10-Q
false0001286681Q3DOMINOS PIZZA INC--01-03The 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. 0001286681 2019-12-30 2020-09-06 0001286681 2020-09-06 0001286681 2019-12-29 0001286681 2020-06-15 2020-09-06 0001286681 2019-06-17 2019-09-08 0001286681 2018-12-31 2019-09-08 0001286681 2018-12-31 2019-12-29 0001286681 2020-10-01 0001286681 2018-12-30 0001286681 2019-09-08 0001286681 us-gaap:FairValueInputsLevel1Member 2020-09-06 0001286681 dpz:ClassA-2-IISeriesOneFourPointFourSevenFourPercentageFixedRateSeniorSecuredNoteMember 2020-09-06 0001286681 dpz:ClassA2IiSeriesOneThreePointZeroEightTwoPercentageFixedRateSeniorSecuredNotesMember 2020-09-06 0001286681 dpz:ClassA2IiiSeriesOneFourPointOneOneEightPercentageFixedRateSeniorSecuredNotesMember 2020-09-06 0001286681 dpz:TwoThousandSeventeenFiveYearFloatingRateNotesMember 2020-09-06 0001286681 dpz:TwoThousandNineteenTenYearFixedRateNotesMember 2020-09-06 0001286681 dpz:TwoThousandEighteenSevenPointFiveYearFixedRateNotesMember 2020-09-06 0001286681 dpz:TwoThousandEighteenNinePointTwoFiveYearFixedRateNotesMember 2020-09-06 0001286681 dpz:DomesticStoresMember dpz:DomesticFranchiseMember dpz:CashAndInvestmentsMember 2020-09-06 0001286681 dpz:DomesticStoresMember dpz:DomesticFranchiseMember us-gaap:AccountsReceivableMember 2020-09-06 0001286681 dpz:DomesticStoresMember dpz:DomesticFranchiseMember dpz:PrepaidExpensesMember 2020-09-06 0001286681 dpz:DomesticStoresMember dpz:DomesticCompanyOwnedStoresMember 2020-09-06 0001286681 dpz:OperatingLeaseMember 2020-09-06 0001286681 us-gaap:FairValueInputsLevel2Member dpz:VariableFundingNoteMember 2020-09-06 0001286681 us-gaap:FairValueInputsLevel3Member 2020-09-06 0001286681 dpz:DashBrandsLtdMember 2020-09-06 0001286681 us-gaap:FairValueInputsLevel1Member 2019-12-29 0001286681 srt:ScenarioPreviouslyReportedMember 2019-12-29 0001286681 dpz:ClassA-2-IISeriesOneFourPointFourSevenFourPercentageFixedRateSeniorSecuredNoteMember 2019-12-29 0001286681 dpz:ClassA2IiSeriesOneThreePointZeroEightTwoPercentageFixedRateSeniorSecuredNotesMember 2019-12-29 0001286681 dpz:ClassA2IiiSeriesOneFourPointOneOneEightPercentageFixedRateSeniorSecuredNotesMember 2019-12-29 0001286681 dpz:TwoThousandSeventeenFiveYearFloatingRateNotesMember 2019-12-29 0001286681 dpz:TwoThousandEighteenSevenPointFiveYearFixedRateNotesMember 2019-12-29 0001286681 dpz:TwoThousandEighteenNinePointTwoFiveYearFixedRateNotesMember 2019-12-29 0001286681 dpz:TwoThousandNineteenTenYearFixedRateNotesMember 2019-12-29 0001286681 dpz:DomesticStoresMember dpz:DomesticFranchiseMember dpz:CashAndInvestmentsMember 2019-12-29 0001286681 dpz:DomesticStoresMember dpz:DomesticFranchiseMember us-gaap:AccountsReceivableMember 2019-12-29 0001286681 dpz:DomesticStoresMember dpz:DomesticFranchiseMember dpz:PrepaidExpensesMember 2019-12-29 0001286681 dpz:DomesticStoresMember dpz:DomesticCompanyOwnedStoresMember 2019-12-29 0001286681 dpz:VariableFundingNoteMember us-gaap:FairValueInputsLevel2Member 2019-12-29 0001286681 us-gaap:EmployeeStockOptionMember 2020-06-15 2020-09-06 0001286681 us-gaap:OperatingSegmentsMember dpz:USStoresMember 2020-06-15 2020-09-06 0001286681 us-gaap:OperatingSegmentsMember dpz:SupplyChainMember 2020-06-15 2020-09-06 0001286681 us-gaap:OperatingSegmentsMember dpz:InternationalFranchiseMember 2020-06-15 2020-09-06 0001286681 us-gaap:IntersegmentEliminationMember 2020-06-15 2020-09-06 0001286681 us-gaap:MaterialReconcilingItemsMember 2020-06-15 2020-09-06 0001286681 us-gaap:PerformanceSharesMember 2020-06-15 2020-09-06 0001286681 us-gaap:RetainedEarningsMember 2020-06-15 2020-09-06 0001286681 us-gaap:CommonStockMember 2020-06-15 2020-09-06 0001286681 us-gaap:AdditionalPaidInCapitalMember 2020-06-15 2020-09-06 0001286681 dpz:DomesticCompanyOwnedStoresMember dpz:USStoresMember 2020-06-15 2020-09-06 0001286681 dpz:SupplyChainMember 2020-06-15 2020-09-06 0001286681 dpz:DomesticFranchiseMember dpz:USStoresMember 2020-06-15 2020-09-06 0001286681 dpz:InternationalFranchiseMember dpz:InternationalFranchiseRoyaltiesAndFeesMember 2020-06-15 2020-09-06 0001286681 dpz:DomesticFranchiseAdvertisingMember dpz:USStoresMember 2020-06-15 2020-09-06 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-06-15 2020-09-06 0001286681 us-gaap:FairValueInputsLevel2Member dpz:VariableFundingNoteMember 2020-06-15 2020-09-06 0001286681 us-gaap:EmployeeStockOptionMember 2018-12-31 2019-09-08 0001286681 dpz:USStoresMember us-gaap:OperatingSegmentsMember 2018-12-31 2019-09-08 0001286681 dpz:SupplyChainMember us-gaap:OperatingSegmentsMember 2018-12-31 2019-09-08 0001286681 dpz:InternationalFranchiseMember us-gaap:OperatingSegmentsMember 2018-12-31 2019-09-08 0001286681 us-gaap:IntersegmentEliminationMember 2018-12-31 2019-09-08 0001286681 us-gaap:MaterialReconcilingItemsMember 2018-12-31 2019-09-08 0001286681 us-gaap:PerformanceSharesMember 2018-12-31 2019-09-08 0001286681 us-gaap:RetainedEarningsMember 2018-12-31 2019-09-08 0001286681 us-gaap:CommonStockMember 2018-12-31 2019-09-08 0001286681 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 2019-09-08 0001286681 dpz:DomesticCompanyOwnedStoresMember dpz:USStoresMember 2018-12-31 2019-09-08 0001286681 dpz:SupplyChainMember 2018-12-31 2019-09-08 0001286681 dpz:DomesticFranchiseMember dpz:USStoresMember 2018-12-31 2019-09-08 0001286681 dpz:InternationalFranchiseMember dpz:InternationalFranchiseRoyaltiesAndFeesMember 2018-12-31 2019-09-08 0001286681 dpz:DomesticFranchiseAdvertisingMember dpz:USStoresMember 2018-12-31 2019-09-08 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 2019-09-08 0001286681 us-gaap:EmployeeStockOptionMember 2019-06-17 2019-09-08 0001286681 us-gaap:OperatingSegmentsMember dpz:USStoresMember 2019-06-17 2019-09-08 0001286681 us-gaap:OperatingSegmentsMember dpz:SupplyChainMember 2019-06-17 2019-09-08 0001286681 us-gaap:OperatingSegmentsMember dpz:InternationalFranchiseMember 2019-06-17 2019-09-08 0001286681 us-gaap:IntersegmentEliminationMember 2019-06-17 2019-09-08 0001286681 us-gaap:MaterialReconcilingItemsMember 2019-06-17 2019-09-08 0001286681 us-gaap:PerformanceSharesMember 2019-06-17 2019-09-08 0001286681 us-gaap:RetainedEarningsMember 2019-06-17 2019-09-08 0001286681 us-gaap:CommonStockMember 2019-06-17 2019-09-08 0001286681 us-gaap:AdditionalPaidInCapitalMember 2019-06-17 2019-09-08 0001286681 dpz:DomesticCompanyOwnedStoresMember dpz:USStoresMember 2019-06-17 2019-09-08 0001286681 dpz:SupplyChainMember 2019-06-17 2019-09-08 0001286681 dpz:DomesticFranchiseMember dpz:USStoresMember 2019-06-17 2019-09-08 0001286681 dpz:InternationalFranchiseMember dpz:InternationalFranchiseRoyaltiesAndFeesMember 2019-06-17 2019-09-08 0001286681 dpz:DomesticFranchiseAdvertisingMember dpz:USStoresMember 2019-06-17 2019-09-08 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-17 2019-09-08 0001286681 us-gaap:EmployeeStockOptionMember 2019-12-30 2020-09-06 0001286681 us-gaap:OperatingSegmentsMember dpz:USStoresMember 2019-12-30 2020-09-06 0001286681 us-gaap:OperatingSegmentsMember dpz:SupplyChainMember 2019-12-30 2020-09-06 0001286681 us-gaap:OperatingSegmentsMember dpz:InternationalFranchiseMember 2019-12-30 2020-09-06 0001286681 us-gaap:IntersegmentEliminationMember 2019-12-30 2020-09-06 0001286681 us-gaap:MaterialReconcilingItemsMember 2019-12-30 2020-09-06 0001286681 us-gaap:PerformanceSharesMember 2019-12-30 2020-09-06 0001286681 us-gaap:RetainedEarningsMember 2019-12-30 2020-09-06 0001286681 us-gaap:CommonStockMember 2019-12-30 2020-09-06 0001286681 us-gaap:AdditionalPaidInCapitalMember 2019-12-30 2020-09-06 0001286681 dpz:DomesticCompanyOwnedStoresMember dpz:USStoresMember 2019-12-30 2020-09-06 0001286681 dpz:SupplyChainMember 2019-12-30 2020-09-06 0001286681 dpz:DomesticFranchiseMember dpz:USStoresMember 2019-12-30 2020-09-06 0001286681 dpz:InternationalFranchiseMember dpz:InternationalFranchiseRoyaltiesAndFeesMember 2019-12-30 2020-09-06 0001286681 dpz:DomesticFranchiseAdvertisingMember dpz:USStoresMember 2019-12-30 2020-09-06 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-30 2020-09-06 0001286681 dpz:DashBrandsLtdMember us-gaap:SubsequentEventMember 2021-03-21 0001286681 us-gaap:NewAccountingPronouncementMember dpz:AdjustmentsDueToAsc326Member 2019-12-30 0001286681 dpz:ScenarioAsRestatedMember 2019-12-30 0001286681 us-gaap:NewAccountingPronouncementMember 2019-12-30 0001286681 us-gaap:SubsequentEventMember 2020-10-06 2020-10-06 0001286681 dpz:DashBrandsLtdMember 2020-06-14 0001286681 us-gaap:NewAccountingPronouncementMember srt:RestatementAdjustmentMember 2019-12-30 2019-12-30 0001286681 us-gaap:FairValueInputsLevel2Member dpz:VariableFundingNoteMember 2020-03-23 2020-06-14 0001286681 us-gaap:CommonStockMember 2020-06-14 0001286681 us-gaap:AdditionalPaidInCapitalMember 2020-06-14 0001286681 us-gaap:RetainedEarningsMember 2020-06-14 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-06-14 0001286681 us-gaap:CommonStockMember 2020-09-06 0001286681 us-gaap:AdditionalPaidInCapitalMember 2020-09-06 0001286681 us-gaap:RetainedEarningsMember 2020-09-06 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-09-06 0001286681 us-gaap:CommonStockMember 2018-12-30 0001286681 us-gaap:AdditionalPaidInCapitalMember 2018-12-30 0001286681 us-gaap:RetainedEarningsMember 2018-12-30 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-30 0001286681 us-gaap:CommonStockMember 2019-09-08 0001286681 us-gaap:AdditionalPaidInCapitalMember 2019-09-08 0001286681 us-gaap:RetainedEarningsMember 2019-09-08 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-08 0001286681 us-gaap:CommonStockMember 2019-06-16 0001286681 us-gaap:AdditionalPaidInCapitalMember 2019-06-16 0001286681 us-gaap:RetainedEarningsMember 2019-06-16 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-16 0001286681 us-gaap:CommonStockMember 2019-12-29 0001286681 us-gaap:AdditionalPaidInCapitalMember 2019-12-29 0001286681 us-gaap:RetainedEarningsMember 2019-12-29 0001286681 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-29 xbrli:shares iso4217:USD xbrli:pure iso4217:USD xbrli:shares
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 September 6, 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
 
 
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.
 
Large accelerated filer      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 October 1, 2020, Domino’s Pizza, Inc. had
39,399,906
 shares of common stock, par value $0.01 per share, outstanding.
 
 
 

Domino’s Pizza, Inc.
TABLE OF CONTENTS
 
        
Page No.
 
PART I.
    
Item 1.
  Financial Statements      3  
  Condensed Consolidated Balance Sheets (Unaudited) – As of September 6, 2020 and December 29, 2019      3  
       4  
       5  
       6  
  Notes to Condensed Consolidated Financial Statements (Unaudited)      7  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations      16  
Item 3.
  Quantitative and Qualitative Disclosures About Market Risk      24  
Item 4.
  Controls and Procedures      24  
PART II.
    
Item 1.
  Legal Proceedings      25  
Item 1A.
  Risk Factors      25  
Item 2.
  Unregistered Sales of Equity Securities and Use of Proceeds     
26
 
Item 3.
  Defaults Upon Senior Securities     
26
 
Item 4.
  Mine Safety Disclosures     
26
 
Item 5.
  Other Information     
26
 
Item 6.
  Exhibits      26  
     27  
 
2

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
(In thousands)
  
September 6, 2020
   
December 29, 2019 (1)
 
Assets
    
Current assets:
    
Cash and cash equivalents
   $ 330,719     $ 190,615  
Restricted cash and cash equivalents
     160,330       209,269  
Accounts receivable, net
     229,403       210,260  
Inventories
     65,499       52,955  
Prepaid expenses and other
     26,288       19,129  
Advertising fund assets, restricted
     144,282       105,389  
  
 
 
   
 
 
 
Total current assets
     956,521       787,617  
  
 
 
   
 
 
 
Property, plant and equipment:
    
Land and buildings
     65,581       44,845  
Leasehold and other improvements
     181,556       164,071  
Equipment
     274,337       243,708  
Construction in progress
     14,784       42,705  
  
 
 
   
 
 
 
     536,258       495,329  
Accumulated depreciation and amortization
     (273,994     (252,448
  
 
 
   
 
 
 
Property, plant and equipment, net
     262,264       242,881  
  
 
 
   
 
 
 
Other assets:
    
Operating lease
right-of-use
assets
     229,653       228,785  
Goodwill
     15,061       15,093  
Capitalized software, net
     78,632       73,140  
Other assets
     72,787       24,503  
Deferred income taxes
     6,030       10,073  
  
 
 
   
 
 
 
Total other assets
     402,163       351,594  
  
 
 
   
 
 
 
Total assets
   $ 1,620,948     $ 1,382,092  
  
 
 
   
 
 
 
Liabilities and stockholders’ deficit
    
Current liabilities:
    
Current portion of long-term debt
   $ 43,662     $ 43,394  
Accounts payable
     88,188       111,101  
Operating lease liabilities
     36,508       33,318  
Insurance reserves
     23,816       23,735  
Dividends payable
     31,258       471  
Advertising fund liabilities
     138,348       101,921  
Other accrued liabilities
     126,745       139,891  
  
 
 
   
 
 
 
Total current liabilities
     488,525       453,831  
  
 
 
   
 
 
 
Long-term liabilities:
    
Long-term debt, less current portion
     4,062,175       4,071,055  
Operating lease liabilities
     201,981       202,731  
Insurance reserves
     37,428       34,675  
Other accrued liabilities
     42,370       35,559  
  
 
 
   
 
 
 
Total long-term liabilities
     4,343,954       4,344,020  
  
 
 
   
 
 
 
Stockholders’ deficit:
    
Common stock
     394       389  
Additional
paid-in
capital
     34,124       243  
Retained deficit
     (3,242,627     (3,412,649
Accumulated other comprehensive loss
     (3,422     (3,742
  
 
 
   
 
 
 
Total stockholders’ deficit
     (3,211,531     (3,415,759
  
 
 
   
 
 
 
Total liabilities and stockholders’ deficit
   $ 1,620,948     $ 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.
 
3

Table of Contents
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
 
    
Fiscal Quarter Ended
   
Three Fiscal Quarters Ended
 
(In thousands, except per share data)   
September 6,
2020
   
September 8,
2019
   
September 6,
2020
   
September 8,
2019
 
Revenues:
        
U.S. Company-owned stores
   $ 113,254     $ 94,575     $ 329,820     $ 323,026  
U.S. franchise royalties and fees
     118,054       97,047       335,898       289,349  
Supply chain
     573,661       485,110       1,625,502       1,424,787  
International franchise royalties and fees
     54,602       54,586       160,202       164,145  
U.S. franchise advertising
     108,148       89,494       309,422       267,115  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenues
     967,719       820,812       2,760,844       2,468,422  
  
 
 
   
 
 
   
 
 
   
 
 
 
Cost of sales:
        
U.S. Company-owned stores
     90,788       71,610       258,007       247,516  
Supply chain
     514,950       432,951       1,443,608       1,265,695  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total cost of sales
     605,738       504,561       1,701,615       1,513,211  
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating margin
     361,981       316,251       1,059,229       955,211  
  
 
 
   
 
 
   
 
 
   
 
 
 
General and administrative
     91,652       83,728       268,209       262,640  
U.S. franchise advertising
     108,148       89,494       309,422       267,115  
  
 
 
   
 
 
   
 
 
   
 
 
 
Income from operations
     162,181       143,029       481,598       425,456  
Interest income
     197       968       1,769       2,583  
Interest expense
     (38,605     (33,752     (117,802     (102,672
  
 
 
   
 
 
   
 
 
   
 
 
 
Income before provision for income taxes
     123,773       110,245       365,565       325,367  
Provision for income taxes
     24,644       23,872       26,166       53,985  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income
   $ 99,129     $ 86,373     $ 339,399     $ 271,382  
  
 
 
   
 
 
   
 
 
   
 
 
 
Earnings per share:
        
Common stock - basic
   $ 2.53     $ 2.11     $ 8.70     $ 6.63  
Common stock - diluted
     2.49       2.05       8.54       6.44  
The accompanying notes are an integral part of these condensed consolidated statements.
 
4

Table of Contents
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
    
Fiscal Quarter Ended
    
Three Fiscal Quarters Ended
 
(In thousands)
  
September 6,
2020
    
September 8,
2019
    
September 6,
2020
    
September 8,
2019
 
Net income
   $ 99,129      $ 86,373      $ 339,399      $ 271,382  
Currency translation adjustment
     1,113        270        320        491  
  
 
 
    
 
 
    
 
 
    
 
 
 
Comprehensive income
   $ 100,242      $ 86,643      $ 339,719      $ 271,873  
  
 
 
    
 
 
    
 
 
    
 
 
 
The accompanying notes are an integral part of these condensed consolidated statements.
 
5

Table of Contents
Domino’s Pizza, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
    
Three Fiscal Quarters Ended
 
(In thousands)
  
September 6,
2020
   
September 8,
2019
 
Cash flows from operating activities:
    
Net income
   $ 339,399     $ 271,382  
Adjustments to reconcile net income to net cash provided by operating activities:
    
Depreciation and amortization
     44,116       40,982  
Loss on sale/disposal of assets
     1,530       3,141  
Amortization of debt issuance costs
     3,853       3,288  
Provision for deferred income taxes
     3,681       1,627  
Non-cash
equity-based 
compensation expense
     14,934       13,269  
Excess tax benefits from equity-based compensation
     (56,862     (19,670
Provision for losses on accounts and notes receivable
     1,536       774  
Changes in operating assets and liabilities
     (14,146     16,214  
Changes in advertising fund assets and liabilities, restricted
     32,358       (6,411
  
 
 
   
 
 
 
Net cash provided by operating activities
     370,399       324,596  
  
 
 
   
 
 
 
Cash flows from investing activities:
    
Capital expenditures
     (51,163     (42,676
Purchase of investments (Note 9)
     (40,000    
–  
 
Proceeds from sale of assets
     11       9,738  
Maturities of advertising fund investments, restricted
    
–  
      30,152  
Other
     83       (351
  
 
 
   
 
 
 
Net cash used in investing activities
     (91,069     (3,137
  
 
 
   
 
 
 
Cash flows from financing activities:
    
Proceeds from issuance of long-term debt
     158,000      
–  
 
Repayments of long-term debt and finance lease obligations
     (190,843     (91,860
Proceeds from exercise of stock options
     26,526       10,122  
Purchases of common stock
     (79,590     (105,149
Tax payments for restricted stock upon vesting
     (6,584     (5,820
Payments of common stock dividends and equivalents
     (61,093     (53,598
  
 
 
   
 
 
 
Net cash used in financing activities
     (153,584     (246,305
  
 
 
   
 
 
 
Effect of exchange rate changes on cash
     243       139  
  
 
 
   
 
 
 
Change in cash and cash equivalents, restricted cash and cash equivalents
     125,989       75,293  
  
 
 
   
 
 
 
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
     330,719       66,706  
Restricted cash and cash equivalents, end of period
     160,330       177,292  
Cash and cash equivalents included in advertising fund assets, restricted, end of period
     118,864       68,714  
  
 
 
   
 
 
 
Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period
   $ 609,913     $ 312,712  
  
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated statements.
 
6

Table of Contents
Domino’s Pizza, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands, except percentages, share and per share amounts)
September 6, 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 September 6, 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,
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 10 for information related to 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 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 September 6, 2020 and September 8, 2019
 
    
U.S.
Stores
    
Supply
Chain
    
International
Franchise
    
Intersegment
Revenues
   
Other
   
Total
 
Revenues
               
2020
   $ 339,456      $ 605,481      $ 54,602      $ (31,820   $ —       $ 967,719  
2019
     281,116        511,709        54,586        (26,599     —         820,812  
Income from operations
               
2020
   $ 98,743      $ 46,356      $ 44,420        N/A     $ (27,338   $ 162,181  
2019
     80,188        40,513        42,281        N/A       (19,953     143,029  
Segment Income
               
2020
   $ 101,513      $ 51,114      $ 44,461        N/A     $ (13,689   $ 183,399  
2019
     82,556        44,432        42,337        N/A       (8,172     161,153  
 
    
Three Fiscal Quarters Ended September 6, 2020 and September 8, 2019
 
    
U.S.
Stores
    
Supply
Chain
    
International
Franchise
    
Intersegment
Revenues
   
Other
   
Total
 
Revenues
               
2020
   $ 975,140      $ 1,717,225      $ 160,202      $ (91,723   $ —       $ 2,760,844  
2019
     879,490        1,513,380        164,145        (88,593     —         2,468,422  
Income from operations
               
2020
   $ 284,324      $ 146,193      $ 124,252        N/A     $ (73,171   $ 481,598  
2019
     237,852        123,840        126,467        N/A       (62,703     425,456  
Segment Income
               
2020
   $ 292,724      $ 159,455      $ 124,375        N/A     $ (34,376   $ 542,178  
2019
     248,160        135,861        126,628        N/A       (27,801     482,848  
The following table reconciles Total Segment Income to consolidated income before provision for income taxes.
 
    
Fiscal Quarter Ended
    
Three Fiscal Quarters Ended
 
    
September 6,
2020
    
September 8,
2019
    
September 6,
2020
    
September 8,
2019
 
Total Segment Income
   $ 183,399      $ 161,153      $ 542,178      $ 482,848  
Depreciation and amortization
     (15,327      (13,132      (44,116      (40,982
Loss on sale/disposal of assets
     (986      (312      (1,530      (3,141
Non-cash
 
equity-based 
compensation expense
     (4,905      (4,680      (14,934      (13,269
  
 
 
    
 
 
    
 
 
    
 
 
 
Income from operations
     162,181        143,029        481,598        425,456  
Interest income
     197        968        1,769        2,583  
Interest expense
     (38,605      (33,752      (117,802      (102,672
  
 
 
    
 
 
    
 
 
    
 
 
 
Income before provision for income taxes
   $ 123,773      $ 110,245      $ 365,565      $ 325,367  
  
 
 
    
 
 
    
 
 
    
 
 
 
3. Earnings Per Share
 
    
Fiscal Quarter Ended
    
Three Fiscal Quarters Ended
 
    
September 6,
2020
    
September 8,
2019
    
September 6,
2020
    
September 8,
2019
 
Net income available to common stockholders - basic and diluted
   $ 99,129      $ 86,373      $ 339,399      $ 271,382  
  
 
 
    
 
 
    
 
 
    
 
 
 
Basic weighted average number of shares
     39,246,231        40,954,279        38,990,149        40,947,693  
Earnings per share – basic
   $ 2.53      $ 2.11      $ 8.70      $ 6.63  
Diluted weighted average number of shares
     39,791,805        42,040,291        39,724,289        42,158,447  
Earnings per share – diluted
   $ 2.49      $ 2.05      $ 8.54      $ 6.44  
 
8

Table of Contents
The denominator used in calculating diluted earnings per share for the third quarter and three fiscal quarters of 2020 did not include 52,390 and 53,130 options to purchase common stock, respectively, as the effect of including these options would have been anti-dilutive. The denominators used in calculating diluted earnings per share for the third quarter and three fiscal quarters of 2020 each did not include 118,518 restricted performance shares, as the performance targets for these awards had not yet been met.
The denominators used in calculating diluted earnings per share for the third quarter and three fiscal quarters of 2019 each did not include 161,670 options to purchase common stock, as the effect of including these options would have been anti-dilutive. The denominators used in calculating diluted earnings per share for the third quarter and three fiscal quarters of 2019 each did not include 142,477 restricted performance shares, as the performance targets for these awards had not yet been met.
4. Changes in Stockholders’ Deficit
The following table summarizes changes in stockholders’ deficit for the third quarter of 2020.
 
                 
Additional

Paid-in

Capital
   
Retained

Deficit
   
Accumulated

Other

Comprehensive

Loss
 
              
    
Common Stock
 
    
Shares
   
Amount
 
Balance at June 14, 2020
     39,347,213     $ 393      $ 32,251     $ (3,311,015   $ (4,535
Net income
     —         —          —         99,129       —    
Dividends declared on common stock and equivalents
 
($
0.78
per share)
     —         —          —         (30,741     —    
Issuance and cancellation of stock awards, net
     32,676       1        —         —         —    
Tax payments for restricted stock upon vesting
     (12,195     —          (4,757     —         —    
Exercise of stock options
     24,781       —          1,725       —         —    
Non-cash
 
equity-based 
compensation expense
     —         —          4,905       —         —    
Currency translation adjustment
     —         —          —         —         1,113  
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance at September 6, 2020
     39,392,475     $ 394      $ 34,124     $ (3,242,627   $ (3,422
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
The following table summarizes changes in stockholders’ deficit for the three fiscal quarters of 2020.
 
                
Additional

Paid-in

Capital
   
Retained

Deficit
   
Accumulated

Other

Comprehensive

Loss
 
              
    
Common Stock
 
    
Shares
   
Amount
 
Balance at December 29, 2019
     38,934,009     $ 389     $ 243     $ (3,412,649   $ (3,742
Net income
     —         —         —         339,399       —    
Dividends declared on common stock and equivalents ($2.34 per share)
     —         —         —         (91,880     —    
Issuance and cancellation of stock awards, net
     38,389       1       —         —         —    
Tax payments for restricted stock upon vesting
     (18,215     —         (6,584     —         —    
Purchases of common stock
     (271,064     (3     (988     (78,599     —    
Exercise of stock options
     709,356       7       26,519       —         —    
Non-cash
 
equity-based 
compensation expense
     —         —         14,934       —         —    
Adoption of ASC 326 (Note 10)
     —         —         —         1,102       —    
Currency translation adjustment
     —         —         —         —         320  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 6, 2020
     39,392,475     $ 394     $ 34,124     $ (3,242,627   $ (3,422
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Subsequent to the third quarter, on October 6, 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 December 15, 2020 to be paid on December 30, 2020.
 
9

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

Paid-in

Capital
   
Retained

Deficit
   
Accumulated

Other

Comprehensive

Loss
 
              
    
Common Stock
 
    
Shares
   
Amount
 
Balance at June 16, 2019
     41,232,358     $ 412     $ 10,788     $ (2,911,278   $ (4,208
Net income
     —         —         —         86,373       —    
Dividends declared on common stock and equivalents ($0.65 per share)
     —         —         —         (26,569     —    
Issuance and cancellation of stock awards, net
     45,479       —         —         —         —    
Tax payments for restricted stock upon vesting
     (12,603     —         (3,253     —         —    
Purchases of common stock
     (384,338     (3     (12,972     (80,721     —    
Exercise of stock options
     18,100       —         832       —         —    
Non-cash
 
equity-based 
compensation expense
     —         —         4,680       —         —    
Currency translation adjustment
     —         —         —         —         270  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 8, 2019
     40,898,996     $ 409     $ 75     $ (2,932,195   $ (3,938
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following table summarizes changes in stockholders’ deficit for the three fiscal quarters of 2019.
 
                
Additional

Paid-in

Capital
   
Retained

Deficit
   
Accumulated

Other

Comprehensive

Loss
 
              
    
Common Stock
 
    
Shares
   
Amount
 
Balance at December 30, 2018
     40,977,561     $ 410     $ 569     $ (3,036,471   $ (4,429
Net income
     —         —         —         271,382       —    
Dividends declared on common stock and equivalents ($1.95 per share)
     —         —         —         (80,023     —    
Issuance and cancellation of stock awards, net
     50,640       —         —         —         —    
Tax payments for restricted stock upon vesting
     (22,044     —         (5,820     —         —    
Purchases of common stock
     (430,182     (4     (18,062     (87,083     —    
Exercise of stock options
     323,021       3       10,119       —         —    
Non-cash
 
equity-based 
compensation expense
     —         —         13,269       —         —    
Currency translation adjustment
     —         —         —         —         491  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 8, 2019
     40,898,996     $ 409     $ 75     $ (2,932,195   $ (3,938
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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 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 fair value of the Company’s Level 3 investment (Note 9) is not readily determinable. The fair value represents its cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments. The following tables summarize the carrying amounts and estimated fair values of certain assets at September 6, 2020 and December 29, 2019:
 
    
At September 6, 2020
 
           
Fair Value Estimated Using
 
    
Carrying
Amount
    
Level 1
Inputs
    
Level 2
Inputs
    
Level 3
Inputs
 
Cash equivalents
   $ 276,905      $ 276,905      $ —        $ —    
Restricted cash equivalents
     102,763        102,763        —          —    
Investments in marketable securities
     12,043        12,043        —          —    
Advertising fund cash equivalents, restricted
     97,190        97,190        —          —    
Investments (Note 9)
     40,000        —          —          40,000  
 
10

Table of Contents
    
At December 29, 2019
 
           
Fair Value Estimated Using
 
    
Carrying
Amount
    
Level 1
Inputs
    
Level 2
Inputs
    
Level 3
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        —          —    
Company 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:
 
    
September 6, 2020
    
December 29, 2019
 
    
Principal Amount
    
Fair Value
    
Principal Amount
    
Fair Value
 
2015
Ten-Year
Fixed Rate Notes
   $ 768,000      $ 821,760      $ 774,000      $ 804,960  
2017 Five-Year Fixed Rate Notes
     583,500        585,251        588,000        588,588  
2017
Ten-Year
Fixed Rate Notes
     972,500        1,046,410        980,000        1,017,240  
2017 Five-Year Floating Rate Notes
     291,750        291,458        294,000        294,000  
2018
7.5-Year
Fixed Rate Notes
     416,500        443,156        419,688        431,439  
2018
9.25-Year
Fixed Rate Notes
     392,000        425,320        395,000        414,355  
2019
Ten-Year
Fixed Rate Notes
     669,938        706,114        675,000        675,675  
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.
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 borrowed $158.0 million under its variable funding notes in the second quarter of 2020. The Company repaid $100.0 million of these borrowings in the second quarter of 2020 and
approximately
$58.0 million in the third quarter of 2020.
The Company had less than $0.1 million of outstanding borrowings under its variable funding notes at September 6, 2020. The Company did not have any outstanding borrowings under its variable funding notes as of December 29, 2019.
The fair values in the table above represent the fair value of such notes at September 6, 2020 and December 29, 2019. In light of the
COVID-19
pandemic (discussed further in Note 11) and its impact on financial markets, these fair values fluctuated significantly during the three fiscal quarters of 2020 and may continue to fluctuate based on market conditions and other factors.
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 were as follows:
 
    
Three Fiscal Quarters Ended
 
    
September 6,
2020
    
September 8,
2019
 
Deferred franchise fees and deferred development fees at beginning of period
   $ 20,463      $ 19,900  
Revenue recognized during the period
     (4,302      (3,923
New deferrals due to cash received and other
     3,937        4,613  
  
 
 
    
 
 
 
Deferred franchise fees and deferred development fees at end of period
   $ 20,098      $ 20,590  
  
 
 
    
 
 
 
 
11

Advertising Fund Assets
As of September 6, 2020, advertising fund assets, restricted of $144.3 million consisted of $118.9 million of cash and cash equivalents, $20.5 million of accounts receivable and $4.9 million of prepaid expenses. As of September 6, 2020, advertising fund cash and cash equivalents included $6.0 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.
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 third quarter and three fiscal quarters of 2020 and the third quarter and three fiscal quarters of 2019 were as follows:
 
    
Fiscal Quarter Ended
    
Three Fiscal Quarters Ended
 
    
September 6,
2020
    
September 8,
2019
    
September 6,
2020
    
September 8,
2019
 
Operating lease cost
   $ 10,267      $ 9,150      $ 30,099      $ 29,464  
Finance lease cost:
           
Amortization of
right-of-use
assets
     548        254        1,248        763  
Interest on lease liabilities
     794        473        2,066        1,269  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total finance lease cost
   $ 1,342      $ 727      $ 3,314      $ 2,032  
  
 
 
    
 
 
    
 
 
    
 
 
 
Rent expense totaled $17.4 million and $50.0 million in the third quarter and three fiscal quarters of 2020, respectively, and totaled $16.1 million and $48.4 million in the third quarter and three fiscal quarters of 2019, respectively. Rent expense 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 for the third quarter and three fiscal quarters of 2020 and 2019, respectively.
Supplemental balance sheet information related to the Company’s leases as of September 6, 2020 and December 29, 2019 was as follows:
 
    
September 6,
2020
    
December 29,
2019
 
Land and buildings
   $ 45,992      $ 25,476  
Accumulated depreciation and amortization
     (9,208      (7,846
  
 
 
    
 
 
 
Finance lease assets, net
   $ 36,784      $ 17,630  
  
 
 
    
 
 
 
Current portion of long-term debt
   $ 1,662      $ 1,394  
Long-term debt, less current portion
     36,986        18,263  
  
 
 
    
 
 
 
Total principal payable on finance leases
   $ 38,648      $ 19,657  
  
 
 
    
 
 
 
As of September 6, 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:
 
    
September 6, 2020
   
December 29, 2019
 
    
Operating
Leases
   
Finance
Leases
   
Operating
Leases
   
Finance
Leases
 
Weighted average remaining lease term
     7 years       17 years       8 years       14 years  
Weighted average discount rate
     3.8     8.9     3.8     11.7
 
12

Table of Contents
Supplemental cash flow information related to leases for the third quarter and three fiscal quarters of 2020 and the third quarter and three fiscal quarters of 2019 was as follows:
 
    
Fiscal Quarter Ended
    
Three Fiscal Quarters Ended
 
    
September 6,
    
September 8,
    
September 6,
    
September 8,
 
    
2020
    
2019
    
2020
    
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
           
Operating cash flows from operating leases
   $ 9,288      $ 9,968      $ 29,455      $ 30,056  
Operating cash flows from finance leases
     794        473        2,066        1,269  
Financing cash flows from finance leases
     348        161        1,388        422  
Right-of-use
assets obtained in exchange for new lease obligations:
           
Operating leases
     10,719        23,434        26,297        49,802  
Finance leases
     1,717        —          20,463        —    
Maturities of lease liabilities as of September 6, 2020 were as follows:
 
    
Operating
    
Finance
 
    
Leases
    
Leases
 
2020
   $ 15,170      $ 1,275  
2021
     42,865        4,965  
2022
     40,942        5,016  
2023
     35,519        5,075  
2024
     34,148        4,870  
Thereafter
     106,034        53,491  
  
 
 
    
 
 
 
Total future minimum rental commitments
     274,678        74,692  
Less – amounts representing interest
     (36,189      (36,044
  
 
 
    
 
 
 
Total lease liabilities
   $ 238,489      $ 38,648  
  
 
 
    
 
 
 
As of September 6, 2020, the Company has additional leases for one supply chain center and certain supply chain tractors and trailers that had not yet commenced with estimated future minimum rental commitments of approximately $28.8 million. These leases are expected to commence in 2020 with lease terms of up to 15 years. 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
 
w
a
s
 $13.9 million as of September 6, 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.
8. Supplemental Disclosures of Cash Flow Information
The Company had
non-cash
investing activities related to accruals for capital expenditures of $5.1 million at September 6, 2020 and $6.9
 million at December 29, 2019.
9. Investment in Dash Brands
In the second quarter of 2020, a subsidiary of the Company acquired a
non-controlling
interest in Dash Brands for $40.0 million. This investment is an equity investment without a readily determinable fair value and is recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments within long-term other assets in the Company’s condensed consolidated balance sheet. The Company did not record any adjustments to the carrying amount of $40.0 million in the third quarter or three fiscal quarters of 2020. The Company is contractually required to invest an additional $40.0 million in Dash Brands in the first quarter of 2021, assuming certain performance conditions are satisfied. If such performance conditions are not satisfied, the Company has the option to make such additional investment
 
at
its discretion.
 
13

10. New Accounting Pronouncements
Recently Adopted Accounting Standard
ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326)
In June 2016, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“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
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 the 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 standards.
ASU
2019-12,
Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740)
In December 2019, the FASB issued
ASU
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.
ASU
2020-04,
Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)
In March 2020, the FASB issued
ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,
which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. The Company’s floating rate notes and variable funding notes bear interest at fluctuating interest rates based on LIBOR. If LIBOR ceases to exist, the Company may need to renegotiate its loan documents and the Company cannot predict what alternative index would be negotiated with its lenders. ASU
2020-04
is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. 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.
 
14

Table of Contents
11.
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. During the second and third fiscal quarters of 2020 in the midst of the
COVID-19
pandemic, the Company continued to increase its U.S. Stores revenues. Supply Chain also remained operational, with minimal interruptions due to
COVID-19
and experienced higher volumes as a result of the increases in store sales. The
COVID-19
pandemic negatively impacted the Company’s International Franchise revenues during the second quarter of 2020 due to temporary store closures in certain markets as well as changes in operating procedures and store hours resulting from actions taken to increase social distancing across the Company’s international franchise markets. In the third quarter of 2020, these negative impacts lessened due to the reopening and resumption of normal store hours at the majority of the Company’s international franchised stores that had been temporarily closed for portions of the prior quarter. The Company also made certain investments during the
COVID-19
pandemic related to safety and cleaning equipment, enhanced sick pay and compensation for frontline team members and support for the Company’s franchisees and their communities. The Company is closely monitoring the impact of the pandemic on all aspects of its business and is unable at this time to predict the continued impact that
COVID-19
will have on its business, financial position and operating results in future periods due to numerous uncertainties.
 
15

Table of Contents
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 third quarters referenced herein represent the twelve-week periods ended September 6, 2020 and September 8, 2019, respectively. The 2020 and 2019 three fiscal quarters referenced herein represent the
thirty-six-week
periods ended September 6, 2020 and September 8, 2019, respectively.
Overview
Domino’s is the largest pizza company in the world based on global retail sales, with more than 17,200 locations in over 90 markets. 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.
 
    
Third Quarter
   
Third Quarter
   
Three Fiscal
   
Three Fiscal
 
    
of 2020
   
of 2019
   
Quarters of 2020
   
Quarters of 2019
 
Global retail sales growth (versus prior year period, excluding foreign currency impact)
       +14.8       +7.5       +9.6       +8.1
Same store sales growth (1):
                
U.S. Company-owned stores
       +16.6       +1.7       +12.4       +2.3
U.S. franchise stores
       +17.5       +2.5       +11.6       +3.2
    
 
 
     
 
 
     
 
 
     
 
 
 
U.S. stores
       +17.5       +2.4       +11.7       +3.1
International stores (excluding foreign
currency impact)
       +6.2       +1.7       +3.0       +2.0
Store counts (at end of period):
                
U.S. Company-owned stores
       348         333          
U.S. franchise stores
       5,891         5,652          
    
 
 
     
 
 
         
U.S. stores
       6,239         5,985          
International stores
       11,017         10,543          
    
 
 
     
 
 
         
Total stores (2)
       17,256         16,528          
    
 
 
     
 
 
         
Income statement data:
                
Total revenues
   $ 967.7       100.0   $ 820.8       100.0   $ 2,760.8       100.0   $ 2,468.4       100.0
Cost of sales
     605.7       62.6     504.6       61.5     1,701.6       61.7     1,513.2       61.3
General and administrative
     91.7       9.4     83.7       10.2     268.2       9.7     262.6       10.7
U.S. franchise advertising
     108.1       11.2     89.5       10.9