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 June 14, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32242
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
(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. $0.01 par value |
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 RegulationYes
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). ☒
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.☒ |
Accelerated filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
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 July 9, 2020, Domino’s Pizza, Inc. had 39,347,213 shares of common stock, par value $0.01 per share, outstanding.
Domino’s Pizza, Inc.
TABLE OF CONTENTS
Page No. |
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PART I. |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
16 |
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Item 3. |
24 |
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Item 4. |
24 |
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PART II. |
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Item 1. |
25 |
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Item 1A. |
25 |
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Item 2. |
26 |
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Item 3. |
26 |
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Item 4. |
26 |
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Item 5. |
26 |
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Item 6. |
26 |
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27 |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| (In thousands) |
June 14, 2020 |
December 29, 2019 (1) |
||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | |
$ | |
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| Restricted cash and cash equivalents |
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| Accounts receivable, net |
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| Inventories |
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| Prepaid expenses and other |
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| Advertising fund assets, restricted |
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| Total current assets |
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| Property, plant and equipment: |
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| Land and buildings |
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| Leasehold and other improvements |
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| Equipment |
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| Construction in progress |
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| Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
| Property, plant and equipment, net |
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| Other assets: |
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| Operating lease right-of-use assets |
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| Goodwill |
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| Capitalized software, net |
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| Other assets |
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| Deferred income taxes |
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| Total other assets |
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| Total assets |
$ | |
$ | |
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| Liabilities and stockholders’ deficit |
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| Current liabilities: |
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| Current portion of long-term debt |
$ | |
$ | |
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| Accounts payable |
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| Operating lease liabilities |
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| Insurance reserves |
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| Dividends payable |
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| Advertising fund liabilities |
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| Other accrued liabilities |
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| Total current liabilities |
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| Long-term liabilities: |
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| Long-term debt, less current portion |
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| Operating lease liabilities |
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| Insurance reserves |
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| Other accrued liabilities |
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| Total long-term liabilities |
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| Stockholders’ deficit: |
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| Common stock |
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| Additional paid-in capital |
|
|
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| Retained deficit |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| Total stockholders’ deficit |
( |
) | ( |
) | ||||
| Total liabilities and stockholders’ deficit |
$ | |
$ | |
||||
| (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.
3
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
| Fiscal Quarter Ended |
Two Fiscal Quarters Ended |
|||||||||||||||
| (In thousands, except per share data) |
June 14, 2020 |
June 16, 2019 |
June 14, 2020 |
June 16, 2019 |
||||||||||||
| Revenues: |
||||||||||||||||
| U.S. Company-owned stores |
$ | |
$ | |
$ | |
$ | |
||||||||
| U.S. franchise royalties and fees |
|
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| Supply chain |
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| International franchise royalties and fees |
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| U.S. franchise advertising |
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| Total revenues |
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| Cost of sales: |
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| U.S. Company-owned stores |
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|
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| Supply chain |
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| Total cost of sales |
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| Operating margin |
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| General and administrative |
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| U.S. franchise advertising |
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| Income from operations |
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| Interest income |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income before provision for income taxes |
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| Provision for income taxes |
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| Net income |
$ | |
$ | |
$ | |
$ | |
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| Earnings per share: |
||||||||||||||||
| Common stock - basic |
$ | |
$ | |
$ | |
$ | |
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| Common stock - diluted |
|
|
|
|
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The accompanying notes are an integral part of these condensed consolidated statements.
4
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| Fiscal Quarter Ended |
Two Fiscal Quarters Ended |
|||||||||||||||
| (In thousands) |
June 14, 2020 |
June 16, 2019 |
June 14, 2020 |
June 16, 2019 |
||||||||||||
| Net income |
$ | |
$ | |
$ | |
$ | |
||||||||
| Currency translation adjustment |
|
( |
) | ( |
) | |
||||||||||
| Comprehensive income |
$ | |
$ | |
$ | |
$ | |
||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
5
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Two Fiscal Quarters Ended |
||||||||
| (In thousands) |
June 14, 2020 |
June 16, 2019 |
||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | |
$ | |
||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
|
|
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| Loss on sale/disposal of assets |
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| Amortization of debt issuance costs |
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| Provision for deferred income taxes |
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| Non-cash compensation expense |
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|
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| Excess tax benefits from equity-based compensation |
( |
) | ( |
) | ||||
| Provision for losses on accounts and notes receivable |
|
|
||||||
| Changes in operating assets and liabilities |
( |
) | ( |
) | ||||
| Changes in advertising fund assets and liabilities, restricted |
( |
) | |
|||||
| Net cash provided by operating activities |
|
|
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| Cash flows from investing activities: |
||||||||
| Capital expenditures |
( |
) | ( |
) | ||||
| Purchase of investments (Note 9) |
( |
) | — |
|||||
| Proceeds from sale of assets |
|
|
||||||
| Maturities of advertising fund investments, restricted |
— |
|
||||||
| 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 |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
( |
) | |
|||||
| Change in cash and cash equivalents, restricted cash and cash equivalents |
|
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| Cash and cash equivalents, beginning of period |
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| Restricted cash and cash equivalents, beginning of period |
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| Cash and cash equivalents included in advertising fund assets, restricted, beginning of period |
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| Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period |
|
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| Cash and cash equivalents, end of period |
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| Restricted cash and cash equivalents, end of period |
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| Cash and cash equivalents included in advertising fund assets, restricted, end of period |
|
|
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| Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period |
$ | |
$ | |
||||
The accompanying notes are an integral part of these condensed consolidated statements.
6
Domino’s Pizza, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)
June 14, 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 June 14, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3,
2021
. Updates to Significant Accounting Policies
The Company adopted Accounting Standards Codification 326, (“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 10 for information related to the impact of the adoption of ASC 326 on the Company’s condensed consolidated financial statements.
Financial Instruments – Credit Losses
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 allowances 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 had or is likely to have a material effect on the Company’s results of operations, financial condition, revenues, expenses or liquidity. During the second quarter of 2020, a subsidiary of the Company acquired a
non-controlling
interest in Dash Brands Ltd., a privately-held business company limited by shares incorporated with limited liability under the laws of the British Virgin Islands (“Dash Brands”), for $40.0
million. Through its subsidiaries, Dash Brands serves as the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. As a result of the investment, the Company’s significant accounting policy related to equity investments without readily determinable fair values is stated below. Refer to Note 9 for information related to this investment and its impact on the Company’s condensed consolidated financial statements.
Equity investments without readily determinable fair values
Equity investments without readily determinable fair values are recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments and are classified as long-term other assets in the Company’s condensed consolidated balance sheet. Any adjustments to the carrying amount are recognized in other income (expense), net in the Company’s condensed consolidated statement of income.
The Company evaluates the potential impairment of its investments based on various analyses including financial results and operating trends, implied values from recent similar transactions and other relevant available information. If the carrying amount of the investment exceeds the estimated fair value of the investment, an impairment loss is recognized, and the investment is written down to its estimated fair value.
7
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 June 14, 2020 and June 16, 2019 |
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U.S. |
Supply |
International |
Intersegment |
|||||||||||||||||||||
Stores |
Chain |
Franchise |
Revenues |
Other |
Total |
|||||||||||||||||||
Revenues |
||||||||||||||||||||||||
2020 |
$ | $ | $ | $ | ( |
) | $ | — |
$ | |||||||||||||||
2019 |
( |
) | — |
|||||||||||||||||||||
Income from operations |
||||||||||||||||||||||||
2020 |
$ | $ | $ | N/A |
$ | ( |
) | $ | ||||||||||||||||
2019 |
N/A |
( |
) | |||||||||||||||||||||
Segment Income |
||||||||||||||||||||||||
2020 |
$ | $ | $ | N/A |
$ | ( |
) | $ | ||||||||||||||||
2019 |
N/A |
( |
) | |||||||||||||||||||||
Two Fiscal Quarters Ended June 14, 2020 and June 16, 2019 |
||||||||||||||||||||||||
U.S. |
Supply |
International |
Intersegment |
|||||||||||||||||||||
Stores |
Chain |
Franchise |
Revenues |
Other |
Total |
|||||||||||||||||||
Revenues |
||||||||||||||||||||||||
2020 |
$ | $ | $ | $ | ( |
) | $ | — |
$ | |||||||||||||||
2019 |
( |
) | — |
|||||||||||||||||||||
Income from operations |
||||||||||||||||||||||||
2020 |
$ | $ | $ | N/A |
$ | ( |
) | $ | ||||||||||||||||
2019 |
N/A |
( |
) | |||||||||||||||||||||
Segment Income |
||||||||||||||||||||||||
2020 |
$ | $ | $ | N/A |
$ | ( |
) | $ | ||||||||||||||||
2019 |
N/A |
( |
) | |||||||||||||||||||||
The following table reconciles Total Segment Income to consolidated income before provision for income taxes.
Fiscal Quarter Ended |
Two Fiscal Quarters Ended |
|||||||||||||||
June 14, |
June 16, |
June 14, |
June 16, |
|||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Total Segment Income |
$ | $ | $ | $ | ||||||||||||
Depreciation and amortization |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Loss on sale/disposal of assets |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Non-cash compensation expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income from operations |
||||||||||||||||
Interest income |
||||||||||||||||
Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income before provision for income taxes |
$ | $ | $ | $ | ||||||||||||
3. Earnings Per Share
Fiscal Quarter Ended |
Two Fiscal Quarters Ended |
|||||||||||||||
June 14, |
June 16, |
June 14, |
June 16, |
|||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Net income available to common stockholders - basic and diluted |
$ | $ | $ | $ | ||||||||||||
Basic weighted average number of shares |
||||||||||||||||
Earnings per share – basic |
$ | $ | $ | $ | ||||||||||||
Diluted weighted average number of shares |
||||||||||||||||
Earnings per share – diluted |
$ | $ | $ | $ | ||||||||||||
8
The denominator used in calculating diluted earnings per share for the two fiscal quarters of 2020 did not include 263 options to purchase common stock and 1,760 restricted stock awards, as the effect of including these options and awards would have been anti-dilutive. The denominators used in calculating diluted earnings per share for the second quarter and two fiscal quarters of 2020 each did not include 90,472
The denominators used in calculating diluted earnings per share for the second quarter and two fiscal quarters of 2019 each did not include 71,180 93,412
4. Changes in Stockholders’ Deficit
The following table summarizes changes in stockholders’ deficit for the second quarter of 2020.
Common Stock |
Additional Paid-in |
Retained |
Accumulated Other Comprehensive |
|||||||||||||||||
Shares |
Amount |
Capital |
Deficit |
Loss |
||||||||||||||||
Balance at March 22, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
Net income |
— |
— |
— |
— |
||||||||||||||||
Dividends declared on common stock and equivalents ($ |
— |
— |
— |
( |
) | — |
||||||||||||||
Issuance and cancellation of stock awards, net |
— |
— |
— |
— |
||||||||||||||||
Tax payments for restricted stock upon vesting |
( |
) | — |
( |
) | — |
— |
|||||||||||||
Exercise of stock options |
— |
— |
||||||||||||||||||
Non-cash compensation expense |
— |
— |
— |
— |
||||||||||||||||
Currency translation adjustment |
— |
— |
— |
— |
||||||||||||||||
Balance at June 14, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The following table summarizes changes in stockholders’ deficit for the two fiscal quarters of 2020.
Common Stock |
Additional Paid-in Capital |
Retained Deficit |
Accumulated Other Comprehensive |
|||||||||||||||||
Shares |
Amount |
Loss |
||||||||||||||||||
Balance at December 29, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
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 |
( |
) | ( |
) | ( |
) | ( |
) | — |
|||||||||||
Exercise of stock options |
— |
— |
||||||||||||||||||
Non-cash compensation expense |
— |
— |
— |
— |
||||||||||||||||
Adoption of ASC 326 (Note 10 ) |
— |
— |
— |
— |
||||||||||||||||
Currency translation adjustment |
— |
— |
— |
— |
( |
) | ||||||||||||||
Balance at June 14, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
Subsequent to the second quarter, on July 15, 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 September 15, 2020 to be paid on September 30, 2020 .
9
The following table summarizes changes in stockholders’ deficit for the second quarter of 2019.
Common Stock |
Additional Paid-in Capital |
Retained Deficit |
Accumulated Other Comprehensive |
|||||||||||||||||
Shares |
Amount |
Loss |
||||||||||||||||||
Balance at March 24, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
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 |
( |
) | ( |
) | ( |
) | — |
— |
||||||||||||
Exercise of stock options |
— |
— |
||||||||||||||||||
Non-cash compensation expense |
— |
— |
— |
— |
||||||||||||||||
Currency translation adjustment |
— |
— |
— |
— |
( |
) | ||||||||||||||
Balance at June 16, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The following table summarizes changes in stockholders’ deficit for the two fiscal quarters of 2019.
Common Stock |
Additional Paid-in Capital |
Retained Deficit |
Accumulated Other Comprehensive |
|||||||||||||||||
Shares |
Amount |
Loss |
||||||||||||||||||
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 |
( |
) | ( |
) | ( |
) | ( |
) | — |
|||||||||||
Exercise of stock options |
— |
— |
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Non-cash compensation expense |
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Currency translation adjustment |
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— |
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