Basis of Presentation and Updates to Significant Accounting Policies (Policies)

3 Months Ended

Mar. 25, 2018

Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

Domestic Company-owned stores revenues were $121.2 million in the first quarter of 2018 and were comprised of retail sales of food through Company-owned Domino’s Pizza stores located in the United States. Domestic Company-owned store revenues are recognized when the items are delivered to or carried out by customers and 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 condensed consolidated statements of income as revenue.

Domestic franchise royalties and fees were $89.5 million in the first quarter of 2018 and are primarily comprised of royalties and fees from Domino’s Pizza franchisees with operations in the United States. Royalty revenues are based on a percentage of franchise sales and are recognized when the items are delivered to or carried out by franchise customers. Domestic franchise fee revenue primarily relates to per-transaction technology fees that are recognized as the related sales occur. Payments for domestic royalties and fees are generally due within seven days of the prior week end date.

Supply chain revenues were $440.1 million in the first quarter of 2018 and were primarily comprised of sales of food, equipment and supplies to franchised Domino’s Pizza stores located in the United States 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 supply chain customers. Obligations for profit sharing rebates are calculated each period based on actual results of its supply chain centers and are recognized as a reduction to revenue. Volume discounts are based on annual sales. Each period, the Company estimates the amount that will be earned and records a reduction to revenue.

International franchise royalties and fees were $52.4 million in the first quarter of 2018 and were primarily comprised of royalties and fees from Domino’s Pizza franchisees outside of the United States. Royalty revenues are recognized when the items are delivered to or carried out by franchise customers. Store opening 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 10 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. International franchise royalties and fees are invoiced at least quarterly and payments are generally due within 60 days.

As of January 1, 2018 and March 25, 2018, the contract liability recorded for store opening fees and development fees was $19.4 million and $18.9 million, respectively. During the first quarter of 2018, the Company recognized $1.1 million in revenue related to development fees and store opening fees.

Domestic franchise advertising revenues were $82.2 million in the first quarter of 2018 and are primarily comprised of contributions from Domino’s Pizza franchisees with operations in the United States to the Domino’s National Advertising Fund Inc. (“DNAF”), the Company’s not-for-profit subsidiary that administers the Domino’s Pizza system’s national and market level advertising activities in the United States. These contributions are based on a percentage of franchise sales and are recognized when items are delivered to or carried out by franchisees’ customers. Payments for domestic 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 domestic royalty payment stream and as a result, these franchise contributions and the related expenses are presented gross in the Company’s condensed consolidated statement of income.

Advertising Costs

Advertising Costs

Domestic Stores (Note 2) are required to contribute a certain percentage of sales to DNAF. Domestic franchise advertising costs are accrued and expensed when the related domestic franchise advertising revenues are recognized, as DNAF is obligated to expend such revenues on advertising. Advertising costs funded by our Company-owned stores are generally expensed as incurred and are included in general and administrative expense. The contributions from Company-owned stores that have not yet been expended are included in advertising fund assets, restricted, on the Company’s consolidated balance sheet. As of March 25, 2018, advertising fund assets, restricted of $112.3 million includes approximately $6.5 million of Company-owned store contributions that had not yet been expended and approximately $105.8 million which primarily consists of cash, investments and accounts receivable from our domestic franchisees.