SEC Filing - Domino's Pizza

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10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 22, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number:

001-32242

Domino’s Pizza, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		38-2511577
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

30 Frank Lloyd Wright Drive Ann Arbor, Michigan		48105
(Address of Principal Executive Offices)		(Zip Code)

(734)

930-3030

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Domino’s Pizza, Inc. Common Stock, $0.01 par value	DPZ	New York Stock Exchange

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes

☐

No ☒

As of April 16, 2020, Domino’s Pizza, Inc. had 39,117,878 shares of common stock, par value $0.01 per share, outstanding.

Table of Contents

Domino’s Pizza, Inc.

TABLE OF CONTENTS


		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Condensed Consolidated Balance Sheets (Unaudited) – As of March 22, 2020 and December 29, 2019		3

	Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarters ended March 22, 2020 and March 24, 2019		4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Fiscal quarters ended March 22, 2020 and March 24, 2019		5

	Condensed Consolidated Statements of Cash Flows (Unaudited) – Fiscal quarters ended March 22, 2020 and March 24, 2019		6

	Notes to Condensed Consolidated Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21

Item 4.	Controls and Procedures		21

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		22

Item 1A.	Risk Factors		22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23

Item 3.	Defaults Upon Senior Securities		23

Item 4.	Mine Safety Disclosures		23

Item 5.	Other Information		23

Item 6.	Exhibits		23

SIGNATURES			24

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


(In thousands)	March 22, 2020			December 29, 2019 (1)
Assets
Current assets:
Cash and cash equivalents	$	200,801		$	190,615
Restricted cash and cash equivalents		189,370			209,269
Accounts receivable, net		219,199			210,260
Inventories		49,010			52,955
Prepaid expenses and other		26,025			19,129
Advertising fund assets, restricted		109,969			105,389

Total current assets		794,374			787,617

Property, plant and equipment:
Land and buildings		44,732			44,845
Leasehold and other improvements		165,843			164,071
Equipment		249,467			243,708
Construction in progress		39,806			42,705

		499,848			495,329
Accumulated depreciation and amortization		(259,131	)		(252,448	)

Property, plant and equipment, net		240,717			242,881

Other assets:
Operating lease right-of-use assets		228,940			228,785
Goodwill		15,061			15,093
Capitalized software, net		74,203			73,140
Other assets		27,539			24,503
Deferred income taxes		9,042			10,073

Total other assets		354,785			351,594

Total assets	$	1,389,876		$	1,382,092

Liabilities and stockholders’ deficit
Current liabilities:
Current portion of long-term debt	$	43,390		$	43,394
Accounts payable		94,502			111,101
Operating lease liabilities		36,914			33,318
Insurance reserves		23,453			23,735
Dividends payable		30,985			471
Advertising fund liabilities		106,832			101,921
Other accrued liabilities		116,093			139,891

Total current liabilities		452,169			453,831

Long-term liabilities:
Long-term debt, less current portion		4,061,198			4,071,055
Operating lease liabilities		199,304			202,731
Insurance reserves		35,362			34,675
Other accrued liabilities		34,033			35,559

Total long-term liabilities		4,329,897			4,344,020

Stockholders’ deficit:
Common stock		390			389
Additional paid-in capital		12,474			243
Retained deficit		(3,398,986	)		(3,412,649	)
Accumulated other comprehensive loss		(6,068	)		(3,742	)

Total stockholders’ deficit		(3,392,190	)		(3,415,759	)

Total liabilities and stockholders’ deficit	$	1,389,876		$	1,382,092

(1)	The balance sheet at December 29, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The accompanying notes are an integral part of these condensed consolidated statements.

Table of Contents

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)


	Fiscal Quarter Ended
	March 22,			March 24,
(In thousands, except per share data)	2020			2019
Revenues:
U.S. Company-owned stores	$	102,326		$	123,450
U.S. franchise royalties and fees		104,746			96,708
Supply chain		512,700			472,100
International franchise royalties and fees		57,496			54,584
U.S. franchise advertising		95,834			89,121

Total revenues		873,102			835,963

Cost of sales:
U.S. Company-owned stores		79,388			95,540
Supply chain		453,557			418,134

Total cost of sales		532,945			513,674

Operating margin		340,157			322,289

General and administrative		88,489			89,664
U.S. franchise advertising		95,834			89,121

Income from operations		155,834			143,504
Interest income		932			693
Interest expense		(39,470	)		(35,054	)

Income before (benefit) provision for income taxes		117,296			109,143
(Benefit) provision for income taxes		(4,306	)		16,493

Net income	$	121,602		$	92,650

Earnings per share:
Common stock - basic	$	3.14		$	2.27
Common stock - diluted		3.07			2.20

The accompanying notes are an integral part of these condensed consolidated statements.

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Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Fiscal Quarter Ended
	March 22,			March 24,
(In thousands)	2020			2019
Net income	$	121,602		$	92,650
Currency translation adjustment		(2,326	)		237

Comprehensive income	$	119,276		$	92,887

The accompanying notes are an integral part of these condensed consolidated statements.

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Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Fiscal Quarter Ended
	March 22,			March 24,
(In thousands)	2020			2019
Cash flows from operating activities:
Net income	$	121,602		$	92,650
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,032			13,790
Loss on sale/disposal of assets		306			149
Amortization of debt issuance costs		1,291			1,101
Provision for deferred income taxes		702			1,467
Non-cash compensation expense		4,914			4,608
Excess tax benefits from equity-based compensation		(30,449	)		(8,663	)
Provision for losses on accounts and notes receivable		1,589			94
Changes in operating assets and liabilities		(23,119	)		1,974
Changes in advertising fund assets and liabilities, restricted		4,490			(10,172	)

Net cash provided by operating activities		95,358			96,998

Cash flows from investing activities:
Capital expenditures		(17,467	)		(12,222	)
Other		(426	)		262

Net cash used in investing activities		(17,893	)		(11,960	)

Cash flows from financing activities:
Repayments of long-term debt and finance lease obligations		(10,849	)		(48,968	)
Proceeds from exercise of stock options		10,105			4,537
Purchases of common stock		(79,590	)		(8,144	)
Tax payments for restricted stock upon vesting		(1,796	)		(2,467	)
Payments of common stock dividends and equivalents		(80	)		(90	)
Other		152			—

Net cash used in financing activities		(82,058	)		(55,132	)

Effect of exchange rate changes on cash		(961	)		124

Change in cash and cash equivalents, restricted cash and cash equivalents		(5,554	)		30,030

Cash and cash equivalents, beginning of period		190,615			25,438
Restricted cash and cash equivalents, beginning of period		209,269			166,993
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period		84,040			44,988

Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period		483,924			237,419

Cash and cash equivalents, end of period		200,801			83,114
Restricted cash and cash equivalents, end of period		189,370			150,055
Cash and cash equivalents included in advertising fund assets, restricted, end of period		88,199			34,280

Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period	$	478,370		$	267,449

The accompanying notes are an integral part of these condensed consolidated statements.

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Domino’s Pizza, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)

March 22, 2020

1. Basis of Presentation and Updates to Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form

10-Q

and Rule

10-01

of Regulation

S-X.

Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 29, 2019 included in the Company’s 2019 Annual Report on Form

10-K,

filed with the Securities and Exchange Commission on February 20, 2020 (the “2019 Form

10-K”).

In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter ended March 22, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3, 202

Updates to Significant Accounting Policies

The Company adopted Accounting Standards Codification 326,

Financial Instruments – Credit Losses

(“ASC 326”) in the first quarter of 2020. As a result, the Company updated its significant accounting policies for the measurement of credit losses below. Refer to Note

for

information related

the impact of the adoption of ASC 326 on the Company’s condensed consolidated financial statements.

Allowances for Credit Losses

The Company closely monitors accounts and notes receivable balances and estimates the allowance for credit losses. These estimates are based on historical collection experience and other factors, including those related to current market conditions and events. The Company’s allowance

for accounts and notes receivable have not historically been material.

The Company also monitors its

off-balance

sheet exposures under its letters of credit, surety bonds and lease guarantees. None of these arrangements has or is likely to have a material effect on the Company’s results of operations, financial condition, revenues, expenses or liquidity.

2. Segment Information

The following table summarizes revenues, income from operations and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income, for each of its reportable segments.


	Fiscal Quarters Ended March 22, 2020 and March 24, 2019
	U.S.		Supply		International		Intersegment
	Stores		Chain		Franchise		Revenues			Other			Total
Revenues
2020	$	302,906	$	541,639	$	57,496	$	(28,939	)	$	—		$	873,102
2019		309,279		505,681		54,584		(33,581	)		—			835,963
Income from operations
2020	$	85,410	$	47,375	$	43,460		N/A		$	(20,411	)	$	155,834
2019		80,615		42,021		42,754		N/A			(21,886	)		143,504
Segment Income
2020	$	88,277	$	51,437	$	43,504		N/A		$	(8,132	)	$	175,086
2019		83,598		46,047		42,800		N/A			(10,394	)		162,051

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The following table reconciles Total Segment Income to consolidated income before (benefit) provision for income taxes.


	Fiscal Quarter Ended
	March 22,			March 24,
	2020			2019
Total Segment Income	$	175,086		$	162,051
Depreciation and amortization		(14,032	)		(13,790	)
Loss on sale/disposal of assets		(306	)		(149	)
Non-cash compensation expense		(4,914	)		(4,608	)

Income from operations		155,834			143,504
Interest income		932			693
Interest expense		(39,470	)		(35,054	)

Income before (benefit) provision for income taxes	$	117,296		$	109,143

3. Earnings Per Share


	Fiscal Quarter Ended
	March 22,		March 24,
	2020		2019
Net income available to common stockholders - basic and diluted	$	121,602	$	92,650

Basic weighted average number of shares		38,665,924		40,865,532
Earnings per share – basic	$	3.14	$	2.27
Diluted weighted average number of shares		39,633,404		42,202,429
Earnings per share – diluted	$	3.07	$	2.20

The denominator used in calculating diluted earnings per share for the first quarter of 2020 does not include 128,280 options to purchase common stock as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2020 does not include 84,765 restricted performance shares, as the performance targets for these awards had not yet been met.

The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 71,880 options to purchase common stock as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 1,800 shares subject to restricted stock awards, as the effect of including these shares would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 96,712 restricted performance shares, as the performance targets for these awards had not yet been met.

4. Stockholders’ Deficit

The following table summarizes changes in stockholders’ deficit for the first quarter of 2020.


													Accumulated
							Additional						Other
	Common Stock						Paid-in			Retained			Comprehensive
	Shares			Amount			Capital			Deficit			Loss
Balance at December 29, 2019		38,934,009		$	389		$	243		$	(3,412,649	)	$	(3,742	)
Net income		—			—			—			121,602			—
Dividends declared on common stock and equivalents ($0.78 per share)		—			—			—			(30,442	)		—
Issuance and cancellation of stock awards, net		1,645			—			—			—			—
Tax payments for restricted stock upon vesting		(5,929	)		—			(1,796	)		—			—
Purchases of common stock		(271,064	)		(3	)		(988	)		(78,599	)		—
Exercise of stock options		380,938			4			10,101			—			—
Non-cash compensation expense		—			—			4,914			—			—
Adoption of ASC 326 (Note 9 )		—			—			—			1,102			—
Currency translation adjustment		—			—			—			—			(2,326	)

Balance at March 22, 2020		39,039,599		$	390		$	12,474		$	(3,398,986	)	$	(6,068	)

Subsequent to the first quarter, on April 21, 2020, the Company’s Board of Directors declared a $0.78 per share quarterly dividend on its outstanding common stock for shareholders of record as of June 15, 2020 to be paid on June 30, 2020.

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The following table summarizes changes in stockholders’ deficit for the first quarter of 2019.


												Accumulated
						Additional						Other
	Common Stock					Paid-in			Retained			Comprehensive
	Shares			Amount		Capital			Deficit			Loss
Balance at December 30, 2018		40,977,561		$	410	$	569		$	(3,036,471	)	$	(4,429	)
Net income		—			—		—			92,650			—
Dividends declared on common stock and equivalents ($0.65 per share)		—			—		—			(26,665	)		—
Issuance and cancellation of stock awards, net		8,240			—		—			—			—
Tax payments for restricted stock upon vesting		(9,064	)		—		(2,467	)		—			—
Purchases of common stock		(33,549	)		—		(1,782	)		(6,362	)		—
Exercise of stock options		140,702			1		4,536			—			—
Non-cash compensation expense		—			—		4,608			—			—
Currency translation adjustment		—			—		—			—			237

Balance at March 24, 2019		41,083,890		$	411	$	5,464		$	(2,976,848	)	$	(4,192	)

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.

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 following tables summarize the carrying amounts and fair values of certain assets at March 22, 2020 and December 29, 2019:


	At March 22, 2020
			Fair Value Estimated Using
	Carrying		Level 1		Level 2		Level 3
	Amount		Inputs		Inputs		Inputs
Cash equivalents	$	173,317	$	173,317	$	—	$	—
Restricted cash equivalents		106,225		106,225		—		—
Investments in marketable securities		10,989		10,989		—		—
Advertising fund cash equivalents, restricted		78,134		78,134		—		—


	At December 29, 2019
			Fair Value Estimated Using
	Carrying		Level 1		Level 2		Level 3
	Amount		Inputs		Inputs		Inputs
Cash equivalents	$	180,459	$	180,459	$	—	$	—
Restricted cash equivalents		126,963		126,963		—		—
Investments in marketable securities		11,982		11,982		—		—
Advertising fund cash equivalents, restricted		67,851		67,851		—		—

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Management estimated the approximate fair values of the 2015 fixed rate notes, the 2017 fixed and floating rate notes, the 2018 fixed rate notes and the 2019 fixed rate notes as follows:


	March 22, 2020				December 29, 2019
	Principal Amount		Fair Value		Principal Amount		Fair Value
2015 Ten-Year Fixed Rate Notes	$	772,000	$	711,784	$	774,000	$	804,960
2017 Five-Year Fixed Rate Notes		586,500		549,551		588,000		588,588
2017 Ten-Year Fixed Rate Notes		977,500		825,010		980,000		1,017,240
2017 Five-Year Floating Rate Notes		293,250		251,315		294,000		294,000
2018 7.5-Year Fixed Rate Notes		418,625		387,228		419,688		431,439
2018 9.25-Year Fixed Rate Notes		394,000		351,054		395,000		414,355
2019 Ten-Year Fixed Rate Notes		673,313		544,037		675,000		675,675

The Company’s variable funding notes are a variable rate loan and the fair value of this loan approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. This fair value represents a Level 2 measurement. The Company did not have any outstanding borrowings under its variable funding notes at March 22, 2020 or December 29, 2019. Subsequent to the first quarter of 2020, the Company borrowed $158.0 million under its variable funding notes

The fair values in the table above represent the fair value of such notes at March 22, 2020 and December 29, 2019. In light of the

COVID-19

pandemic (discussed further in Note 10), these fair values fluctuated significantly during the first quarter and may continue to fluctuate based on market conditions and other factors.

The fixed and floating 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 and floating 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 above.

6. Revenue Disclosures

Contract Liabilities

Contract liabilities

primarily

consist of deferred franchise fees and deferred development fees. Changes in deferred franchise fees and deferred development fees for the first quarter of 2020 and the first quarter of 2019 were as follows:


	Fiscal Quarter Ended
	March 22,			March 24,
	2020			2019
Deferred franchise fees and deferred development fees at beginning of period	$	20,463		$	19,900
Revenue recognized during the period		(1,417	)		(1,361	)
New deferrals due to cash received and other		724			900

Deferred franchise fees and deferred development fees at end of period	$	19,770		$	19,439

Advertising Fund Assets

As of March 22, 2020, advertising fund assets, restricted of $110.0 million consisted of $88.2 million of cash and cash equivalents, $19.5 million of accounts receivable and $2.3 million of prepaid expenses. As of March 22, 2020, advertising fund cash, cash equivalents and investments included $3.2 million of cash contributed from Company-owned stores that had not yet been expended.

As of December 29, 2019, advertising fund assets, restricted of $105.4 million consisted of $84.0 million of cash and cash equivalents, $15.3 million of accounts receivable and $6.1 million of prepaid expenses. As of December 29, 2019, advertising fund cash and cash equivalents included $3.5 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

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7. Leases

The Company leases certain retail store and supply chain center locations, supply chain vehicles and its corporate headquarters with expiration dates through 2041.

The components of operating and finance lease cost for the first quarter of 2020 and the first quarter of 2019 were as follows:


	Fiscal Quarter Ended
	March 22,		March 24,
	2020		2019
Operating lease cost	$	9,582	$	10,796
Finance lease cost:
Amortization of right-of-use assets		249		254
Interest on lease liabilities		375		479

Total finance lease cost	$	624	$	733

Rent expense totaled $16.4

million

in both the first quarter of 2020 and the first quarter of 2019, and 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. Variable rent expense and rent expense for short-term leases were immaterial in both the first quarter of 2020 and the first quarter of 2019.

Supplemental balance sheet information related to the Company’s finance leases as of March 22, 2020 and December 29, 2019 was as follows:


	March 22,			December 29,
	2020			2019
Land and buildings	$	25,167		$	25,476
Accumulated depreciation and amortization		(8,083	)		(7,846	)

Finance lease assets, net	$	17,084		$	17,630

Current portion of long-term debt	$	1,390		$	1,394
Long-term debt, less current portion		17,616			18,263

Total principal payable on finance leases	$	19,006		$	19,657

As of March 22, 2020 and December 29, 2019, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:

March 22, 2020

December 29, 2019

Operating

Finance

Operating

Finance

Leases

Weighted average remaining lease term

8 years

14 years

8 years

14 years

Weighted average discount rate

3.8

11.7

3.8

11.7

Supplemental cash flow information related to leases for the first quarter of 2020 and the first quarter of 2019 was as follows:


	Fiscal Quarter Ended
	March 22,		March 2 4 ,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10,119	$	10,690
Operating cash flows from finance leases		375		479
Financing cash flows from finance leases		349		155
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		8,982		12,977
Finance leases		—		—

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Maturities of lease liabilities as of March 22, 2020 were as follows:


	Operating			Finance
	Leases			Leases
2020	$	33,683		$	2,467
2021		40,956			2,775
2022		38,068			2,792
2023		32,776			2,815
2024		31,228			2,839
Thereafter		96,570			25,493

Total future minimum rental commitments		273,281			39,181
Less – amounts representing interest		(37,063	)		(20,175	)

Total lease liabilities	$	236,218		$	19,006

As of March 22, 2020, the Company has additional leases for two supply chain centers and certain supply chain tractors and trailers that had not yet commenced with estimated future minimum rental commitments of approximately $68.6 million. These leases are expected to commence in 2020 with lease terms of up to 21 years.

One of the supply chain center leases commenced in the second quarter of 2020. These undiscounted amounts are not included in the table above.

The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $15.8 million as of March 22, 2020. 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 $3.4 million at March 22, 2020 and $6.9 million at December 29, 2019.

. New Accounting Pronouncements

Recently Adopted Accounting Standard

ASU

2016-13,

Financial Instruments – Credit Losses (Topic 326)

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

. ASC 326 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard as of December 30, 2019, the first day of its 2020 fiscal year, using the modified retrospective approach and it did not have a material impact on its condensed consolidated financial statements.

The effects of the changes made to the Company’s condensed consolidated balance sheet as of December 30, 2019 for the adoption of ASC 326 were as follows:


	Balance at December 29, 2019			Adjustments Due to ASC 326			Balance at December 30, 2019
Assets
Current assets:
Accounts receivable, net	$	210,260		$	1,435		$	211,695
Prepaid expenses and other		19,129			4			19,133
Other assets:
Other assets		12,521			27			12,548
Deferred income taxes		10,073			(364	)		9,709
Liabilities and stockholders’ deficit
Stockholders’ deficit:
Retained deficit		(3,412,649	)		1,102			(3,411,547	)

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The Company recognized the cumulative effect of initially applying ASC 326 as an adjustment to the opening balance of retained deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for that period. An adjustment to beginning retained deficit and a corresponding adjustment to the allowance for doubtful accounts and notes receivable of approximately $1.5 million was recorded on the date of adoption, representing the remeasurement of these accounts to Company’s estimate for current expected credit losses. The adjustment to beginning retained deficit was also net of a $0.4 million adjustment to deferred income taxes.

Accounting Standards Not Yet Adopted

The Company has considered all new accounting standards issued by the FASB. The Company has not yet completed its assessment of the following standard.

ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740)

In December 2019, the FASB issued

Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12)

, which simplifies the accounting for income taxes. ASU

2019-12

is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

10.

COVID-19

Pandemic

In December 2019, a novel coronavirus disease

(“COVID-19”)

was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the

COVID-19

threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized

COVID-19

as a pandemic. While the Company did not incur significant disruptions to its operations during the first quarter of 2020 from COVID-19, it is unable at this time to predict the impact that COVID-19 will have on its business, financial position and operating results in future periods due to numerous uncertainties and is closely monitoring the impact of the pandemic on all aspects of its business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Unaudited; tabular amounts in millions, except percentages and store data)

The 2020 and 2019 first quarters referenced herein represent the twelve-week periods ended March 22, 2020 and March 24, 2019.

Overview

Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,000 locations in over 90 markets around the world. Founded in 1960, our roots are in convenient pizza delivery, while a significant amount of our sales also come from carryout customers. Domino’s generates revenues and earnings by charging royalties and fees to our independent franchisees. The Company also generates revenues and earnings by selling food, equipment and supplies to franchisees primarily in the U.S. and Canada, and by operating a number of our own stores in the U.S. Franchisees profit by selling pizza and other complementary items to their local customers. In our international markets, we generally grant geographical rights to the Domino’s Pizza

brand to master franchisees. These master franchisees are charged with developing their geographical area, and they can profit by

sub-franchising

and selling ingredients and equipment to those

sub-franchisees,

as well as by running pizza stores directly. We believe that everyone in the system can benefit, including the end consumer, who can feed their family Domino’s menu items conveniently and economically.

Our financial results are driven largely by retail sales at our franchise and Company-owned stores. Changes in retail sales are driven by changes in same store sales and store counts. We monitor both of these metrics very closely, as they directly impact our revenues and profits, and we strive to consistently increase both metrics. Retail sales drive royalty payments from franchisees, as well as Company-owned store and supply chain revenues. Retail sales are primarily impacted by the strength of the Domino’s Pizza

brand, the results of our extensive advertising through various media channels, the impact of technological innovation and digital ordering, our ability to execute our strong and proven business model and the overall global economic environment.

First Quarter

of 2020

of 2019

Global retail sales growth (versus prior year period, excluding foreign currency impact)

+5.9

+8.5

Same store sales growth (1):

U.S. Company-owned stores

+3.9

+2.1

U.S. franchise stores

+1.5

+4.1

U.S. stores

+1.6

+3.9

International stores (excluding foreign currency impact)

+1.5

+1.8

Store counts (at end of period):