Fair Value Measurements

6 Months Ended

Jun. 19, 2022

5. 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 Investments

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. The fair value of the Company’s Level 3 investment is not readily determinable. The fair value represents its 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.

The following tables summarize the carrying amounts and fair values of certain assets at June 19, 2022 and January 2, 2022:


	At June 19, 2022
			Fair Value Estimated Using
	Carrying		Level 1		Level 2		Level 3
	Amount		Inputs		Inputs		Inputs
Cash equivalents	$	76,381	$	76,381	$	—	$	—
Restricted cash equivalents		117,426		117,426		—		—
Investments in marketable securities		13,740		13,740		—		—
Advertising fund cash equivalents, restricted		150,752		150,752		—		—
Investments		125,840		—		—		125,840


	At January 2, 2022
			Fair Value Estimated Using
	Carrying		Level 1		Level 2		Level 3
	Amount		Inputs		Inputs		Inputs
Cash equivalents	$	87,384	$	87,384	$	—	$	—
Restricted cash equivalents		115,185		115,185		—		—
Investments in marketable securities		15,433		15,433		—		—
Advertising fund cash equivalents, restricted		140,115		140,115		—		—
Investments		125,840		—		—		125,840

The Company holds a non-controlling interest in DPC Dash Ltd, a privately-held business company limited by shares incorporated with limited liability under the laws of the British Virgin Islands (“DPC Dash”). Through its subsidiaries, DPC Dash serves as the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. The Company’s investment in DPC Dash’s senior ordinary shares, which are not in-substance common stock, represents an equity investment without a readily determinable fair value and is 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.

The Company did not record any adjustments to the carrying amount of $125.8 million in the second quarter or two fiscal quarters of 2022. The following table summarizes the reconciliation of the carrying amount of the Company’s investment in DPC Dash from the opening balance at January 3, 2021 to the closing balance at June 20, 2021 as a result of the additional investment made in the first quarter of 2021.


	Two Fiscal Quarters Ended June 20, 2021
	Carrying Amount						Carrying Amount
	January 3,				Unrealized		June 20,
	2021		Purchases		Gain		2021
Investments	$	40,000	$	40,000	$	2,500	$	82,500

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 debtholders 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 19, 2022				January 2, 2022
	Principal Amount		Fair Value		Principal Amount		Fair Value
2015 Ten-Year Notes	$	756,000	$	737,856	$	760,000	$	777,480
2017 Ten-Year Notes		957,500		901,008		962,500		1,000,038
2018 7.5-Year Notes		410,125		395,361		412,250		420,907
2018 9.25-Year Notes		386,000		368,244		388,000		407,788
2019 Ten-Year Notes		659,813		589,872		663,188		693,031
2021 7.5-Year Notes		841,500		720,324		845,750		849,133
2021 Ten-Year Notes		990,000		832,590		995,000		1,017,885

The Company did not have any outstanding borrowings under its variable funding notes at June 19, 2022 or January 2, 2022.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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