ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) |
Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered | ||
Domino’s Pizza, Inc. |
☒ |
Accelerated filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
Part I |
Page No. |
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2 |
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11 |
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24 |
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24 |
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24 |
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24 |
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24 |
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Part II |
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25 |
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27 |
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29 |
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41 |
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42 |
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74 |
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74 |
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74 |
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Part III |
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75 |
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78 |
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78 |
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78 |
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78 |
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Part IV |
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79 |
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84 |
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90 |
Item 1. |
Business. |
Market |
Number of stores |
|||
India (JUBLFOOD: NS) |
1,312 |
|||
United Kingdom (DOM: L) |
1,126 |
|||
Mexico (ALSEA: MX) |
801 |
|||
Australia (DMP: ASX) |
698 |
|||
Japan (DMP: ASX) |
642 |
|||
Turkey (DPEU: L) |
550 |
|||
Canada |
520 |
|||
South Korea |
462 |
|||
France (DMP: ASX) |
404 |
|||
Germany (DMP: ASX) |
325 |
Item 1A. |
Risk Factors. |
• | consumer tastes; |
• | international, national, regional or local economic conditions; |
• | disposable purchasing power; |
• | marketing, advertising and pricing, including discounting; |
• | demographic trends; and |
• | currency fluctuations related to international operations. |
• | availability of financing with acceptable terms; |
• | selection and availability of suitable new store sites and the ability to renew leases in quality locations; |
• | negotiation of acceptable lease or financing terms; |
• | securing required U.S. or foreign governmental permits, licenses and approvals; |
• | employment and training of qualified personnel; and |
• | general economic and business conditions. |
• | recessionary or expansive trends in international markets; |
• | changing labor conditions and difficulties in staffing and managing our foreign operations; |
• | increases in the taxes we pay and other changes in applicable tax laws; |
• | tariffs and trade barriers; |
• | legal and regulatory changes, and the burdens and costs of our compliance with a variety of foreign laws; |
• | changes in inflation rates; |
• | changes in exchange rates and the imposition of restrictions on currency conversion or the transfer of funds; |
• | difficulty in collecting our royalties and longer payment cycles; |
• | expropriation of private enterprises; |
• | increases in anti-American sentiment and the identification of the Domino’s Pizza |
• | political and economic instability and uncertainty around the world, including uncertainty arising from the United Kingdom’s exit from the European Union, commonly referred to as “Brexit”; and |
• | other external factors. |
• | the preparation, sale and labeling of food; |
• | building and zoning requirements; |
• | environmental protection; |
• | labor and employment, including minimum wage, overtime, insurance and other labor requirements; |
• | working and safety conditions; |
• | franchise arrangements; |
• | public company compliance, disclosure and governance matters; |
• | taxation; |
• | antitrust; |
• | discrimination; |
• | payment card industry standards and requirements; and |
• | information privacy and consumer protection. |
• | variations in the timing and volume of our sales and our franchisees’ sales; |
• | the timing of expenditures in anticipation of future sales; |
• | sales promotions by us and our competitors; |
• | changes in competitive and economic conditions generally; |
• | changes in the cost or availability of our ingredients or labor; and |
• | foreign currency exposure. |
• | planned or actual changes to our capital or debt structure; |
• | variations in our operating results; |
• | changes in revenues or earnings estimates or publication of research reports by analysts; |
• | speculation in the press or investment community; |
• | strategic actions by us or our competitors, such as sales promotions, acquisitions or restructurings; |
• | actions by institutional and other stockholders; |
• | changes in our dividend policy or any share repurchase program; |
• | changes in the market values of public companies that operate in our business segments; |
• | maintenance and growth of the value of our brand; |
• | significant litigation; |
• | legislation or other regulatory developments affecting us or our industry; |
• | general market conditions; and |
• | U.S. and international economic factors unrelated to our performance. |
• | make it more difficult for us to satisfy our obligations with respect to our debt agreements; |
• | increase our vulnerability to general adverse economic and industry conditions; |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes; and |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a competitive disadvantage compared to our peers that may have less debt. |
• | sell assets; |
• | alter the business we conduct; |
• | engage in mergers, acquisitions and other business combinations; |
• | declare dividends or redeem or repurchase capital stock; |
• | incur, assume or permit to exist additional indebtedness or guarantees; |
• | make loans and investments; |
• | incur liens; and |
• | enter into transactions with affiliates. |
• | those relating to the application of local, state, federal and foreign bankruptcy laws and other applicable laws governing creditors’ rights generally and the impact such laws could have on our ability to collect payments and fees under applicable franchise agreements; |
• | those relating to franchisees that are operating entities, which generally are not limited-purpose entities, including business, credit, financial and other risks in addition to risks related to unions; |
• | those relating to franchisee changes in control and succession in general and the ability to find acceptable successors who would be able to perform a former franchisee’s obligations under applicable franchise agreements or successfully operate impacted stores in the event of a change of control or other succession event; |
• | those relating to franchisee insurance, including the inadequacy of, or inability to obtain, insurance coverage, losses in excess of policy limits or payments not being made on a timely basis, extraordinary hazards not being subject to coverage (or only being subject to coverage at prohibitively high rates) or third parties seeking to recover certain losses from us to the extent those losses experienced by such third parties are either not covered by the franchisee’s insurance or exceed the policy limits of the franchisee’s insurance; |
• | those relating to instances of termination of or default under a franchisee’s franchise agreement or the non-renewal thereof at the end of such agreement’s expiration date and the corresponding impact on the franchisee’s or our operations; |
• | those relating to product liability exposure or noncompliance with health and safety regulations and the resulting impact such events could have on a franchisee’s ability to make payments under applicable franchise agreements, on us if an aggrieved party seeks to recover their losses from us and on our brand’s reputation; |
• | the imposition of injunctive relief, fines, damage awards or capital expenditures under the Americans with Disabilities Act of 1990, as amended, or other laws or regulations that could adversely affect the ability of a franchisee to make payments under applicable franchise agreements; |
• | litigation involving franchisees, including litigation involving us or litigation involving a third-party directed at a franchisee, which could decrease the ability of a defendant-franchisee to make its royalty payments and divert our resources regardless of whether the allegations in such litigation are valid or whether we are liable; and |
• | those relating to the reliance of a franchised store business on its franchisees and the nature of franchisees in general, including the retention of franchisees (especially including our top-performing franchisees) in the future or our ability to attract, retain, and motivate sufficient numbers of franchisees of the same caliber in the future. |
Item 1B. |
Unresolved Staff Comments. |
Item 2. |
Properties. |
Item 3. |
Legal Proceedings. |
Item 4. |
Mine Safety Disclosures. |
Item 4A. |
Executive Officers of the Registrant. |
Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program (2) |
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) |
||||||||||||
Period #10 (September 9, 2019 to October 6, 2019) |
1,281 |
$ | 244.16 |
— |
$ | 1,000,000 |
||||||||||
Period #11 (October 7, 2019 to November 3, 2019) |
4,441 |
239.20 |
3,300 |
999,242 |
||||||||||||
Period #12 (November 4, 2019 to December 1, 2019) |
933,055 |
285.26 |
933,055 |
733,078 |
||||||||||||
Period #13 (December 2, 2019 to December 29, 2019) |
1,128,072 |
290.09 |
1,127,023 |
406,142 |
||||||||||||
Total |
2,066,849 |
$ | 287.81 |
2,063,378 |
$ | 406,142 |
||||||||||
(1) | 3,471 shares were purchased as part of the Company’s employee stock purchase discount plan. During the fourth quarter, the shares were purchased at an average price of $264.65. |
(2) | From December 29, 2019 through February 13, 2020, the Company repurchased and retired 271,064 shares of common stock for a total of approximately $79.6 million, or an average price of $293.62 per share. Authorization for the repurchase program may be modified, suspended, or discontinued at any time. The repurchase of shares in any particular period and the actual amount of such purchases remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future. |
Item 6. |
Selected Financial Data. |
Fiscal year ended (8) |
||||||||||||||||||||
(dollars in millions, except per share data) |
December 29, 2019 |
December 30, 2018 (4) |
December 31, 2017 |
January 1, 2017 |
January 3, 2016 |
|||||||||||||||
Income statement data: |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||
U.S. Company-owned stores |
$ | 453.6 |
$ | 514.8 |
$ | 490.8 |
$ | 439.0 |
$ | 396.9 |
||||||||||
U.S. franchise royalties and fees |
428.5 |
391.5 |
351.4 |
312.3 |
272.8 |
|||||||||||||||
U.S. franchise advertising (1) |
390.8 |
358.5 |
— |
— |
— |
|||||||||||||||
U.S. stores |
1,272.9 |
1,264.8 |
842.2 |
751.3 |
669.7 |
|||||||||||||||
Supply chain |
2,104.9 |
1,943.3 |
1,739.0 |
1,544.3 |
1,383.2 |
|||||||||||||||
International franchise royalties and fees |
241.0 |
224.7 |
206.7 |
177.0 |
163.6 |
|||||||||||||||
Total revenues |
3,618.8 |
3,432.9 |
2,788.0 |
2,472.6 |
2,216.5 |
|||||||||||||||
Cost of sales |
2,216.3 |
2,130.2 |
1,922.0 |
1,704.9 |
1,533.4 |
|||||||||||||||
Operating margin |
1,402.5 |
1,302.7 |
866.0 |
767.7 |
683.1 |
|||||||||||||||
General and administrative expense |
382.3 |
372.5 |
344.8 |
313.6 |
277.7 |
|||||||||||||||
U.S. franchise advertising (1) |
390.8 |
358.5 |
— |
— |
— |
|||||||||||||||
Income from operations |
629.4 |
571.7 |
521.2 |
454.0 |
405.4 |
|||||||||||||||
Interest income |
4.0 |
3.3 |
1.5 |
0.7 |
0.3 |
|||||||||||||||
Interest expense |
(150.8 |
) | (146.3 |
) | (122.5 |
) | (110.1 |
) | (99.5 |
) | ||||||||||
Income before provision for income taxes |
482.6 |
428.7 |
400.2 |
344.7 |
306.2 |
|||||||||||||||
Provision for income taxes |
81.9 |
66.7 |
122.2 |
130.0 |
113.4 |
|||||||||||||||
Net income |
$ | 400.7 |
$ | 362.0 |
$ | 277.9 |
$ | 214.7 |
$ | 192.8 |
||||||||||
Earnings per share: |
||||||||||||||||||||
Common stock – basic |
$ | 9.83 |
$ | 8.65 |
$ | 6.05 |
$ | 4.41 |
$ | 3.58 |
||||||||||
Common stock – diluted |
9.56 |
8.35 |
5.83 |
4.30 |
3.47 |
|||||||||||||||
Balance sheet data (at end of period): |
||||||||||||||||||||
Cash and cash equivalents |
$ | 190.6 |
$ | 25.4 |
$ | 35.8 |
$ | 42.8 |
$ | 133.4 |
||||||||||
Restricted cash and cash equivalents |
209.3 |
167.0 |
191.8 |
126.5 |
180.9 |
|||||||||||||||
Cash and cash equivalents included in advertising fund assets, restricted |
84.0 |
45.0 |
27.3 |
25.1 |
19.9 |
|||||||||||||||
Working capital (2) |
121.0 |
14.6 |
(10.3 |
) | (34.3 |
) | 45.7 |
|||||||||||||
Total assets (3) |
1,382.1 |
907.4 |
836.8 |
716.3 |
799.8 |
|||||||||||||||
Total debt net of debt issuance cost |
4,114.4 |
3,531.6 |
3,153.8 |
2,187.9 |
2,240.8 |
|||||||||||||||
Total stockholders’ deficit |
(3,415.8 |
) | (3,039.9 |
) | (2,735.4 |
) | (1,883.1 |
) | (1,800.3 |
) |
Fiscal year ended (8) |
||||||||||||||||||||
(dollars in millions, except per share data) |
December 29, 2019 |
December 30, 2018 (4) |
December 31, 2017 |
January 1, 2017 |
January 3, 2016 |
|||||||||||||||
Other financial data: |
||||||||||||||||||||
Depreciation and amortization |
$ | 59.9 |
$ | 53.7 |
$ | 44.4 |
$ | 38.1 |
$ | 32.4 |
||||||||||
Capital expenditures (5) |
$ | 88.7 |
$ | 119.7 |
$ | 90.3 |
$ | 61.5 |
$ | 62.4 |
||||||||||
Dividends declared per share |
$ | 2.60 |
$ | 2.20 |
$ | 1.84 |
$ | 1.52 |
$ | 1.24 |
||||||||||
Global retail sales growth |
8.0 |
% | 10.8 |
% | 13.0 |
% | 12.8 |
% | 18.6 |
% | ||||||||||
Same store sales growth (7): |
||||||||||||||||||||
U.S. Company-owned stores |
2.8 |
% | 4.8 |
% | 8.7 |
% | 10.4 |
% | 12.2 |
% | ||||||||||
U.S. franchise stores |
3.2 |
% | 6.8 |
% | 7.6 |
% | 10.5 |
% | 11.9 |
% | ||||||||||
U.S. stores |
3.2 |
% | 6.6 |
% | 7.7 |
% | 10.5 |
% | 12.0 |
% | ||||||||||
International stores |
1.9 |
% | 3.5 |
% | 3.4 |
% | 6.3 |
% | 7.8 |
% | ||||||||||
Store counts (at end of period): |
||||||||||||||||||||
U.S. Company-owned stores |
342 |
390 |
392 |
392 |
384 |
|||||||||||||||
U.S. franchise stores |
5,784 |
5,486 |
5,195 |
4,979 |
4,816 |
|||||||||||||||
U.S. stores |
6,126 |
5,876 |
5,587 |
5,371 |
5,200 |
|||||||||||||||
International stores |
10,894 |
10,038 |
9,269 |
8,440 |
7,330 |
|||||||||||||||
Total stores |
17,020 |
15,914 |
14,856 |
13,811 |
12,530 |
|||||||||||||||
(1) | The adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers |
(2) | The working capital amounts exclude restricted cash and cash equivalents, advertising fund assets, restricted, and advertising fund liabilities. |
(3) | Total assets as of December 29, 2019 reflects the adoption of Accounting Standards Codification 842, Leases |
(4) | In 2018, we began managing our franchised stores in Alaska and Hawaii as part of our U.S. Stores segment. Prior to 2018, store counts and retail sales from these franchised stores were included in our international stores in the table above. Consolidated results have not been impacted by this change and prior year amounts have not been reclassified to conform to the current year presentation due to immateriality. |
(5) | Includes non-cash investing activities related to accruals for capital expenditures. |
(6) | Global retail sales growth refers to total worldwide retail sales at Company-owned and franchise stores. We believe global retail sales information is useful in analyzing revenues because franchisees pay royalties and advertising fees that are based on a percentage of franchise retail sales. We review comparable industry global retail sales information to assess business trends and to track the growth of the Domino’s Pizza ® brand. In addition, supply chain revenues are directly impacted by changes in franchise retail sales. Retail sales for franchise stores are reported to us by our franchisees and are not included in our revenues. Global retail sales growth, excluding foreign currency impact, is calculated as the change of international local currency global retail sales against the comparable period of the prior year. Global retail sales growth in 2015 includes the favorable impact of the 53rd week. |
(7) | Same store sales growth is calculated including only sales from stores that also had sales in the comparable period of the prior year. International same store sales growth is calculated similarly to U.S. same store sales growth. Changes in international same store sales are reported on a constant dollar basis which reflects changes in international local currency sales. The 53 rd week in fiscal 2015 had no impact on reported same store sales growth amounts. |
(8) | The 2015 fiscal year includes 53 weeks and the 2019, 2018, 2017 and 2016 fiscal years each include 52 weeks. |
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
• | Global retail sales, excluding foreign currency impact (which includes total retail sales at Company-owned and franchised stores worldwide) increased 8.0% as compared to 2018. |
• | Same store sales increased 3.2% in our U.S. stores and increased 1.9% in our international stores. |
• | Our revenues increased 5.4%. |
• | Our income from operations increased 10.1%. |
• | Our net income increased 10.7%. |
• | Our diluted earnings per share increased 14.5%. |
2019 |
2018 (1) |
2017 |
||||||||||
U.S. Company-owned stores |
2.8 |
% | 4.8 |
% | 8.7 |
% | ||||||
U.S. franchise stores |
3.2 |
% | 6.8 |
% | 7.6 |
% | ||||||
U.S. stores |
3.2 |
% | 6.6 |
% | 7.7 |
% | ||||||
International stores (excluding foreign currency impact) |
1.9 |
% | 3.5 |
% | 3.4 |
% | ||||||
(1) | In 2018, we began managing our franchised stores in Alaska and Hawaii as part of our U.S. Stores segment. Prior to 2018, store counts, retail sales and royalty revenues from these franchised stores were included in our international operations in the tables above. Consolidated results have not been impacted by this change and prior year amounts have not been reclassified to conform to the current year presentation due to immateriality. |
U.S. Company- owned Stores |
U.S. Franchise Stores |
Total U.S. Stores |
International Stores |
Total |
||||||||||||||||
Store count at January 1, 2017 |
392 |
4,979 |
5,371 |
8,440 |
13,811 |
|||||||||||||||
Openings |
16 |
213 |
229 |
891 |
1,120 |
|||||||||||||||
Closings |
— |
(13 |
) | (13 |
) | (62 |
) | (75 |
) | |||||||||||
Transfers |
(16 |
) | 16 |
— |
— |
— |
||||||||||||||
Store count at December 31, 2017 |
392 |
5,195 |
5,587 |
9,269 |
14,856 |
|||||||||||||||
Openings |
12 |
255 |
267 |
916 |
1,183 |
|||||||||||||||
Closings |
— |
(9 |
) | (9 |
) | (116 |
) | (125 |
) | |||||||||||
Transfers (1) |
(14 |
) | 45 |
31 |
(31 |
) | — |
|||||||||||||
Store count at December 30, 2018 |
390 |
5,486 |
5,876 |
10,038 |
15,914 |
|||||||||||||||
Openings |
12 |
253 |
265 |
939 |
1,204 |
|||||||||||||||
Closings |
(1 |
) | (14 |
) | (15 |
) | (83 |
) | (98 |
) | ||||||||||
Transfers |
(59 |
) | 59 |
— |
— |
— |
||||||||||||||
Store count at December 29, 2019 |
342 |
5,784 |
6,126 |
10,894 |
17,020 |
|||||||||||||||
(dollars in millions) |
2019 |
2018 (1) |
2017 |
|||||||||||||||||||||
U.S. Company-owned stores |
$ | 453.6 |
$ | 514.8 |
$ | 490.8 |
||||||||||||||||||
U.S. franchise royalties and fees |
428.5 |
391.5 |
351.4 |
|||||||||||||||||||||
Supply chain |
2,104.9 |
1,943.3 |
1,739.0 |
|||||||||||||||||||||
International franchise royalties and fees |
241.0 |
224.7 |
206.7 |
|||||||||||||||||||||
U.S. franchise advertising (2) |
390.8 |
358.5 |
— |
|||||||||||||||||||||
Total revenues |
3,618.8 |
100.0 |
% | 3,432.9 |
100.0 |
% | 2,788.0 |
100.0 |
% | |||||||||||||||
U.S. Company-owned stores |
346.2 |
398.2 |
377.7 |
|||||||||||||||||||||
Supply chain |
1,870.1 |
1,732.0 |
1,544.3 |
|||||||||||||||||||||
Total cost of sales |
2,216.3 |
61.2 |
% | 2,130.2 |
62.1 |
% | 1,922.0 |
68.9 |
% | |||||||||||||||
Operating margin |
1,402.5 |
38.8 |
% | 1,302.7 |
37.9 |
% | 866.0 |
31.1 |
% | |||||||||||||||
General and administrative |
382.3 |
10.6 |
% | 372.5 |
10.8 |
% | 344.8 |
12.4 |
% | |||||||||||||||
U.S. franchise advertising (2) |
390.8 |
10.8 |
% | 358.5 |
10.4 |
% | — |
— |
% | |||||||||||||||
Income from operations |
629.4 |
17.4 |
% | 571.7 |
16.7 |
% | 521.2 |
18.7 |
% | |||||||||||||||
Interest expense, net |
(146.8 |
) | (4.1 |
)% | (143.0 |
) | (4.2 |
)% | (121.1 |
) | (4.3 |
)% | ||||||||||||
Income before provision for income taxes |
482.6 |
13.3 |
% | 428.7 |
12.5 |
% | 400.2 |
14.4 |
% | |||||||||||||||
Provision for income taxes |
81.9 |
2.3 |
% | 66.7 |
2.0 |
% | 122.2 |
4.4 |
% | |||||||||||||||
Net income |
$ | 400.7 |
11.1 |
% | $ | 362.0 |
10.5 |
% | $ | 277.9 |
10.0 |
% | ||||||||||||
(1) | In 2018, we began managing our franchised stores in Alaska and Hawaii as part of our U.S. Stores segment. Prior to 2018, store counts, retail sales and royalty revenues from these franchised stores were included in our international operations in the tables above. Consolidated results have not been impacted by this change and prior year amounts have not been reclassified to conform to the current year presentation due to immateriality. Also, see Note 13 to the consolidated financial statements for additional information related to the store transfers between U.S. Company-owned stores and U.S. franchise stores. |
(2) | The adoption of ASC 606 in 2018 resulted in the recognition of revenue related to U.S. franchise contributions to DNAF. In prior years, under accounting standards in effect at that time, we had presented these contributions net with the related disbursements in our consolidated statement of income. Refer to Note 1 to the consolidated financial statements for additional information related to the adoption of this accounting standard. |
2019 |
2018 |
|||||||||||||||
U.S. Company-owned stores |
$ | 453.6 |
35.6 |
% | $ | 514.8 |
40.7 |
% | ||||||||
U.S. franchise royalties and fees |
428.5 |
33.7 |
% | 391.5 |
31.0 |
% | ||||||||||
U.S. franchise advertising |
390.8 |
30.7 |
% | 358.5 |
28.3 |
% | ||||||||||
Total U.S. stores revenues |
$ | 1,272.9 |
100.0 |
% | $ | 1,264.8 |
100.0 |
% | ||||||||
2019 |
2018 |
|||||||||||||||
Consolidated revenues |
$ | 3,618.8 |
100.0 |
% | $ | 3,432.9 |
100.0 |
% | ||||||||
Consolidated cost of sales |
2,216.3 |
61.2 |
% | 2,130.2 |
62.1 |
% | ||||||||||
Consolidated operating margin |
$ | 1,402.5 |
38.8 |
% | $ | 1,302.7 |
37.9 |
% | ||||||||
2019 |
2018 |
|||||||||||||||
Revenues |
$ | 453.6 |
100.0 |
% | $ | 514.8 |
100.0 |
% | ||||||||
Cost of sales |
346.2 |
76.3 |
% | 398.2 |
77.3 |
% | ||||||||||
Store operating margin |
$ | 107.4 |
23.7 |
% | $ | 116.6 |
22.7 |
% | ||||||||
• | Food costs decreased 0.3 percentage points to 27.1% in 2019, due primarily to the leveraging of higher same store sales. This decrease was partially offset by higher food prices. |
• | Labor costs decreased 1.1 percentage points to 29.0% in 2019. The 2019 Store Sale contributed to the reduction in labor costs as a percentage of store revenues due to the high labor rates in the market in which the sold stores operated. The reduction in labor costs as a percentage of store revenues was partially offset by an increase in average labor rates in our remaining Company-owned store markets. |
• | Insurance costs increased 0.4 percentage points to 3.4% in 2019, due primarily to unfavorable claims experience. |
2019 |
2018 |
|||||||||||||||
Revenues |
$ | 2,104.9 |
100.0 |
% | $ | 1,943.3 |
100.0 |
% | ||||||||
Cost of sales |
1,870.1 |
88.8 |
% | 1,732.0 |
89.1 |
% | ||||||||||
Supply chain operating margin |
$ | 234.8 |
11.2 |
% | $ | 211.3 |
10.9 |
% | ||||||||
Fiscal Year Ended |
||||||||||||
(In millions) |
December 29, 2019 |
December 30, 2018 |
December 31, 2017 |
|||||||||
Cash Flows Provided By (Used In) |
||||||||||||
Net cash provided by operating activities |
$ | 497.0 |
$ | 394.2 |
$ | 341.3 |
||||||
Net cash used in investing activities |
(27.9 |
) | (88.3 |
) | (83.7 |
) | ||||||
Net cash used in financing activities |
(222.8 |
) | (322.8 |
) | (197.1 |
) | ||||||
Exchange rate changes |
0.2 |
(0.5 |
) | 0.1 |
||||||||
Change in cash and cash equivalents, restricted cash and cash equivalents |
$ | 246.5 |
$ | (17.4 |
) | $ | 60.4 |
|||||
(dollars in millions) |
2020 |
2021 |
2022 |
2023 |
2024 |
Thereafter |
Total |
|||||||||||||||||||||
Long-term debt (1): |
||||||||||||||||||||||||||||
Principal |
$ | 42.0 |
$ | 42.0 |
$ | 897.0 |
$ | 33.0 |
$ | 33.0 |
$ | 3,078.7 |
$ | 4,125.7 |
||||||||||||||
Interest (2) |
162.3 |
158.3 |
145.2 |
128.9 |
127.5 |
288.8 |
1,011.0 |
|||||||||||||||||||||
Finance leases (3) |
3.3 |
2.8 |
2.8 |
2.9 |
2.9 |
25.8 |
40.5 |
|||||||||||||||||||||
Operating leases (4) |
39.9 |
40.1 |
36.9 |
34.4 |
30.0 |
92.8 |
274.1 |
(1) | We have outstanding long-term secured notes with varying maturities. For additional information, see Note 4 of the Notes to Consolidated Financial Statements under “Part II – Item 8 – Financial Statements and Supplementary Data.” |
(2) | Represents interest payments on our 2019, 2018, 2017 and 2015 Notes. |
(3) | The principal portion of the finance lease obligation amounts above, which totaled $19.7 million at December 29, 2019, is classified as debt in our consolidated financial statements. |
(4) | We lease certain retail store and supply chain center locations, supply chain vehicles, various equipment and our World Resource Center under leases with expiration dates through 2041. |
• | our substantial increased indebtedness as a result of the 2019 Recapitalization, 2018 Recapitalization, 2017 Recapitalization and 2015 Recapitalization and our ability to incur additional indebtedness or refinance or renegotiate key terms of that indebtedness in the future; |
• | the impact a downgrade in our credit rating may have on our business, financial condition and results of operations; |
• | our future financial performance and our ability to pay principal and interest on our indebtedness; |
• | the effectiveness of our advertising, operations and promotional initiatives; |
• | the strength of our brand, including our ability to compete in the U.S. and internationally in our intensely competitive industry, including the food service and food delivery markets; |
• | the impact of social media and other consumer-oriented technologies on our business, brand and reputation; |
• | the impact of new or improved technologies and alternative methods of delivery on consumer behavior; |
• | new product, digital ordering and concept developments by us, and other food-industry competitors; |
• | our ability to maintain good relationships with and attract new franchisees and franchisees’ ability to successfully manage their operations without negatively impacting our royalty payments and fees or our brand’s reputation; |
• | our ability to successfully implement cost-saving strategies; |
• | our ability and that of our franchisees to successfully operate in the current and future credit environment; |
• | changes in the level of consumer spending given general economic conditions, including interest rates, energy prices and consumer confidence; |
• | our ability and that of our franchisees to open new restaurants and keep existing restaurants in operation; |
• | changes in operating expenses resulting from changes in prices of food (particularly cheese), fuel and other commodity costs, labor, utilities, insurance, employee benefits and other operating costs; |
• | the impact that widespread illness, health epidemics or general health concerns, severe weather conditions and natural disasters may have on our business and the economies of the countries where we operate; |
• | changes in foreign currency exchange rates; |
• | our ability to retain or replace our executive officers and other key members of management and our ability to adequately staff our stores and supply chain centers with qualified personnel; |
• | our ability to find and/or retain suitable real estate for our stores and supply chain centers; |
• | changes in government legislation or regulation, including changes in laws and regulations regarding information privacy, payment methods and consumer protection and social media; |
• | adverse legal judgments or settlements; |
• | food-borne illness or contamination of products; |
• | data breaches, power loss, technological failures, user error or other cyber risks threatening us or our franchisees; |
• | the effect of war, terrorism, catastrophic events or climate change; |
• | our ability to pay dividends and repurchase shares; |
• | changes in consumer taste, spending and traffic patterns and demographic trends; |
• | actions by activist investors; |
• | changes in accounting policies; and |
• | adequacy of our insurance coverage. |
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk. |
Item 8. |
Financial Statements and Supplementary Data. |
/s/ PricewaterhouseCoopers LLP |
Detroit, Michigan |
February 20, 2020 |
December 29, 2019 |
December 30, 2018 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | |
$ | |
||||
Restricted cash and cash equivalents |
|
|
||||||
Accounts receivable, net of reserves of $ |
|
|
||||||
Inventories |
|
|
||||||
Prepaid expenses and other |
|
|
||||||
Advertising fund assets, restricted |
|
|
||||||
Total current assets |
|
|
||||||
Property, plant and equipment: |
||||||||
Land and buildings |
|
|
||||||
Leasehold and other improvements |
|
|
||||||
Equipment |
|
|
||||||
Construction in progress |
|
|
||||||
|
|
|||||||
Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
Property, plant and equipment, net |
|
|
||||||
Other assets: |
||||||||
Operating lease right-of-use assets |
|
— |
||||||
Investments in marketable securities, restricted |
|
|
||||||
Goodwill |
|
|
||||||
Capitalized software, net of accumulated amortization of $ |
|
|
||||||
Other assets, net of accumulated amortization of $ |
|
|
||||||
Deferred income taxes |
|
|
||||||
Total other assets |
|
|
||||||
Total assets |
$ | |
$ | |
||||
Liabilities and stockholders’ deficit |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | |
$ | |
||||
Accounts payable |
|
|
||||||
Accrued compensation |
|
|
||||||
Accrued interest |
|
|
||||||
Operating lease liabilities |
|
— |
||||||
Insurance reserves |
|
|
||||||
Advertising fund liabilities |
|
|
||||||
Other accrued liabilities |
|
|
||||||
Total current liabilities |
|
|
||||||
Long-term liabilities: |
||||||||
Long-term debt, less current portion |
|
|
||||||
Operating lease liabilities |
|
— |
||||||
Insurance reserves |
|
|
||||||
Other accrued liabilities |
|
|
||||||
Total long-term liabilities |
|
|
||||||
Total liabilities |
|
|
||||||
Commitments and contingencies |
||||||||
Stockholders’ deficit |
||||||||
Common stock, par value $ |
|
|
||||||
Preferred stock, par value $ |
— |
— |
||||||
Additional paid-in capital |
|
|
||||||
Retained deficit |
( |
) | ( |
) | ||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Total stockholders’ deficit |
( |
) | ( |
) | ||||
Total liabilities and stockholders’ deficit |
$ | |
$ | |
||||
For the Years Ended |
||||||||||||
December 29, 2019 |
December 30, 2018 |
December 31, 2017 |
||||||||||
Revenues: |
||||||||||||
U.S. Company-owned stores |
$ | |
$ | |
$ | |
||||||
U.S. franchise royalties and fees |
|
|
|
|||||||||
Supply chain |
|
|
|
|||||||||
International franchise royalties and fees |
|
|
|
|||||||||
U.S. franchise advertising |
|
|
— |
|||||||||
Total revenues |
|
|
|
|||||||||
Cost of sales: |
||||||||||||
U.S. Company-owned stores |
|
|
|
|||||||||
Supply chain |
|
|
|
|||||||||
Total cost of sales |
|
|
|
|||||||||
Operating margin |
|
|
|
|||||||||
General and administrative |
|
|
|
|||||||||
U.S. franchise advertising |
|
|
— |
|||||||||
Income from operations |
|
|
|
|||||||||
Interest income |
|
|
|
|||||||||
Interest expense |
( |
) | ( |
) | ( |
) | ||||||
Income before provision for income taxes |
|
|
|
|||||||||
Provision for income taxes |
|
|
|
|||||||||
Net income |
$ | |
$ | |
$ | |
||||||
Earnings per share: |
||||||||||||
Common Stock – basic |
$ | |
$ | |
$ | |
||||||
Common Stock – diluted |
$ | |
$ | |
$ | |
For the Years Ended |
||||||||||||
December 29, 2019 |
December 30, 2018 |
December 31, 2017 |
||||||||||
Net income |
$ | |
$ | |
$ | |
||||||
Currency translation adjustment |
|
( |
) | |
||||||||
Comprehensive income |
$ | |
$ | |
$ | |
||||||
Common Stock |
Additional Paid-in Capital |
Retained Deficit |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||||||
Shares |
Amount |
|||||||||||||||||||
Balance at January 1, 2017 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
Net income |
— |
— |
— |
— |
||||||||||||||||
Dividends declared on common stock and equivalents ($ |
— |
— |
— |
( |
) | — |
||||||||||||||
Issuance and cancellation of stock awards, net |
— |
— |
— |
|||||||||||||||||
Tax payments for restricted stock upon vesting |
( |
) | ( |
) | ( |
) | — |
— |
||||||||||||
Purchases of common stock |
( |
) | ( |
) | ( |
) | ( |
) | — |
|||||||||||
Exercises of stock options |
— |
— |
||||||||||||||||||
Non-cash compensation expense |
— |
— |
— |
— |
||||||||||||||||
Other |
— |
— |
( |
) | — |
— |
||||||||||||||
Currency translation adjustment |
— |
— |
— |
— |
||||||||||||||||
Balance at December 31, 2017 |
( |
) | ( |
) | ||||||||||||||||
Net income |
— |
— |
— |
— |
||||||||||||||||
Dividends declared on common stock and equivalents ($ |
— |
— |
— |
( |
) | — |
||||||||||||||
Issuance and cancellation of stock awards, net |
— |
— |
— |
|||||||||||||||||
Tax payments for restricted stock upon vesting |
( |
) | — |
( |
) | — |
— |
|||||||||||||
Purchases of common stock |
( |
) | ( |
) | ( |
) | ( |
) | — |
|||||||||||
Exercises of stock options |
— |
— |
||||||||||||||||||
Non-cash compensation expense |
— |
— |
— |
— |
||||||||||||||||
Adoption of ASC 606 (Note 1) |
— |
— |
— |
( |
) | — |
||||||||||||||
Currency translation adjustment |
— |
— |
— |
— |
( |
) | ||||||||||||||
Reclassification adjustment for stranded taxes (Note 1) |
— |
— |
— |
( |
) | |||||||||||||||
Balance at December 30, 2018 |
( |
) | ( |
) | ||||||||||||||||
Net income |
— |
— |
— |
— |
||||||||||||||||
Dividends declared on common stock and equivalents ($ |
— |
— |
— |
( |
) | — |
||||||||||||||
Issuance and cancellation of stock awards, net |
— |
— |
— |
— |
||||||||||||||||
Tax payments for restricted stock upon vesting |
( |
) | — |
( |
) | — |
— |
|||||||||||||
Purchases of common stock |
( |
) | ( |
) | ( |
) | ( |
) | — |
|||||||||||
Exercises of stock options |
— |
— |
||||||||||||||||||
Non-cash compensation expense |
— |
— |
— |
— |
||||||||||||||||
Currency translation adjustment |
— |
— |
— |
— |
||||||||||||||||
Balance at December 29, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
For the Years Ended |
||||||||||||
December 29, 2019 |
December 30, 2018 |
December 31, 2017 |
||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | |
$ | |
$ | |
||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
|
|
|
|||||||||
Loss (gain) on sale/disposal of assets |
|
( |
) | ( |
) | |||||||
Amortization of debt issuance costs |
|
|
|
|||||||||
(Benefit) provision for deferred income taxes |
( |
) | ( |
) | |
|||||||
Non-cash compensation expense |
|
|
|
|||||||||
Excess tax benefits from equity-based compensation |
( |
) | ( |
) | ( |
) | ||||||
Provision (benefit) for losses and accounts and notes receivable |
|
|
( |
) | ||||||||
Changes in operating assets and liabilities: |
||||||||||||
Changes in accounts receivable |
( |
) | ( |
) | ( |
) | ||||||
Changes in inventories, prepaid expenses and other |
( |
) | ( |
) | |
|||||||
Changes in accounts payable and accrued liabilities |
|
|
|
|||||||||
Changes in insurance reserves |
|
|
|
|||||||||
Changes in operating lease assets and liabilities |
|
— |
— |
|||||||||
Changes in advertising fund assets and liabilities, restricted |
( |
) | ( |
) | |
|||||||
Net cash provided by operating activities |
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from sale of assets |
|
|
|
|||||||||
Maturities of advertising fund investments, restricted |
|
|
— |
|||||||||
Purchases of advertising fund investments, restricted |
— |
( |
) | — |
||||||||
Purchases of franchise operations and other assets |
( |
) | — |
— |
||||||||
Other |
( |
) | ( |
) | ( |
) | ||||||
Net cash used in investing activities |
( |
) | ( |
) | ( |
) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of long-term debt |
|
|
|
|||||||||
Repayments of long-term debt and finance lease obligations |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from exercise of stock options |
|
|
|
|||||||||
Purchases of common stock |
( |
) | ( |
) | ( |
) | ||||||
Tax payments for restricted stock upon vesting |
( |
) | ( |
) | ( |
) | ||||||
Payments of common stock dividends and equivalents |
( |
) | ( |
) | ( |
) | ||||||
Cash paid for financing costs |
( |
) | ( |
) | ( |
) | ||||||
Other |
— |
— |
( |
) | ||||||||
Net cash used in financing activities |
( |
) | ( |
) | ( |
) | ||||||
Effect of exchange rate changes on cash |
|
( |
) | |
||||||||
Change in cash and cash equivalents, restricted cash and cash equivalents |
$ | |
$ | ( |
) | $ | |
|||||
Cash and cash equivalents, beginning of period |
|
|
|
|||||||||
Restricted cash and cash equivalents, beginning of period |
|
|
|
|||||||||
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period |
|
|
|
|||||||||
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period |
$ | |
$ | |
$ | |
||||||
Cash and cash equivalents, end of period |
|
|
|
|||||||||
Restricted cash and cash equivalents, end of period |
|
|
|
|||||||||
Cash and cash equivalents included in advertising fund assets, restricted, end of period |
|
|
|
|||||||||
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period |
$ | |
$ | |
$ | |
||||||
(1) |
Description of Business and Summary of Significant Accounting Policies |
2019 |
2018 |
|||||||
Food |
$ | |
$ | |
||||
Equipment and supplies |
|
|
||||||
Inventories |
$ | |
$ | |
||||
Buildings |
|
|||
Leasehold and other improvements |
|
|||
Equipment |
|
Fiscal Year Ended |
||||||||
|
December 29, 2019 |
December 30, 2018 |
||||||
Deferred franchise fees and deferred development fees at beginning of period |
$ | |
$ | |
||||
Revenue recognized during the period |
( |
) | ( |
) | ||||
New deferrals due to cash received and other |
|
|
||||||
Deferred franchise fees and deferred development fees at end of period |
$ | |
$ | |
||||
Balance at December 30, 2018 |
Adjustments Due to ASC 842 |
Balance at December 31, 2018 |
||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Prepaid expenses and other |
$ | |
$ | ( |
) | $ | |
|||||
Property, plant and equipment: |
||||||||||||
Construction in progress |
|
( |
) | |
||||||||
Other assets: |
||||||||||||
Operating lease right-of-use assets |
— |
|
|
|||||||||
Liabilities and stockholders’ deficit |
||||||||||||
Current liabilities: |
||||||||||||
Operating lease liabilities |
— |
|
|
|||||||||
Other accrued liabilities |
|
( |
) | |
||||||||
Long-term liabilities: |
||||||||||||
Operating lease liabilities |
— |
|
|
|||||||||
Other accrued liabilities |
|
( |
) | |
(2) |
Earnings per Share |
2019 |
2018 |
2017 |
||||||||||
Net income available to common stockholders – basic and diluted |
$ | $ | $ | |||||||||
Weighted average number of common shares |
||||||||||||
Earnings per common share – basic |
$ | $ | $ | |||||||||
Diluted weighted average number of common shares |
||||||||||||
Earnings per common share – diluted |
$ | $ | $ |
(3) |
Fair Value Measurements |
At December 29, 2019 |
||||||||||||||||
Carrying Amount |
Fair Value Estimated Using |
|||||||||||||||
Level 1 Inputs |
Level 2 Inputs |
Level 3 Inputs |
||||||||||||||
Cash equivalents |
$ | $ | $ | — |
$ | — |
||||||||||
Restricted cash equivalents |
— |
— |
||||||||||||||
Investments in marketable securities |
— |
— |
||||||||||||||
Advertising fund cash equivalents, restricted |
— |
— |
At December 30, 2018 |
||||||||||||||||
Carrying Amount |
Fair Value Estimated Using |
|||||||||||||||
Level 1 Inputs |
Level 2 Inputs |
Level 3 Inputs |
||||||||||||||
Cash equivalents |
$ | $ | $ | — |
$ | — |
||||||||||
Restricted cash equivalents |
— |
— |
||||||||||||||
Investments in marketable securities |
— |
— |
||||||||||||||
Advertising fund cash equivalents, restricted |
— |
— |
||||||||||||||
Advertising fund investments, restricted |
— |
— |
(4) |
Recapitalizations and Financing Arrangements |
2019 |
2018 |
|||||||
2015 Ten-Year Fixed Rate Notes |
$ | |
$ | |
||||
2017 Five-Year Fixed Rate Notes |
|
|
||||||
2017 Ten-Year Fixed Rate Notes |
|
|
||||||
2017 Five-Year Floating Rate Notes |
|
|
||||||
2018 7.5-Year Fixed Rate Notes |
|
|
||||||
2018 9.25-Year Fixed Rate Notes |
|
|
||||||
2019 Ten-Year Fixed Rate Notes |
|
— |
||||||
2017 Variable Funding Notes |
— |
|
||||||
2019 Variable Funding Notes |
|
— |
||||||
Finance lease obligations |
|
|
||||||
Debt issuance costs, net of accumulated amortization of $ |
( |
) | ( |
) | ||||
Total debt |
|
|
||||||
Less – current portion |
|
|
||||||
Consolidated long-term debt, net of debt issuance c osts |
$ | |
$ | |
||||
2020 |
$ | |
||
2021 |
|
|||
2022 |
|
|||
2023 |
|
|||
2024 |
|
|||
Thereafter |
|
|||
$ | |
|||
December 29, 2019 |
December 30, 2018 |
|||||||||||||||
Principal Amount |
Fair Value |
Principal Amount |
Fair Value |
|||||||||||||
2015 Ten-Year Fixed Rate Notes |
$ | |
$ | |
$ | |
$ | |
||||||||
2017 Five-Year Fixed Rate Notes |
|
|
|
|
||||||||||||
2017 Ten-Year Fixed Rate Notes |
|
|
|
|
||||||||||||
2017 Five-Year Floating Rate Notes |
|
|
|
|
||||||||||||
2018 7.5-Year Fixed Rate Notes |
|
|
|
|
||||||||||||
2018 9.25-Year Fixed Rate Notes |
|
|
|
|
||||||||||||
2019 Ten-Year Fixed Rate Notes |
|
|
— |
— |
(5) |
Leases |
Fiscal Year Ended December 29, 2019 |
||||
Operating lease cost |
$ | |
||
Finance lease cost: |
||||
Amortization of right-of-use assets |
|
|||
Interest on lease liabilities |
|
|||
Total finance lease cost |
$ | |
||
December 29, 2019 |
December 30, 2018 |
|||||||
Land and buildings |
$ | $ | ||||||
Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
Finance lease assets, net |
$ | $ | ||||||
Current portion of long-term debt |
$ | $ | ||||||
Long-term debt, less current portion |
||||||||
Total principal payable on finance leases |
$ | $ | ||||||
Operating Leases |
Finance Leases |
|||||||
Weighted average remaining lease term |
||||||||
Weighted average discount rate |
% | % |
Fiscal Year Ended December 29, 2019 |
||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||
Operating cash flows from operating leases |
$ | |||
Operating cash flows from finance leases |
||||
Financing cash flows from finance leases |
||||
Right-of-use assets obtained in exchange for new lease obligations: |
||||
Operating leases |
||||
Finance leases |
Operating Leases |
Finance Leases |
|||||||
2020 |
$ | $ | ||||||
2021 |
||||||||
2022 |
||||||||
2023 |
||||||||
2024 |
||||||||
Thereafter |
||||||||
Total future minimum rental commitments |
||||||||
Less – amounts representing interest |
( |
) | ( |
) | ||||
Total lease liabilities |
$ | $ | ||||||
Operating Leases |
Finance Leases |
|||||||
2019 |
$ | $ | ||||||
2020 |
||||||||
2021 |
||||||||
2022 |
||||||||
2023 |
||||||||
Thereafter |
||||||||
Total future minimum rental commitments |
$ | |||||||
Less – amounts representing interest |
( |
) | ||||||
Total principal payable on finance leases |
$ | |||||||
(6) |
Commitments and Contingencies |
(7) |
Income Taxes |
2019 |
2018 |
2017 |
||||||||||
U.S. |
$ | |
$ | |
$ | |
||||||
Foreign |
|
|
|
|||||||||
Income before provision for income taxes |
$ | |
$ | |
$ | |
||||||
2019 |
2018 |
2017 |
||||||||||
Federal income tax provision based on the statutory rate |
$ | |
$ | |
$ | |
||||||
State and local income taxes, net of related Federal income taxes |
|
|
|
|||||||||
Non-resident withholding and foreign income taxes |
|
|
|
|||||||||
Foreign tax and other tax credits |
( |
) | ( |
) | ( |
) | ||||||
Foreign derived intangible income |
( |
) | ( |
) | — |
|||||||
Excess tax benefits from equity-based compensation |
( |
) | ( |
) | ( |
) | ||||||
Non-deductible expenses, net |
|
|
|
|||||||||
Unrecognized tax provision (benefit), net of related Federal income taxes |
|
|
( |
) | ||||||||
Other |
( |
) | ( |
) | ( |
) | ||||||
Provision for income taxes |
$ | |
$ | |
$ | |
||||||
2019 |
2018 |
2017 |
||||||||||
Provision for Federal income taxes |
||||||||||||
Current provision |
$ | |
$ | |
$ | |
||||||
Deferred (benefit) provision |
( |
) | ( |
) | |
|||||||
Total provision for Federal income taxes |
|
|
|
|||||||||
Provision for state and local income taxes |
||||||||||||
Current provision |
|
|
|
|||||||||
Deferred (benefit) provision |
( |
) | |
( |
) | |||||||
Total provision for state and local income taxes |
|
|
|
|||||||||
Provision for non-resident withholding and foreign income taxes |
|
|
|
|||||||||
Provision for income taxes |
$ | |
$ | |
$ | |
||||||
2019 |
2018 |
|||||||
Deferred income tax assets |
||||||||
Other accruals and reserves |
$ | |
$ | |
||||
Insurance reserves |
|
|
||||||
Equity compensation |
|
|
||||||
Foreign tax credit |
|
|
||||||
Other |
|
|
||||||
Deferred income tax assets before valuation allowance |
|
|
||||||
Less: Valuation allowance |
( |
) | — |
|||||
Total deferred income tax assets |
|
|
||||||
Deferred income tax liabilities |
||||||||
Depreciation, amortization and asset basis differences |
|
|
||||||
Capitalized software |
|
|
||||||
Total deferred income tax liabilities |
|
|
||||||
Net deferred income tax assets |
$ | |
$ | |
||||
2019 |
2018 |
2017 |
||||||||||
Unrecognized tax benefits at beginning of period |
$ | |
$ | |
$ | |
||||||
Additions for tax positions of current year |
|
|
|
|||||||||
Additions for tax positions of prior years |
|
|
|
|||||||||
Reductions for changes in prior year tax positions |
( |
) | ( |
) | ( |
) | ||||||
Reductions for lapses of applicable statute of limitations |
( |
) | ( |
) | ( |
) | ||||||
Unrecognized tax benefits at end of period |
$ | |
$ | |
$ | |
||||||
(8) |
Employee Benefits |
(9) |
Financial Instruments with Off-Balance Sheet Risk |
(10) |
Equity Incentive Plans |
Common Stock Options |
||||||||||||||||
Outstanding |
Weighted Average Exercise Price |
Weighted Average Remaining Life |
Aggregate Intrinsic Value |
|||||||||||||
(Years) |
(In thousands) |
|||||||||||||||
Stock options at January 1, 2017 |
$ | |||||||||||||||
Stock options granted |
||||||||||||||||
Stock options cancelled |
( |
) | ||||||||||||||
Stock options exercised |
( |
) | ||||||||||||||
Stock options at December 31, 2017 |
$ | |||||||||||||||
Stock options granted |
||||||||||||||||
Stock options cancelled |
( |
) | ||||||||||||||
Stock options exercised |
( |
) | ||||||||||||||
Stock options at December 30, 2018 |
$ | |||||||||||||||
Stock options granted |
||||||||||||||||
Stock options cancelled |
( |
) | ||||||||||||||
Stock options exercised |
( |
) | ||||||||||||||
Stock options at December 29, 2019 |
$ | $ | ||||||||||||||
Exercisable at December 29, 2019 |
$ | $ | ||||||||||||||
2019 |
2018 |
2017 |
||||||||||
Risk-free interest rate |
% | % | % | |||||||||
Expected life (years) |
||||||||||||
Expected volatility |
% | % | % | |||||||||
Expected dividend yield |
% | % | % | |||||||||
Weighted average fair value per stock option |
$ | $ | $ |
Shares |
Weighted Average Grant Date Fair Value (1) |
|||||||
Nonvested at January 1, 2017 |
$ | |||||||
Shares granted |
||||||||
Shares cancelled |
( |
) | ||||||
Shares vested |
( |
) | ||||||
Nonvested at December 31, 2017 |
$ | |||||||
Shares granted |
||||||||
Shares cancelled |
( |
) | ||||||
Shares vested |
( |
) | ||||||
Nonvested at December 30, 2018 |
$ | |||||||
Shares granted |
||||||||
Shares cancelled |
( |
) | ||||||
Shares vested |
( |
) | ||||||
Nonvested at December 29, 2019 |
$ | |||||||
(1) | The weighted average grant date fair value for performance-based restricted shares granted was calculated based on the market price on the grant dates. Certain tranches will ultimately be valued when the performance condition is established for each tranche, which generally occurs in the fourth quarter of each fiscal year. |
(11) |
Capital Structure |
2019 |
2018 |
|||||||
Voting |
||||||||
Non-Voting |
||||||||
Total Common Stock |
||||||||
(12) |
Segment Information |
U.S. Stores (1) |
Supply Chain |
International Franchise (2) |
Intersegment Revenues |
Other |
Total |
|||||||||||||||||||
Revenues- |
||||||||||||||||||||||||
2019 |
$ | |
$ | |
$ | |
$ | ( |
) | — |
$ | |
||||||||||||
2018 |
|
|
|
( |
) | — |
|
|||||||||||||||||
2017 |
|
|
|
( |
) | — |
|
|||||||||||||||||
Segment Income- |
||||||||||||||||||||||||
2019 |
$ | |
$ | |
$ | |
N/A |
$ | ( |
) | $ | |
||||||||||||
2018 |
|
|
|
N/A |
( |
) | |
|||||||||||||||||
2017 |
|
|
|
N/A |
( |
) | |
|||||||||||||||||
Income from Operations- |
||||||||||||||||||||||||
2019 |
$ | |
$ | |
$ | |
N/A |
$ | ( |
) | $ | |
||||||||||||
2018 |
|
|
|
N/A |
( |
) | |
|||||||||||||||||
2017 |
|
|
|
N/A |
( |
) | |
|||||||||||||||||
Capital Expenditures- |
||||||||||||||||||||||||
2019 |
$ | |
$ | |
$ | |
N/A |
$ | |
$ | |
|||||||||||||
2018 |
|
|
|
N/A |
|
|
||||||||||||||||||
2017 |
|
|
|
N/A |
|
|
(1) |
The adoption of ASC 606 in 2018 resulted in the recognition of revenue related to U.S. franchise contributions to DNAF in 2019 and 2018. In prior years, under accounting standards in effect at that time, the Company had presented these contributions net with the related disbursements in its consolidated statement of income. Refer to Note 1 to the consolidated financial statements for additional information related to the adoption of this accounting standard. |
(2) |
In 2018, the Company began managing its franchised stores in Alaska and Hawaii as part of its U.S. Stores segment. Prior to 2018, royalty revenues from these franchised stores were included in the Company’s International Franchise segment in the table above. Consolidated results of the Company have not been impacted by this change and prior year amounts have not been reclassified to conform to the current year presentation due to immateriality. |
2019 |
2018 |
2017 |
||||||||||
Total Segment Income |
$ | |
$ | |
$ | |
||||||
Depreciation and amortization |
( |
) | ( |
) | ( |
) | ||||||
(Loss) gain on sale/disposal of assets |
( |
) | |
|
||||||||
Non-cash compensation expense |
( |
) | ( |
) | ( |
) | ||||||
Recapitalization-related expenses |
( |
) | ( |
) | ( |
) | ||||||
Income from operations |
|
|
|
|||||||||
Interest income |
|
|
|
|||||||||
Interest expense |
( |
) | ( |
) | ( |
) | ||||||
Income before provision for income taxes |
$ | |
$ | |
$ | |
||||||
2019 (1) |
2018 |
|||||||
U.S. Stores |
$ | |
$ | |
||||
U.S. supply chain |
|
|
||||||
Total U.S. assets |
|
|
||||||
International franchise |
|
|
||||||
International supply chain |
|
|
||||||
Total international assets |
|
|
||||||
Unallocated |
|
|
||||||
Total assets |
$ | |
$ | |
||||
(1) |
The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets in 2019. Refer to Note 1 to the consolidated financial statements for additional information related to the adoption of this new accounting standard. |
2019 |
2018 |
|||||||
U.S. Stores |
$ | |
$ | |
||||
Supply Chain |
|
|
||||||
Consolidated goodwill |
$ | |
$ | |
||||
(13) |
Company-owned Store Transactions |
(14) |
Periodic Financial Data (Unaudited; in Thousands, except Per Share Amounts) |
For the Fiscal Quarter Ended |
For the Fiscal Year Ended |
|||||||||||||||||||
March 24, 2019 |
June 16, 2019 |
September 8, 2019 |
December 29, 2019 |
December 29, 2019 |
||||||||||||||||
Total revenues |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
Operating margin |
|
|
|
|
|
|||||||||||||||
Income before provision for income taxes |
|
|
|
|
|
|||||||||||||||
Net income |
|
|
|
|
|
|||||||||||||||
Earnings per common share – basic (1) |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
Earnings per common share – diluted (1) |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
Common stock dividends declared per share |
$ | |
$ | |
$ | |
$ | |
$ | |
For the Fiscal Quarter Ended |
For the Fiscal Year Ended |
|||||||||||||||||||
March 25, 2018 |
June 17, 2018 |
September 9, 2018 |
December 30, 2018 |
December 30, 2018 |
||||||||||||||||
Total revenues |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
Operating margin |
|
|
|
|
|
|||||||||||||||
Income before provision for income taxes |
|
|
|
|
|
|||||||||||||||
Net income |
|
|
|
|
|
|||||||||||||||
Earnings per common share – basic (1) |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
Earnings per common share – diluted (1) |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
Common stock dividends declared per share |
$ | |
$ | |
$ | |
$ | |
$ | |
(1) |
Earnings per share figures may not sum to the total due to the rounding of each individual calculation. |
(15) |
Subsequent Events |
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Item 9A. |
Controls and Procedures. |
(a) | Evaluation of Disclosure Controls and Procedures. |
(b) | Changes in Internal Control over Financial Reporting. |
(c) | Management’s Annual Report on Internal Control over Financial Reporting. |
Item 9B. |
Other Information. |
Item 10. |
Directors, Executive Officers and Corporate Governance. |
Name |
Age |
Position | ||||
David A. Brandon |
67 |
Chairman of the Board of Directors | ||||
Richard E. Allison, Jr. |
53 |
Chief Executive Officer | ||||
Jeffrey D. Lawrence |
46 |
Executive Vice President, Chief Financial Officer | ||||
Russell J. Weiner |
51 |
Chief Operating Officer and President of the Americas | ||||
Thomas B. Curtis |
56 |
Executive Vice President, Corporate Operations | ||||
Scott R. Hinshaw |
57 |
Executive Vice President, Franchise Operations and Development | ||||
Joseph H. Jordan |
46 |
Executive Vice President, International | ||||
Stuart A. Levy |
48 |
Executive Vice President, Supply Chain Services | ||||
Timothy P. McIntyre |
57 |
Executive Vice President, Communication, Investor Relations and Legislative Affairs | ||||
Kevin S. Morris |
59 |
Executive Vice President, General Counsel | ||||
Lisa V. Price |
47 |
Executive Vice President, Chief Human Resources Officer | ||||
J. Kevin Vasconi |
59 |
Executive Vice President, Chief Information Officer | ||||
C. Andrew Ballard |
47 |
Director | ||||
Andrew B. Balson |
53 |
Director | ||||
Corie S. Barry |
44 |
Director | ||||
Diana F. Cantor |
62 |
Director | ||||
Richard L. Federico |
65 |
Director | ||||
James A. Goldman |
61 |
Director | ||||
Patricia E. Lopez |
58 |
Director |
Item 11. |
Executive Compensation. |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence. |
Item 14. |
Principal Accountant Fees and Services. |
Item 15. |
Exhibits, Financial Statement Schedules. |
(a)1. | Financial Statements: The following financial statements for Domino’s Pizza, Inc. and subsidiaries are included in Item 8, “Financial Statements and Supplementary Data”: |
2. | Financial Statement Schedules: The following financial statement schedules are attached to this report. |
3. | Exhibits: Certain of the following Exhibits have been previously filed with the Securities and Exchange Commission pursuant to the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such exhibits are identified by the parenthetical references following the listing of each such exhibit and are incorporated herein by reference. |
Exhibit Number |
Description | |||
3.1 |
||||
3.2 |
||||
3.3 |
||||
4.1 |
||||
10.1 |
||||
10.2 |
||||
10.3 |
||||
10.4 |
||||
10.5 |
10.6 |
||||
10.7 |
||||
10.8 |
||||
10.9 |
||||
10.10 |
||||
10.11 |
||||
10.12 |
||||
10.13* |
||||
10.14* |
||||
10.15* |
||||
10.16* |
||||
10.17* |
||||
10.18* |
||||
10.19* |
||||
10.20* |
||||
10.21* |
||||
10.22* |
||||
10.23* |
10.24* |
||||
10.25* |
||||
10.26* |
||||
10.27* |
||||
10.28* |
||||
10.29* |
||||
10.30* |
||||
10.31* |
||||
10.32* |
||||
10.33* |
||||
10.34* |
||||
10.35* |
||||
10.36* |
||||
10.37* |
||||
10.38* |
||||
10.39* |
||||
10.40* |
10.41* |
||||
10.42* |
||||
10.43 |
||||
10.44 |
||||
10.45 |
||||
10.46 |
||||
10.47 |
||||
10.48 |
||||
10.49 |
||||
10.50 |
||||
10.51 |
||||
10.52 |
||||
10.53 |
10.54 |
||||
10.55 |
||||
10.56 |
||||
10.57 |
||||
10.58 |
||||
10.59 |
||||
10.60 |
||||
10.61 |
||||
10.62 |
||||
10.63 |
10.64 |
||||
10.65 |
||||
10.66 |
||||
10.67 |
||||
10.68 |
||||
21.1 |
||||
23.1 |
||||
31.1 |
||||
31.2 |
||||
32.1 |
||||
32.2 |
||||
101.INS |
XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||
101.SCH |
Inline XBRL Taxonomy Extension Schema Document. | |||
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||
104 |
Cover page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101). |
* | A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(b) of Form 10-K. |
Item 16. |
Form 10-K Summary. |
December 29, 2019 |
December 30, 2018 |
|||||||
ASSETS |
||||||||
ASSETS: |
||||||||
Cash |
$ | $ | ||||||
Total assets |
$ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
LIABILITIES: |
||||||||
Equity in net deficit of subsidiaries |
$ | $ | ||||||
Due to subsidiary |
||||||||
Total liabilities |
||||||||
STOCKHOLDERS’ DEFICIT: |
||||||||
Common stock, par value $ |
||||||||
Preferred stock, par value $ |
||||||||
Additional paid-in capital |
||||||||
Retained deficit |
( |
) | ( |
) | ||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Total stockholders’ deficit |
( |
) | ( |
) | ||||
Total liabilities and stockholders’ deficit |
$ | $ | ||||||
For the Years Ended |
||||||||||||
December 29, 2019 |
December 30, 2018 |
December 31, 2017 |
||||||||||
REVENUES |
$ | $ | $ | |||||||||
Total revenues |
||||||||||||
OPERATING EXPENSES |
||||||||||||
Total operating expenses |
||||||||||||
INCOME FROM OPERATIONS |
||||||||||||
Equity earnings in subsidiaries |
||||||||||||
INCOME BEFORE PROVISION FOR INCOME TAXES |
||||||||||||
PROVISION FOR INCOME TAXES |
||||||||||||
NET INCOME |
$ | $ | $ | |||||||||
COMPREHENSIVE INCOME |
$ | $ | $ | |||||||||
EARNINGS PER SHARE: |
||||||||||||
Common Stock – basic |
$ | $ | $ | |||||||||
Common Stock – diluted |
$ | $ | $ |
For the Years Ended |
||||||||||||
December 29, 2019 |
December 30, 2018 |
December 31, 2017 |
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net cash provided by operating activities |
$ | $ | $ | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Dividends from subsidiaries |
||||||||||||
Net cash provided by investing activities |
||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Payments of common stock dividends |
( |
) | ( |
) | ( |
) | ||||||
Purchase of common stock |
( |
) | ( |
) | ( |
) | ||||||
Other |
( |
) | ||||||||||
Net cash used in financing activities |
( |
) | ( |
) | ( |
) | ||||||
CHANGE IN CASH |
||||||||||||
CASH, AT BEGINNING OF PERIOD |
||||||||||||
CASH, AT END OF PERIOD |
$ | $ | $ | |||||||||
(1) |
Introduction and Basis of Presentation |
(2) |
Supplemental Disclosures of Cash Flow Information |
(in thousands) |
Balance Beginning of Year |
Provision (Benefit) |
Deductions from Reserves * |
Balance End of Year |
||||||||||||
Allowance for doubtful accounts receivable: |
||||||||||||||||
2019 |
$ | |
$ | |
$ | ( |
) | $ |
|
|||||||
2018 |
|
|
( |
) | |
|||||||||||
2017 |
|
( |
) | ( |
) | |
* | Consists primarily of write-offs, recoveries of bad debt and certain reclassifications. |
DOMINO’S PIZZA, INC. |
/s/ Jeffrey D. Lawrence |
Jeffrey D. Lawrence Chief Financial Officer |
February 20, 2020 |
/s/ Richard E. Allison, Jr. |
||
Richard E. Allison, Jr. February 20, 2020 |
Chief Executive Officer and Director (Principal Executive Officer) | |
/s/ Jeffrey D. Lawrence |
||
Jeffrey D. Lawrence February 20, 2020 |
Chief Financial Officer (Principal Financial and Accounting Officer) | |
/s/ David A. Brandon |
||
David A. Brandon February 20, 2020 |
Chairman of the Board of Directors | |
/s/ C. Andrew Ballard |
||
C. Andrew Ballard February 20, 2020 |
Director | |
/s/ Andrew B. Balson |
||
Andrew B. Balson February 20, 2020 |
Director | |
/s/ Corie S. Barry |
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Corie S. Barry February 20, 2020 |
Director | |
/s/ Diana F. Cantor |
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Diana F. Cantor February 20, 2020 |
Director | |
/s/ Richard L. Federico |
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Richard L. Federico February 20, 2020 |
Director | |
/s/ James A. Goldman |
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James A. Goldman February 20, 2020 |
Director | |
/s/ Patricia E. Lopez |
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Patricia E. Lopez February 20, 2020 |
Director |