10-Q
18.5falseQ3DOMINOS PIZZA 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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 12, 2021

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 7, 2021, Domino’s Pizza, Inc. had 36,386,777 shares of common stock, par value $0.01 per share, outstanding.

 

 


 

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 September 12, 2021 and January 3, 2021

 

3

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarters and three fiscal quarters ended September 12, 2021 and September 6, 2020

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Fiscal quarters and three fiscal quarters ended September 12, 2021 and September 6, 2020

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) –Three fiscal quarters ended September 12, 2021 and September 6, 2020

 

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

 

27

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

28

 

 

 

Item 4.

 

Mine Safety Disclosures

 

28

 

 

 

Item 5.

 

Other Information

 

28

 

 

 

Item 6.

 

Exhibits

 

29

 

 

SIGNATURES

 

30

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

September 12, 2021

 

 

January 3, 2021 (1)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

295,352

 

 

$

168,821

 

Restricted cash and cash equivalents

 

 

206,274

 

 

 

217,453

 

Accounts receivable, net

 

 

238,906

 

 

 

244,560

 

Inventories

 

 

64,563

 

 

 

66,683

 

Prepaid expenses and other

 

 

34,094

 

 

 

24,169

 

Advertising fund assets, restricted

 

 

186,807

 

 

 

147,698

 

Total current assets

 

 

1,025,996

 

 

 

869,384

 

Property, plant and equipment:

 

 

 

 

 

 

Land and buildings

 

 

95,111

 

 

 

88,063

 

Leasehold and other improvements

 

 

189,499

 

 

 

186,456

 

Equipment

 

 

309,811

 

 

 

292,456

 

Construction in progress

 

 

10,289

 

 

 

13,014

 

 

 

 

604,710

 

 

 

579,989

 

Accumulated depreciation and amortization

 

 

(311,335

)

 

 

(282,625

)

Property, plant and equipment, net

 

 

293,375

 

 

 

297,364

 

Other assets:

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

218,172

 

 

 

228,268

 

Goodwill

 

 

15,034

 

 

 

15,061

 

Capitalized software, net

 

 

91,371

 

 

 

81,306

 

Investments

 

 

82,500

 

 

 

40,000

 

Other assets

 

 

36,324

 

 

 

33,881

 

Deferred income taxes

 

 

1,584

 

 

 

1,904

 

Total other assets

 

 

444,985

 

 

 

400,420

 

Total assets

 

$

1,764,356

 

 

$

1,567,168

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

54,846

 

 

$

2,855

 

Accounts payable

 

 

111,780

 

 

 

94,499

 

Operating lease liabilities

 

 

37,093

 

 

 

35,861

 

Insurance reserves

 

 

27,900

 

 

 

26,377

 

Dividends payable

 

 

35,066

 

 

 

729

 

Advertising fund liabilities

 

 

178,539

 

 

 

141,175

 

Other accrued liabilities

 

 

151,130

 

 

 

169,323

 

Total current liabilities

 

 

596,354

 

 

 

470,819

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, less current portion

 

 

5,014,705

 

 

 

4,116,018

 

Operating lease liabilities

 

 

193,024

 

 

 

202,268

 

Insurance reserves

 

 

40,218

 

 

 

37,125

 

Other accrued liabilities

 

 

36,958

 

 

 

35,244

 

Deferred income taxes

 

 

10,610

 

 

 

6,099

 

Total long-term liabilities

 

 

5,295,515

 

 

 

4,396,754

 

Stockholders' deficit:

 

 

 

 

 

 

Common stock

 

 

366

 

 

 

389

 

Additional paid-in capital

 

 

115

 

 

 

5,122

 

Retained deficit

 

 

(4,125,582

)

 

 

(3,303,492

)

Accumulated other comprehensive loss

 

 

(2,412

)

 

 

(2,424

)

Total stockholders' deficit

 

 

(4,127,513

)

 

 

(3,300,405

)

Total liabilities and stockholders' deficit

 

$

1,764,356

 

 

$

1,567,168

 

 

(1) The condensed consolidated balance sheet at January 3, 2021 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

 

 

Three Fiscal Quarters Ended

 

 

 

September 12,

 

 

September 6,

 

 

September 12,

 

 

September 6,

 

(In thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Company-owned stores

 

$

108,416

 

 

$

113,254

 

 

$

337,749

 

 

$

329,820

 

U.S. franchise royalties and fees

 

 

121,624

 

 

 

118,054

 

 

 

372,946

 

 

 

335,898

 

Supply chain

 

 

588,819

 

 

 

573,661

 

 

 

1,760,119

 

 

 

1,625,502

 

International franchise royalties and fees

 

 

70,553

 

 

 

54,602

 

 

 

207,068

 

 

 

160,202

 

U.S. franchise advertising

 

 

108,578

 

 

 

108,148

 

 

 

336,278

 

 

 

309,422

 

Total revenues

 

 

997,990

 

 

 

967,719

 

 

 

3,014,160

 

 

 

2,760,844

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Company-owned stores

 

 

86,932

 

 

 

90,788

 

 

 

260,693

 

 

 

258,007

 

Supply chain

 

 

525,858

 

 

 

514,950

 

 

 

1,571,426

 

 

 

1,443,608

 

Total cost of sales

 

 

612,790

 

 

 

605,738

 

 

 

1,832,119

 

 

 

1,701,615

 

Operating margin

 

 

385,200

 

 

 

361,981

 

 

 

1,182,041

 

 

 

1,059,229

 

General and administrative

 

 

96,342

 

 

 

91,652

 

 

 

288,043

 

 

 

268,209

 

U.S. franchise advertising

 

 

108,578

 

 

 

108,148

 

 

 

336,278

 

 

 

309,422

 

Income from operations

 

 

180,280

 

 

 

162,181

 

 

 

557,720

 

 

 

481,598

 

Other income

 

 

 

 

 

 

 

 

2,500

 

 

 

 

Interest income

 

 

48

 

 

 

197

 

 

 

138

 

 

 

1,769

 

Interest expense

 

 

(45,523

)

 

 

(38,605

)

 

 

(130,822

)

 

 

(117,802

)

Income before provision for income taxes

 

 

134,805

 

 

 

123,773

 

 

 

429,536

 

 

 

365,565

 

Provision for income taxes

 

 

14,403

 

 

 

24,644

 

 

 

74,754

 

 

 

26,166

 

Net income

 

$

120,402

 

 

$

99,129

 

 

$

354,782

 

 

$

339,399

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - basic

 

$

3.29

 

 

$

2.53

 

 

$

9.43

 

 

$

8.70

 

Common stock - diluted

 

 

3.24

 

 

 

2.49

 

 

 

9.30

 

 

 

8.54

 

 

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

 

 

Three Fiscal Quarters Ended

 

 

 

September 12,

 

 

September 6,

 

 

September 12,

 

 

September 6,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

120,402

 

 

$

99,129

 

 

$

354,782

 

 

$

339,399

 

Currency translation adjustment

 

 

(404

)

 

 

1,113

 

 

 

12

 

 

 

320

 

Comprehensive income

 

$

119,998

 

 

$

100,242

 

 

$

354,794

 

 

$

339,719

 

 

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)

 

 

 

Three Fiscal Quarters Ended

 

 

 

September 12,

 

 

September 6,

 

(In thousands)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

354,782

 

 

$

339,399

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

50,219

 

 

 

44,116

 

Loss on sale/disposal of assets

 

 

493

 

 

 

1,530

 

Amortization of debt issuance costs

 

 

5,770

 

 

 

3,853

 

Provision for deferred income taxes

 

 

4,831

 

 

 

3,681

 

Non-cash equity-based compensation expense

 

 

19,453

 

 

 

14,934

 

Excess tax benefits from equity-based compensation

 

 

(18,258

)

 

 

(56,862

)

Provision for losses on accounts and notes receivable

 

 

532

 

 

 

1,536

 

Unrealized gain on investments

 

 

(2,500

)

 

 

 

Changes in operating assets and liabilities

 

 

20,212

 

 

 

(14,146

)

Changes in advertising fund assets and liabilities, restricted

 

 

49,067

 

 

 

32,358

 

Net cash provided by operating activities

 

 

484,601

 

 

 

370,399

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(50,652

)

 

 

(51,163

)

Purchase of investments

 

 

(40,000

)

 

 

(40,000

)

Other

 

 

306

 

 

 

94

 

Net cash used in investing activities

 

 

(90,346

)

 

 

(91,069

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

1,850,000

 

 

 

158,000

 

Repayments of long-term debt and finance lease obligations

 

 

(896,193

)

 

 

(190,843

)

Proceeds from exercise of stock options

 

 

15,948

 

 

 

26,526

 

Purchases of common stock

 

 

(1,104,687

)

 

 

(79,590

)

Tax payments for restricted stock upon vesting

 

 

(6,817

)

 

 

(6,584

)

Payments of common stock dividends and equivalents

 

 

(71,218

)

 

 

(61,093

)

Cash paid for financing costs

 

 

(14,938

)

 

 

 

Other

 

 

(244

)

 

 

 

Net cash used in financing activities

 

 

(228,149

)

 

 

(153,584

)

Effect of exchange rate changes on cash

 

 

58

 

 

 

243

 

Change in cash and cash equivalents, restricted cash and cash equivalents

 

 

166,164

 

 

 

125,989

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

168,821

 

 

 

190,615

 

Restricted cash and cash equivalents, beginning of period

 

 

217,453

 

 

 

209,269

 

Cash and cash equivalents included in advertising fund assets, restricted,
   beginning of period

 

 

115,872

 

 

 

84,040

 

Cash and cash equivalents, restricted cash and cash equivalents and cash and
   cash equivalents included in advertising fund assets, restricted, beginning of period

 

 

502,146

 

 

 

483,924

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 

295,352

 

 

 

330,719

 

Restricted cash and cash equivalents, end of period

 

 

206,274

 

 

 

160,330

 

Cash and cash equivalents included in advertising fund assets, restricted,
   end of period

 

 

166,684

 

 

 

118,864

 

Cash and cash equivalents, restricted cash and cash equivalents and cash and
   cash equivalents included in advertising fund assets, restricted, end of period

 

$

668,310

 

 

$

609,913

 

 

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)

September 12, 2021

 

 

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 January 3, 2021 included in the Company’s 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 25, 2021 (the “2020 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 12, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2022.

 

2. Segment Information

 

The following tables summarize revenues 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. Intersegment revenues are comprised of sales of food, equipment and supplies from the supply chain segment to the Company-owned stores in the U.S. stores segment. Intersegment sales prices are market based. The “Other” column as it relates to Segment Income below primarily includes corporate administrative costs that are not allocable to a reportable segment, including labor, computer expenses, professional fees, travel and entertainment, rent, insurance and other corporate administrative costs.

 

 

Fiscal Quarters Ended September 12, 2021 and September 6, 2020

 

 

 

U.S.

 

 

Supply

 

 

International

 

 

Intersegment

 

 

 

 

 

 

 

 

 

Stores

 

 

Chain

 

 

Franchise

 

 

Revenues

 

 

Other

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

$

338,618

 

 

$

619,840

 

 

$

70,553

 

 

$

(31,021

)

 

$

 

 

$

997,990

 

2020

 

 

339,456

 

 

 

605,481

 

 

 

54,602

 

 

 

(31,820

)

 

 

 

 

 

967,719

 

Segment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

$

101,968

 

 

$

53,579

 

 

$

57,311

 

 

N/A

 

 

$

(10,010

)

 

$

202,848

 

2020

 

 

101,513

 

 

 

51,114

 

 

 

44,461

 

 

N/A

 

 

 

(13,689

)

 

 

183,399

 

 

 

 

Three Fiscal Quarters Ended September 12, 2021 and September 6, 2020

 

 

 

U.S.

 

 

Supply

 

 

International

 

 

Intersegment

 

 

 

 

 

 

 

 

 

Stores

 

 

Chain

 

 

Franchise

 

 

Revenues

 

 

Other

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

$

1,046,973

 

 

$

1,854,609

 

 

$

207,068

 

 

$

(94,490

)

 

$

 

 

$

3,014,160

 

2020

 

 

975,140

 

 

 

1,717,225

 

 

 

160,202

 

 

 

(91,723

)

 

 

 

 

 

2,760,844

 

Segment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

$

321,252

 

 

$

164,723

 

 

$

168,145

 

 

N/A

 

 

$

(25,726

)

 

$

628,394

 

2020

 

 

292,724

 

 

 

159,455

 

 

 

124,375

 

 

N/A

 

 

 

(34,376

)

 

 

542,178

 

 

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

 

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended

 

 

 

September 12,

 

 

September 6,

 

 

September 12,

 

 

September 6,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Total Segment Income

 

$

202,848

 

 

$

183,399

 

 

$

628,394

 

 

$

542,178

 

Depreciation and amortization

 

 

(16,578

)

 

 

(15,327

)

 

 

(50,219

)

 

 

(44,116

)

Loss on sale/disposal of assets

 

 

(37

)

 

 

(986

)

 

 

(493

)

 

 

(1,530

)

Non-cash equity-based compensation expense

 

 

(5,953

)

 

 

(4,905

)

 

 

(19,453

)

 

 

(14,934

)

Recapitalization-related expenses

 

 

 

 

 

 

 

 

(509

)

 

 

 

Income from operations

 

 

180,280