,877 | ) | $ | (4,992 | ) |
- 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 March 23, 2025, the fair value of the Company’s investment in 8,101,019 DPC Dash ordinary shares is based on the active exchange quoted price for the equity security of HK$102.40 per share (HK: 1405). The Company recorded a positive adjustment to the carrying amount of its investment in DPC Dash of $24.0 million in the first quarter of 2025, with the gain recorded in other income in its condensed consolidated statements of income. The Company recorded a negative adjustment to the carrying amount of its investment in DPC Dash of $18.7 million in the first quarter of 2024 with the loss recorded in other expense in its condensed consolidated statements of income.
The following tables summarize the carrying amounts and fair values of certain assets at March 23, 2025 and December 29, 2024:
| At March 23, 2025 | ||||||||||||||||
| Fair Value Estimated Using | ||||||||||||||||
| Carrying | Level 1 | Level 2 | Level 3 | |||||||||||||
| Amount | Inputs | Inputs | Inputs | |||||||||||||
| Cash equivalents | $ | 253,286 | $ | 253,286 | $ | — | $ | — | ||||||||
| Restricted cash equivalents | 116,519 | 116,519 | — | — | ||||||||||||
| Investments in marketable securities | 22,387 | 22,387 | — | — | ||||||||||||
| Advertising fund cash equivalents, restricted | 51,707 | 51,707 | — | — | ||||||||||||
| Investment in DPC Dash | 106,726 | 106,726 | — | — |
| At December 29, 2024 | ||||||||||||||||
| Fair Value Estimated Using | ||||||||||||||||
| Carrying | Level 1 | Level 2 | Level 3 | |||||||||||||
| Amount | Inputs | Inputs | Inputs | |||||||||||||
| Cash equivalents | $ | 127,074 | $ | 127,074 | $ | — | $ | — | ||||||||
| Restricted cash equivalents | 140,669 | 140,669 | — | — | ||||||||||||
| Investments in marketable securities | 20,638 | 20,638 | — | — | ||||||||||||
| Advertising fund cash equivalents, restricted | 70,350 | 70,350 | — | — | ||||||||||||
| Investment in DPC Dash | 82,699 | 82,699 | — | — |
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:
| March 23, 2025 | December 29, 2024 | |||||||||||||||
| Principal Amount | Fair Value | Principal Amount | Fair Value | |||||||||||||
| 2015 Ten-Year Notes | $ | 742,000 | $ | 739,032 | $ | 742,000 | $ | 739,032 | ||||||||
| 2017 Ten-Year Notes | 940,000 | 920,260 | 940,000 | 915,560 | ||||||||||||
| 2018 7.5-Year Notes | 402,688 | 400,674 | 402,688 | 399,869 | ||||||||||||
| 2018 9.25-Year Notes | 379,000 | 373,315 | 379,000 | 370,662 | ||||||||||||
| 2019 Ten-Year Notes | 648,000 | 610,416 | 648,000 | 599,400 | ||||||||||||
| 2021 7.5-Year Notes | 826,625 | 760,495 | 826,625 | 750,576 | ||||||||||||
| 2021 Ten-Year Notes | 972,500 | 861,635 | 972,500 | 850,938 |
The Company did not have any outstanding borrowings under its variable funding notes at March 23, 2025 or December 29, 2024.
- Leverage Ratio and Debt Classification
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 Consolidated Adjusted EBITDA, each as defined in the indenture governing the securitized debt, and no catch-up provisions are applicable. As of the end of the first quarter of 2025 and the end of the fourth quarter of 2024, the Company had a Holdco Leverage Ratio of less than 5.0x, and accordingly, the outstanding principal amounts of the Company’s 2021 Notes, 2019 Notes, 2018 9.25-Year Notes and 2017 Ten-Year Notes (refer to Note 5, above) have been classified as long-term debt in the condensed consolidated balance sheet as of March 23, 2025 and December 29, 2024.
The anticipated repayment date for the 2018 7.5-Year Notes and the 2015 Ten-Year Notes (refer to Note 5, above) is October 2025 and accordingly, the outstanding principal amounts for these notes have been classified as current portion of long-term debt in the condensed consolidated balance sheet as of March 23, 2025 and December 29, 2024. The Company expects to refinance the 2018 7.5-Year Notes and the 2015 Ten-Year Notes prior to the anticipated repayment date. If the Company does not refinance the 2018 7.5-Year Notes and the 2015 Ten-Year Notes prior to the anticipated repayment date, additional interest of at least 5% per annum will accrue and the Company’s cash flows other than technology fees and a weekly management fee to cover certain general and administrative expenses would be directed to the repayment of the securitized debt.
- Revenue Disclosures
Contract Liabilities
Contract liabilities primarily consist of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of $5.0 million and $5.1 million were included in current other accrued liabilities as of March 23, 2025 and December 29, 2024, respectively. Deferred franchise fees and deferred development fees of $15.0 million and $15.8 million were included in long-term other accrued liabilities as of March 23, 2025 and December 29, 2024, respectively.
Changes in deferred franchise fees and deferred development fees for the first quarters of 2025 and 2024 were as follows:
| Fiscal Quarter Ended | ||||||||
| March 23, | March 24, | |||||||
| 2025 | 2024 | |||||||
| Deferred franchise fees and deferred development fees, beginning of period | $ | 20,946 | $ | 25,195 | ||||
| Revenue recognized during the period | (1,668 | ) | (1,364 | ) | ||||
| New deferrals due to cash received and other | 726 | 1,330 | ||||||
| Deferred franchise fees and deferred development fees, end of period | $ | 20,004 | $ | 25,161 |
Advertising Fund Assets
As of March 23, 2025, advertising fund assets, restricted of $99.6 million consisted of $72.2 million of cash and cash equivalents, $16.9 million of accounts receivable and $10.5 million of prepaid expenses. As of March 23, 2025, advertising fund cash and cash equivalents included $2.2 million of cash contributed from U.S. Company-owned stores that had not yet been expended.
As of December 29, 2024, advertising fund assets, restricted of $103.4 million consisted of $80.9 million of cash and cash equivalents, $14.3 million of accounts receivable and $8.2 million of prepaid expenses. As of December 29, 2024, advertising fund cash and cash equivalents included $1.8 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 with expiration dates through 2045. Rent expense totaled $21.8 million and $21.2 million in the first quarter of 2025 and the first quarter of 2024, 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 $2.0 million and $1.7 million in the first quarter of 2025 and the first quarter of 2024, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in both the first quarter of 2025 and 2024.
The components of operating and finance lease cost for the first quarters of 2025 and 2024 were as follows:
| Fiscal Quarter Ended | ||||||||
| March 23, | March 24, | |||||||
| 2025 | 2024 | |||||||
| Operating lease cost | $ | 12,112 | $ | 11,253 | ||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | 1,258 | 1,324 | ||||||
| Interest on lease liabilities | 871 | 984 | ||||||
| Total finance lease cost | $ | 2,129 | $ | 2,308 |
Supplemental cash flow information related to leases for the first quarters of 2025 and 2024 were as follows:
| Fiscal Quarter Ended | ||||||||
| March 23, | March 24, | |||||||
| 2025 | 2024 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 10,113 | $ | 10,340 | ||||
| Operating cash flows from finance leases | 871 | 984 | ||||||
| Financing cash flows from finance leases | 631 | 636 | ||||||
| Cash paid for amounts included in the measurement of financing obligation from sale leaseback: | ||||||||
| Operating cash flows from sale leaseback | 198 | 299 | ||||||
| Financing cash flows from sale leaseback | 15 | 14 | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | 15,967 | 16,706 | ||||||
| Finance leases | — | 1,121 |
As of March 23, 2025, 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 $166.4 million. These leases are expected to commence in 2025 and 2026 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 $11.5 million and $12.8 million as of March 23, 2025 and December 29, 2024, 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 $3.6 million at March 23, 2025 and $3.1 million at December 29, 2024. The Company also had $3.4 million and $3.0 million in non-cash financing activity related to accruals for excise taxes on share repurchases as of March 23, 2025 and December 29, 2024, respectively.
- Company-owned Store Transactions
During the first quarter of 2025, the Company purchased two U.S. franchised stores from one of the Company’s former U.S. franchisees. The Company recorded $0.3 million of intangibles, $0.1 million of equipment and leasehold improvements and $0.5 million of goodwill, with a corresponding liability to the seller of $0.9 million.
During the first quarter of 2024, 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”) and adopted the following accounting standard.
Recently Adopted Accounting Standards
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, 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 title and position of the chief operating decision maker.
On December 29, 2024, the end of the 2024 fiscal year, the Company adopted ASU 2023-07. The relevant interim disclosures are included within Note 2, Segment Information.
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 accounting standards:
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 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 condensed consolidated financial statements.
ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40): Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40): Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which requires disclosure on an interim and annual basis, a tabular disclosure of the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption. Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. Disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. Disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The standard can be applied prospectively or retrospectively.
ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its condensed consolidated financial statements.
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