The accompanying notes are an integral part of these consolidated statements.
The accompanying notes are an integral part of these consolidated statements.
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
|
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Description of
Business
Dominos Pizza, Inc. (DPI), a Delaware corporation, conducts its operations and derives substantially all
of its operating income and cash flows through its wholly-owned subsidiary, Dominos, Inc. (Dominos) and Dominos wholly-owned subsidiary, Dominos Pizza LLC (DPLLC). DPI and its wholly-owned subsidiaries
(collectively, the Company) are primarily engaged in the following business activities: (i) retail sales of food through Company-owned Dominos Pizza stores; (ii) sales of food, equipment and supplies to Company-owned and
franchised Dominos Pizza stores through Company-owned supply chain centers; and (iii) receipt of royalties and fees from domestic and international Dominos Pizza franchisees.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of DPI and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Companys fiscal year ends on the Sunday closest to December 31. The 2016 fiscal year ended on January 1, 2017, the 2015
fiscal year ended on January 3, 2016 and the 2014 fiscal year ended on December 28, 2014. The 2016 fiscal year consisted of
fifty-two
weeks, the 2015 fiscal year consisted of fifty-three weeks, and
the 2014 fiscal year consisted of
fifty-two
weeks.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase. These
investments are carried at cost, which approximates fair value.
Restricted Cash and Cash Equivalents
Restricted cash at January 1, 2017 includes $99.8 million of cash held for future principal and interest payments and
$26.7 million of cash held in a three-month interest reserve.
Restricted cash at January 3, 2016 includes $114.2 million
of cash held for future principal and interest payments, $26.7 million of cash held in a three-month interest reserve, and $40.0 million of cash held as collateral for outstanding letters of credit.
Inventories
Inventories
are valued at the lower of cost (on a
first-in,
first-out
basis) or market. Inventories at January 1, 2017 and January 3, 2016 are comprised of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Food
|
|
$
|
36,644
|
|
|
$
|
30,167
|
|
Equipment and supplies
|
|
|
3,537
|
|
|
|
6,694
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
40,181
|
|
|
$
|
36,861
|
|
|
|
|
|
|
|
|
|
|
Other Assets
Current and long-term other assets primarily include prepaid expenses such as insurance, rent and taxes, deposits, notes receivable, as well
as covenants
not-to-compete
and other intangible assets primarily arising from franchise acquisitions. As of January 1, 2017 and January 3, 2016, all
intangible assets with useful lives were fully amortized.
48
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost. Repair and maintenance costs are expensed as incurred.
Depreciation
and amortization expense is provided using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives, other than the estimated useful life of the capital lease assets as described below, are generally as
follows (in years):
|
|
|
Buildings
|
|
20
|
Leasehold and other improvements
|
|
7 15
|
Equipment
|
|
3 15
|
Included in land and buildings as of January 1, 2017 and January 3, 2016 are capital lease assets of
approximately $4.7 million and $5.1 million, which are net of $5.8 million and $5.4 million of accumulated amortization, respectively, primarily related to the lease of a supply chain center building, and to a lesser extent, the
lease of a Company-owned store. The capital lease assets are being amortized using the straight-line method over the respective lease terms.
Depreciation and amortization expense on property, plant and equipment was approximately $27.3 million, $24.1 million and
$28.4 million in 2016, 2015 and 2014, respectively.
Impairments of Long-Lived Assets
The Company evaluates the potential impairment of long-lived assets at least annually based on various analyses including the projection of
undiscounted cash flows and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. For Company-owned stores, the Company performs this evaluation on an operating market basis, which the
Company has determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows. If the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that
asset, the Company estimates the fair value of the assets. If the carrying amount of the asset exceeds the estimated fair value of the asset, an impairment loss is recognized and the asset is written down to its estimated fair value.
During the fourth quarter of 2014, in connection with meeting
held-for-sale
criteria for its corporate airplane, the Company recorded $5.8 million of
pre-tax
expense to reduce the asset
to its fair value less cost to sell. This impairment loss was recorded in general and administrative expenses on the consolidated statements of income. Aside from the impairment loss in 2014, the Company did not record an impairment loss on
long-lived assets in 2016, 2015, or 2014.
Investments in Marketable Securities
Investments in marketable securities consist of investments in various mutual funds made by eligible individuals as part of the Companys
deferred compensation plan (Note 7). These investments are stated at aggregate fair value, are restricted and have been placed in a rabbi trust whereby the amounts are irrevocably set aside to fund the Companys obligations under the deferred
compensation plan. The Company classifies and accounts for these investments in marketable securities as trading securities.
Debt
Issuance Costs
Debt issuance costs primarily include the expenses incurred by the Company as part of the 2012 and 2015
Recapitalizations (Note 4). Amortization is provided on a straight-line basis (which is materially consistent with the effective interest method) over the expected term of the respective debt instrument to which the costs relate and is included in
interest expense.
49
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In connection with the 2012 Recapitalization, the Company recorded $39.9 million of
debt issuance costs. In connection with the 2015 Recapitalization, the Company
wrote-off
approximately $6.9 million of these costs in connection with the extinguishment of $551.3 million of the 2012
Fixed Rate Notes (Note 4). The remaining debt issuance costs related to the 2012 Recapitalization are being amortized into interest expense over the seven-year expected term of the 2012 Fixed Rate Notes. Additionally, in connection with the 2015
Recapitalization, the Company recorded $17.4 million of debt issuance costs, which are being amortized into interest expense over the five and
ten-year
expected terms of the 2015 Fixed Rate Notes (Note
4).
In connection with the aforementioned
write-off
of debt issuance costs and scheduled
principal payments of its Fixed Rate Notes (Note 4), the Company expensed debt issuance costs of approximately $0.6 million, $6.9 million and $0.2 million in 2016, 2015 and 2014, respectively. Debt issuance cost expense, including the
aforementioned amounts, was approximately $6.4 million, $12.4 million and $5.7 million in 2016, 2015 and 2014, respectively.
Goodwill
The
Companys goodwill amounts primarily relate to franchise store acquisitions and are not amortized. The Company performs its required impairment tests in the fourth quarter of each fiscal year and did not recognize any goodwill impairment
charges in 2016, 2015 or 2014.
Capitalized Software
Capitalized software is recorded at cost and includes purchased, internally-developed and externally-developed software used in the
Companys operations. Amortization expense is provided using the straight-line method over the estimated useful lives of the software, which range from one to three years. Capitalized software amortization expense was approximately
$10.8 million, $8.3 million and $7.3 million in 2016, 2015 and 2014, respectively. The Company received $4.4 million, $3.9 million and $3.4 million from franchisees from enhancements of internally developed
point-of-sale
software during 2016, 2015 and 2014, respectively. The Company also received $2.0 million, $1.8 million, and $0.9 million from franchisees for
software licenses and software development work during 2016, 2015 and 2014, respectively.
Insurance Reserves
The Company has retention programs for workers compensation, general liability and owned and
non-owned
automobile liabilities for certain periods prior to December 1998 and for periods after December 2001. The Company is generally responsible for up to $1.0 million per occurrence under these
retention programs for workers compensation and general liability exposures. The Company is also generally responsible for between $500,000 and $3.0 million per occurrence under these retention programs for owned and
non-owned
automobile liabilities depending on the year. Total insurance limits under these retention programs vary depending on the year covered and range up to $110.0 million per occurrence for general
liability and owned and
non-owned
automobile liabilities and up to the applicable statutory limits for workers compensation.
Insurance reserves relating to our retention programs are based on undiscounted actuarial estimates. These estimates are based on historical
information and on certain assumptions about future events. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause these estimates to change in the near term. The Company
receives estimates of outstanding insurance exposures from its independent actuary and differences between these estimated actuarial exposures and the Companys recorded amounts are adjusted as appropriate.
Other Accrued Liabilities
Current and long-term other accrued liabilities primarily include accruals for income, sales, property and other taxes, legal reserves, store
operating expenses, deferred rent expense, dividends payable and deferred compensation liabilities.
50
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Foreign Currency Translation
The Companys foreign entities use their local currency as the functional currency. For these entities, the Company translates net assets
into U.S. dollars at year end exchange rates, while income and expense accounts are translated at average annual exchange rates. Currency translation adjustments are included in accumulated other comprehensive income (loss) and foreign currency
transaction gains and losses are included in determining net income.
Revenue Recognition
Domestic Company-owned stores revenues are comprised of retail sales of food through Company-owned Dominos Pizza stores located in the
contiguous United States and are recognized when the items are delivered to or carried out by customers.
Domestic franchise revenues are
primarily comprised of royalties and fees from Dominos Pizza franchisees with operations in the contiguous United States. Royalty revenues are recognized when the items are delivered to or carried out by franchise customers.
Supply chain revenues are primarily comprised of sales of food, equipment and supplies to franchised Dominos Pizza stores located in the
United States and Canada. Revenues from the sales of food are recognized upon delivery of the food to franchisees, while revenues from the sales of equipment and supplies are generally recognized upon shipment of the related products to franchisees.
International franchise revenues are primarily comprised of royalties and fees from Dominos Pizza franchisees outside the
contiguous United States. These revenues are recognized consistently with the policies applied for franchise revenues generated in the contiguous United States.
Supply Chain Profit-Sharing Arrangements
The Company enters into profit-sharing arrangements with domestic and Canadian stores that purchase all of their food from Supply Chain (Note
11). These profit-sharing arrangements generally offer Company-owned stores and participating franchisees with 50% (or a higher percentage in the case of Company-owned stores and certain franchisees who operate a larger number of stores) of their
regional supply chain centers
pre-tax
profits based upon each stores purchases from the supply chain center. Profit-sharing obligations are recorded as a revenue reduction in Supply Chain in the
same period as the related revenues and costs are recorded, and were $99.8 million, $85.8 million and $75.7 million in 2016, 2015 and 2014, respectively.
Advertising
Advertising
costs are expensed as incurred. Advertising expense, which relates primarily to Company-owned stores, was approximately $34.5 million, $32.0 million and $29.0 million during 2016, 2015 and 2014, respectively.
Domestic Stores (Note 11) are required to contribute a certain percentage of sales to the Dominos National Advertising Fund Inc.
(DNAF), a
not-for-profit
subsidiary that administers the Dominos Pizza systems national and market level advertising activities in the United
States. Included in advertising expense were national advertising contributions from Company-owned stores to DNAF of approximately $26.1 million, $23.2 million and $20.9 million in 2016, 2015 and 2014, respectively. DNAF also received
national advertising contributions from franchisees of approximately $283.7 million, $247.0 million and $217.7 million during 2016, 2015 and 2014, respectively. Franchisee contributions to DNAF and offsetting disbursements are
presented net in the accompanying statements of income.
DNAF assets, consisting primarily of cash received from franchisees and accounts
receivable from franchisees, can only be used for activities that promote the Dominos Pizza
®
brand. Accordingly, all assets held by the DNAF are considered restricted.
51
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Rent
The Company leases certain equipment, vehicles, retail store and supply chain center locations and its corporate headquarters under operating
leases with expiration dates through 2029. Rent expenses totaled approximately $49.9 million, $46.1 million and $43.0 million during 2016, 2015 and 2014, respectively.
Common Stock Dividends
During 2016, the Company declared and paid dividends of approximately $74.0 million, or $1.52 per share.
During 2015, the Company declared and paid dividends of approximately $66.5 million, or $1.24 per share.
During 2014, the Company declared dividends of approximately $55.3 million, or $1.00 per share, of which approximately $41.7 million
were paid in 2014. The third quarter 2014 dividend of approximately $13.8 million was paid to shareholders on December 30, 2014, which was included in fiscal 2015. The third quarter 2013 dividend of approximately $11.1 million
was paid to shareholders on December 30, 2013, which was included in fiscal 2014.
Derivative Instruments
The Company recognizes all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value. The
Company had no outstanding derivative instruments as of January 1, 2017 and January 3, 2016.
Stock Options and Other
Equity-Based Compensation Arrangements
The cost of all of the Companys stock options, as well as other equity-based
compensation arrangements, is reflected in the financial statements based on the estimated fair value of the awards.
Earnings Per
Share
The Company discloses two calculations of earnings per share (EPS): basic EPS and diluted EPS. The numerator in
calculating common stock basic and diluted EPS is consolidated net income. The denominator in calculating common stock basic EPS is the weighted average shares outstanding. The denominator in calculating common stock diluted EPS includes the
additional dilutive effect of outstanding stock options and unvested restricted stock grants and unvested performance-based restricted stock grants.
Supplemental Disclosures of Cash Flow Information
The Company paid interest of approximately $104.6 million, $80.8 million and $81.1 million during 2016, 2015 and 2014,
respectively. Cash paid for income taxes was approximately $74.3 million, $80.1 million and $76.5 million in 2016, 2015 and 2014, respectively.
The Company had $3.8 million and $0.8 million of
non-cash
investing activities related to
accruals for capital expenditures in 2016 and 2015, respectively. The Company also had
non-cash
financing activities related to capital assets and liabilities in 2015. Specifically, the Company recorded
$3.4 million for the renewal of a capital lease of a supply chain center building in the first quarter of 2015, and recorded $0.6 million as a result of entering into a capital lease for a corporate store in the third quarter of 2015.
52
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
New Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU)
2014-15,
Presentation of Financial Statements Going Concern (Subtopic
205-40):
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going
Concern
. ASU
2014-15
requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entitys ability to
continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU
2014-15
is effective for the annual period ending after December 15,
2016, and for annual periods and interim periods thereafter. The Company has completed its evaluation as of January 1, 2017, and concluded that there are no conditions or events that raise substantial doubt about the entitys ability to
continue as a going concern under ASU
2014-15.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
. ASU
2016-02
requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months.
ASU
2016-02
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Based on a preliminary assessment, the Company
expects the adoption of this guidance to have a material impact on its assets and liabilities due to the recognition of
right-of-use
assets and lease liabilities on its
consolidated balance sheets at the beginning of the earliest period presented. The Company is continuing its assessment, which may identify additional impacts this guidance will have on its consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU
2016-04,
Liabilities Extinguishment of Liabilities
(Subtopic
405-20):
Recognition of Breakage for Certain Prepaid Stored-Value Products
. ASU
2016-04
aligns recognition of the financial liabilities related to prepaid
stored-value products (for example, gift cards) with Topic 606,
Revenues from Contracts with Customers
, for
non-financial
liabilities. In general, these liabilities may be extinguished proportionately
in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to the unredeemed stored value. ASU
2016-04
is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2017, and early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
. ASU
2016-09
is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact,
classification on the statement of cash flows and forfeitures. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Based on a preliminary
assessment, the Company expects the initial adoption of this guidance to not be material to its consolidated financial statements. Subsequent to adoption, the impact of the standard will be dependent on a number of factors, including the market
value per share of the Companys common stock at restricted stock vesting dates and the number of stock options that are exercised, as excess tax benefits or deficiencies will be reflected in the consolidated statements of income as a component
of the provision for income taxes. The Company expects that the subsequent impact of adoption of this guidance will likely be material to the Companys consolidated financial statements.
In March 2016, the FASB issued ASU
2016-08,
Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. In April 2016, the FASB issued ASU
2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensing
. In May 2016, the FASB issued ASU
2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
and ASU
2016-11,
Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates
2014-09
and
2014-16
Pursuant to Staff Announcements at the March
3, 2016 EITF Meeting
. In December 2016, the FASB issued ASU
2016-20,
Technical Corrections and
Improvements to Topic 606, Revenue from Contracts with Customers
. These amendments provide additional clarification and implementation guidance on the previously issued ASU
2014-09,
Revenue from
Contracts with Customers (Topic 606)
.
53
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The amendments in ASU
2016-08
clarify how an entity
should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. ASU
2016-10
clarifies the following two
aspects of ASU
2014-09:
identifying performance obligations and licensing implementation guidance. ASU
2016-11
rescinds several SEC Staff Announcements that are codified
in Topic 605, including, among other items, guidance relating to accounting for consideration given by a vendor to a customer, as well as accounting for shipping and handling fees and freight services. ASU
2016-12
provides clarification to Topic 606 on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition. ASU
2016-12
clarifies that an entity retrospectively applying the guidance in Topic 606 is not required to disclose the effect of the accounting change in the period of adoption. Additionally, ASU
2016-20
clarify certain narrow aspects within Topic 606 including its scope, contract cost accounting, and disclosures. The effective date and transition requirements for these amendments are the same as the
effective date and transition requirements of ASU
2014-09,
which is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. The Company is currently
evaluating the overall impact that ASU
2014-09
and its related amendments will have on the Companys consolidated financial statements, as well as the expected timing and method of adoption. Based on a
preliminary assessment, the adoption of this guidance is not expected to impact the Companys recognition of sales from Company-owned stores, ongoing royalty fees which are based on a percentage of franchise sales, or revenues from supply chain
centers. The Company is continuing to evaluate the impact of the adoption of this guidance on the recognition of less significant revenues such as development fees, franchise fees, and technology fees.
In June 2016, the FASB issued ASU
2016-13,
Measurement of Credit Losses on Financial
Instruments
. ASU
2016-13
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. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. The Company
does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In August 2016, the
FASB issued ASU
2016-15,
Classification of Certain Cash Receipts and Cash Payments
. ASU
2016-15
addresses how certain cash receipts and cash payments are
presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU
2016-15
is effective for annual reporting periods, and interim periods therein, beginning
after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU
2016-18
, Statement of Cash Flows (Topic 230): Restricted
Cash
. ASU
2016-18
requires that entities show the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. ASU
2016-18
is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this
guidance to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU
2017-03,
Accounting Changes and Error Corrections (Topic 250) and Investments Equity Method and Joint Ventures (Topic 323):
Amendments to SEC Paragraphs Pursuant to Staff Announcements at the
September
22, 2017 and November
17, 2016 EITF Meetings
. ASU
2017-03
responds to SEC staff announcements made in 2016 as it relates to the disclosure of the future
impact of the effects of the new FASB guidance on revenue, leases and credit losses on financial instruments in accordance with Staff Accounting Bulletin 74. ASU
2017-03
was effective upon issuance in January
2017. As of January 1, 2017, the Company has adopted ASU
2017-03
and have made the required disclosures within this section of the Form
10-K.
54
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In January 2017, the FASB issued ASU
2017-04
,
Intangibles Goodwill and Other (Topic 35): Simplifying the Test for Goodwill Impairment
, or ASU
2017-04.
ASU
2017-04
simplifies the subsequent measurement of
goodwill by eliminating Step 2 from the goodwill impairment test. ASU
2017-04
is effective for public companies annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted for annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
Accounting standards that have been issued by the FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material impact on the Companys consolidated financial statements upon adoption.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The computation of basic and diluted earnings per common share is
as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income available to common stockholders basic and diluted
|
|
$
|
214,678
|
|
|
$
|
192,789
|
|
|
$
|
162,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
48,647,167
|
|
|
|
53,828,609
|
|
|
|
54,918,471
|
|
Earnings per common share basic
|
|
$
|
4.41
|
|
|
$
|
3.58
|
|
|
$
|
2.96
|
|
Diluted weighted average number of common shares
|
|
|
49,923,859
|
|
|
|
55,532,955
|
|
|
|
56,931,226
|
|
Earnings per common share diluted
|
|
$
|
4.30
|
|
|
$
|
3.47
|
|
|
$
|
2.86
|
|
The denominators used in calculating diluted earnings per share for common stock do not include 121,075 options
to purchase common stock in 2016, 188,080 options to purchase common stock in 2015 and 222,060 options to purchase common stock in 2014, as the effect of including these options would be anti-dilutive. The denominators used in calculating diluted
earnings per share for common stock do not include 86,010 restricted performance shares in 2016, 59,580 restricted performance shares in 2015 and 104,740 restricted performance shares in 2014, as the effect of including these shares would be
anti-dilutive.
(3)
|
FAIR VALUE MEASUREMENTS
|
Fair value measurements enable the reader of the financial
statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities
carried at fair value in one of the following three categories:
|
|
|
Level 1:
|
|
Quoted market prices in active markets for identical assets or liabilities.
|
Level 2:
|
|
Observable market based inputs or unobservable inputs that are corroborated by market data.
|
Level 3:
|
|
Unobservable inputs that are not corroborated by market data.
|
55
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The fair values of the Companys cash equivalents and investments in marketable
securities are based on quoted prices in active markets for identical assets. The following table summarizes the carrying amounts and fair values of certain assets at January 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2017
|
|
|
|
|
|
|
Fair Value Estimated Using
|
|
|
|
Carrying Amount
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
Cash equivalents
|
|
$
|
7,017
|
|
|
$
|
7,017
|
|
|
$
|
|
|
|
$
|
|
|
Restricted cash equivalents
|
|
|
69,113
|
|
|
|
69,113
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities
|
|
|
7,260
|
|
|
|
7,260
|
|
|
|
|
|
|
|
|
|
The following table summarizes the carrying amounts and fair values of certain assets at January 3,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 3, 2016
|
|
|
|
|
|
|
Fair Value Estimated Using
|
|
|
|
Carrying Amount
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
Cash equivalents
|
|
$
|
108,766
|
|
|
$
|
108,766
|
|
|
$
|
|
|
|
$
|
|
|
Restricted cash equivalents
|
|
|
128,554
|
|
|
|
128,554
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities
|
|
|
6,054
|
|
|
|
6,054
|
|
|
|
|
|
|
|
|
|
(4)
|
RECAPITALIZATIONS AND FINANCING ARRANGEMENTS
|
On October 21, 2015, the Company completed
a recapitalization transaction (the 2015 Recapitalization) by issuing $1.3 billion aggregate principal amount of fixed rate notes consisting of $500.0 million Series
2015-1
3.484% Fixed
Rate Senior Secured Notes,
Class A-2-I
(the 2015 Five-Year Notes) and $800.0 million Series
2015-1
4.474%
Fixed Rate Senior Secured Notes,
Class A-2-II
(the 2015
Ten-Year
Notes and, together with the 2015 Five-Year
Notes, the 2015 Fixed Rate Notes). Concurrently, the Company also issued a revolving financing facility which allows for advances of up to $125.0 million of Series
2015-1
Variable Funding
Senior Secured Notes,
Class A-1
(the 2015 Variable Funding Notes) and issuances of letters of credit. The 2015 Variable Funding Notes were undrawn upon issuance. Gross proceeds from the
issuance of the 2015 Fixed Rate Notes were $1.3 billion. The 2015 Fixed Rate Notes and the 2015 Variable Funding Notes are referred to collectively as the 2015 Notes.
The Companys previous refinancing transaction occurred in April 2012 (the 2012 Recapitalization), with the issuance of
$1.575 billion of Series
2012-1
5.216% Fixed Rate Senior Secured Notes,
Class A-2
(the 2012 Fixed Rate Notes) and a revolving financing facility
that allowed for advances of up to $100.0 million of Series
2012-1
Variable Funding Senior Secured Notes,
Class A-1
Notes (the 2012 Variable Funding
Notes). The 2012 Fixed Rate Notes and the 2012 Variable Funding Notes are referred to collectively as the 2012 Notes. The 2012 Fixed Rate Notes and the 2015 Fixed Rate Notes are referred to collectively as the Fixed Rate
Notes. The 2012 Notes and the 2015 Notes are referred to collectively as the Notes.
A portion of proceeds from the 2015
Recapitalization were used to make an optional prepayment of approximately $551.3 million in aggregate principal amount of the 2012 Fixed Rate Notes, at par, pay scheduled principal
catch-up
amounts on
the 2012 Fixed Rate Notes, make an interest reserve deposit,
pre-fund
a portion of the principal and interest payable on the 2015 Fixed Rate Notes and pay transaction fees and expenses. In connection with
the issuance and sale of the 2015 Variable Funding Notes, the Company permanently reduced to zero the commitment to fund the 2012 Variable Funding Notes and the 2012 Variable Funding Notes were cancelled.
56
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Additionally, as part of the 2015 Recapitalization, on October 23, 2015, the
Companys Board of Directors authorized a share repurchase program to repurchase up to $800.0 million of the Companys common stock. This repurchase program replaced the remaining availability under the Companys previously
disclosed $200.0 million share repurchase program. On October 27, 2015, the Company entered into a $600.0 million accelerated share repurchase agreement (the ASR Agreement) with a counterparty. Pursuant to the terms of the
ASR Agreement, on October 30, 2015, as part of its $800.0 million share repurchase authorization, the Company used a portion of the proceeds from the 2015 Recapitalization to pay the counterparty $600.0 million in cash and received
4,858,994 shares of the Companys common stock. During the first quarter of 2016, the Company received and retired 456,936 shares of its common stock in connection with the final settlement of its $600.0 million accelerated share
repurchase program.
2015 Fixed Rate Notes
The 2015 Fixed Rate Notes have remaining scheduled principal payments of $13.0 million in each of 2017, 2018 and 2019,
$488.0 million in 2020, $8.0 million in each of 2021, 2022, 2023, and 2024, and $728.0 million in 2025. During fiscal 2016, the Company made principal payments of approximately $13.0 million on the 2015 Fixed Rate Notes.
The legal final maturity date of the 2015 Fixed Rate Notes is in October 2045, but it is anticipated that, unless earlier prepaid to the
extent permitted under the related debt agreements, the 2015 Five-Year Notes will be repaid on or prior to the anticipated repayment date occurring in October 2020 and the 2015
Ten-Year
Notes will be repaid on
or prior to the anticipated repayment date occurring in October 2025. If the Company has not repaid or refinanced the 2015 Fixed Rate Notes prior to the applicable anticipated repayment date, additional interest will accrue of at least 5% per annum,
as defined in the related agreements.
2015 Variable Funding Notes
The 2015 Variable Funding Notes allow for advances of up to $125.0 million and issuance of letters of credit. Interest on the 2015
Variable Funding Notes will be payable at a per year rate equal to LIBOR plus 219 basis points. The 2015 Variable Funding Notes were undrawn at closing. The unused portion of the 2015 Variable Funding Notes is subject to a commitment fee ranging
from 50 to 100 basis points depending on utilization. It is anticipated that any amounts outstanding on the 2015 Variable Funding Notes will be repaid in full on or prior to October 2020, subject to two additional
one-year
extensions at the option of the Company, subject to certain conditions. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue on the 2015 Variable
Funding Notes equal to 5% per annum. At January 1, 2017, there were $44.3 million of letters of credit and $80.7 million of borrowing capacity under the $125.0 million 2015 Variable Funding Notes.
2012 Fixed Rate Notes
The 2012 Fixed Rate Notes have remaining scheduled principal payments of $25.6 million in each of 2017 and 2018, and $865.4 million
in 2019. During fiscal 2016, the Company made principal payments of approximately $46.1 million on the 2012 Fixed Rate Notes. The expected repayment date for the 2012 Fixed Rate Notes is January 2019, with legal final maturity in January 2042.
2012 Variable Funding Notes
In connection with the 2015 Recapitalization, the 2012 Variable Funding Notes were cancelled. The 2012 Variable Funding Notes allowed for the
issuance of up to $100.0 million of financing and certain other credit instruments, including letters of credit in support of various obligations of the Company.
57
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Guarantees and Covenants of the Notes
The Notes are guaranteed by six subsidiaries of DPLLC and secured by a security interest in substantially all of the assets of the Company,
including royalty and certain other income from all domestic and international stores, domestic supply chain income and intellectual property. The restrictions placed on the Companys subsidiaries require that the Companys principal and
interest obligations have first priority and amounts are segregated weekly to ensure appropriate funds are reserved to pay the quarterly interest amounts due. The amount of weekly cash flow that exceeds the required weekly interest reserve is
generally remitted to the Company in the form of a dividend. However, once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the subsidiaries.
The Fixed Rate Notes are subject to certain financial and
non-financial
covenants, including a debt
service coverage ratio calculation, as defined in the related agreements. The covenants, among other things, may limit the ability of certain of our subsidiaries to declare dividends, make loans or advances or enter into transactions with
affiliates. In the event that certain covenants are not met, the Fixed Rate Notes may become partially or fully due and payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Fixed Rate Notes at
any time, subject to certain make-whole interest obligations. All make-whole interest obligations on the 2015 Five-Year Notes cease after April 2018. The 2015
Ten-Year
Notes are callable at 101% in 2018,
subject to certain conditions as defined in the related debt agreements, and all make-whole interest obligations on the 2015
Ten-Year
Notes cease after October 2022. All make-whole interest obligations on the
2012 Fixed Rate Notes cease after July 2017.
While the Fixed Rate Notes are outstanding, scheduled payments of principal and interest are
required to be made on a quarterly basis. The payment of principal of the Fixed Rate Notes (i) shall be suspended if the leverage ratios for the Company are less than or equal to 4.5x total debt to EBITDA and there are no scheduled
principal
catch-up
amounts outstanding; provided, that during any such suspension, principal payments will continue to accrue and are subject to
catch-up
upon failure to
satisfy the aforementioned leverage ratios on an ongoing basis, or (ii) on and after the payment in full of the 2012 Fixed Rate Notes, may be suspended if certain leverage ratios for the Company are less than or equal to 5.0x total debt to
EBITDA and no
catch-up
provisions are applicable. During the second quarter of 2014, the Company met the maximum leverage ratios of less than 4.5x, and, in accordance with the debt agreements, ceased debt
amortization payments in the third quarter of 2014. The Company continued to meet the maximum leverage ratios of less than 4.5x in each of the quarters prior to the 2015 Recapitalization and accordingly, did not make previously scheduled debt
amortization payments in accordance with the debt agreements. Subsequent to the 2015 Recapitalization, the Companys leverage ratios exceeded 4.5x and, accordingly, the Company began making the scheduled amortization payments as well as the
required
catch-up
payments.
Fair Value Disclosures
Management estimated the approximate fair values of the 2012 Fixed Rate Notes and the 2015 Fixed Rate Notes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
January 3, 2016
|
|
|
|
Principal Amount
|
|
|
Fair Value
|
|
|
Principal Amount
|
|
|
Fair Value
|
|
2012 Fixed Rate Notes
|
|
$
|
916,650
|
|
|
$
|
932,233
|
|
|
$
|
962,719
|
|
|
$
|
991,601
|
|
2015 Five-Year Notes
|
|
|
495,000
|
|
|
|
485,595
|
|
|
|
500,000
|
|
|
|
489,500
|
|
2015
Ten-Year
Notes
|
|
|
792,000
|
|
|
|
765,864
|
|
|
|
800,000
|
|
|
|
781,600
|
|
The Fixed Rate Notes are classified as a Level 2 measurement (Note 3), as the Company estimated the fair
value amount by using available market information. The Company obtained broker quotes from two separate brokerage firms that are knowledgeable about the Companys Fixed Rate Notes and, at times, trade these notes. Further, the Company performs
its own internal analysis based on the information it gathers from public markets, including information on notes that are similar to that of the Company. However, considerable judgment is required in interpreting market data to develop estimates of
fair value.
58
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accordingly, the fair value estimates presented herein 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 calculated above.
Debt Issuance Costs and Transaction-Related Expenses
In connection with the 2012 Recapitalization, the Company recorded $39.9 million of debt issuance costs. In connection with the 2015
Recapitalization, the Company
wrote-off
approximately $6.9 million of these costs in connection with the extinguishment of $551.3 million of the 2012 Fixed Rate Notes. The remaining debt issuance
costs related to the 2012 Recapitalization are being amortized into interest expense over the seven-year expected term of the 2012 Fixed Rate Notes. Additionally, in connection with the 2015 Recapitalization, the Company recorded $17.4 million
of debt issuance costs, which are being amortized into interest expense over the five and
ten-year
expected terms of the 2015 Fixed Rate Notes.
During fiscal 2015 and in connection with the 2015 Recapitalization, the Company incurred approximately $8.1 million of net expenses.
This consisted primarily of the aforementioned $6.9 million net
write-off
of deferred financing fees. The Company also incurred approximately $0.4 million of interest expense on the 2012 Fixed Rate
Notes subsequent to the closing of the 2015 Recapitalization but prior to the repayment of the 2012 Fixed Rate Notes, resulting in the payment of interest on both the full amount of the 2012 and 2015 Fixed Rate Notes for a short period of time.
Further, the Company incurred $0.9 million of other net 2015 Recapitalization-related general and administrative expenses, including legal and professional fees.
Consolidated Long-Term Debt
At January 1, 2017 and January 3, 2016, consolidated long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
5.216%
Class A-2
Notes; expected repayment date
January 2019; legal final maturity January 2042
|
|
$
|
916,650
|
|
|
$
|
962,719
|
|
3.484%
Class A-2-I
Notes; expected repayment date October 2020; legal final maturity October 2045
|
|
|
495,000
|
|
|
|
500,000
|
|
4.474%
Class A-2-II
Notes; expected repayment date October 2025; legal final maturity October 2045
|
|
|
792,000
|
|
|
|
800,000
|
|
2015 Variable Funding Notes
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
5,730
|
|
|
|
5,996
|
|
Debt issuance costs, net of accumulated amortization of $21.1 million in 2016 and
$14.7 million in 2015
|
|
|
(21,503
|
)
|
|
|
(27,922
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,187,877
|
|
|
|
2,240,793
|
|
Less current portion
|
|
|
38,887
|
|
|
|
59,333
|
|
|
|
|
|
|
|
|
|
|
Consolidated long-term debt, net of debt issuance costs
|
|
$
|
2,148,990
|
|
|
$
|
2,181,460
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2017, maturities of long-term debt and capital lease obligations are as follows (in
thousands):
|
|
|
|
|
2017
|
|
$
|
38,887
|
|
2018
|
|
|
38,917
|
|
2019
|
|
|
878,821
|
|
2020
|
|
|
488,396
|
|
2021
|
|
|
8,440
|
|
Thereafter
|
|
|
755,919
|
|
|
|
|
|
|
|
|
$
|
2,209,380
|
|
|
|
|
|
|
59
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5)
|
COMMITMENTS AND CONTINGENCIES
|
Lease Commitments
As of January 1, 2017, the future minimum rental commitments for all
non-cancelable
leases are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
2017
|
|
$
|
45,279
|
|
|
$
|
823
|
|
|
$
|
46,102
|
|
2018
|
|
|
40,586
|
|
|
|
826
|
|
|
|
41,412
|
|
2019
|
|
|
34,832
|
|
|
|
828
|
|
|
|
35,660
|
|
2020
|
|
|
29,087
|
|
|
|
831
|
|
|
|
29,918
|
|
2021
|
|
|
25,427
|
|
|
|
833
|
|
|
|
26,260
|
|
Thereafter
|
|
|
55,916
|
|
|
|
5,179
|
|
|
|
61,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum rental commitments
|
|
$
|
231,127
|
|
|
|
9,320
|
|
|
$
|
240,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
|
|
|
|
(3,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal payable on capital leases
|
|
|
|
|
|
$
|
5,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Proceedings and Related Matters
The Company is a party to lawsuits, revenue agent reviews by taxing authorities and legal proceedings, of which the majority involve
workers compensation, employment practices liability, general liability and automobile and franchisee claims arising in the ordinary course of business. The Company records legal fees associated with loss contingencies when they are probable
and reasonably estimable.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable
with assurance. Included in the ordinary course litigation matters referenced above, the Company is party to three employment practice cases and two casualty cases. The Company has established legal and insurance accruals for losses relating to
these cases which management believes are reasonable based upon their assessment of the current facts and circumstances. However, it is reasonably possible that the ultimate losses could exceed the amounts recorded by $6.9 million. The
remaining cases referenced above could be decided unfavorably to the Company and could require the Company to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated with accuracy. In managements
opinion, these matters, individually and in the aggregate, should not have a significant adverse effect on the financial condition of the Company, and the established accruals adequately provide for the estimated resolution of such claims.
On February 14, 2011, Dominos Pizza LLC was named as a defendant in a lawsuit along with Fischler Enterprises of C.F., Inc., a
franchisee, and Jeffrey S. Kidd, the franchisees delivery driver, filed by Yvonne Wiederhold, the plaintiff, as Personal Representative of the Estate of Richard E. Wiederhold, deceased. The case involved a traffic accident in which the
franchisees delivery driver is alleged to have caused an accident involving a vehicle driven by Richard Wiederhold. Mr. Wiederhold sustained spinal injuries resulting in quadriplegia and passed away several months after the accident. The
jury returned a $10.1 million judgment for the plaintiff where the Company and Mr. Kidd were found to be 90% liable (after certain offsets and other deductions the final verdict was $8.9 million). In the second quarter of 2016, the trial
court ruled on all post-judgment motions and entered the judgment. The Company denies liability and in the third quarter of 2016 filed an appeal of the verdict on a variety of grounds.
60
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On September 11, 2012, Dominos Pizza LLC was named as a defendant in a lawsuit
along with MAC Pizza Management, Inc., a large franchisee, and Joshua Balka, the franchisees delivery driver, filed by Raghurami Reddy, the plaintiff. The case involved a traffic accident in which the franchisees delivery driver collided
with another vehicle, where the driver of the other vehicle sustained head injuries and the passenger of the other vehicle sustained fatal injuries. The jury delivered a $32.0 million judgment for the plaintiff where the Company was found to be
60% liable. The Company denied liability and filed an appeal of the verdict on a variety of grounds. In the first quarter of 2015, the appellate court reversed the trial courts decision and dismissed the claims against the Company. The
plaintiff filed a Petition for Review with the Supreme Court of the State of Texas. The Company filed opposition to the writ of review and asserted that the claims were appropriately dismissed by the Court of Appeals of the State of Texas. In
the second quarter of 2016, the Texas Supreme Court rejected the plaintiffs writ of certiorari, leaving the appellate courts favorable decision to stand. During the fourth quarter of 2016, the Plaintiff filed a petition for writ of
certiorari with the United States Supreme Court. In the fourth quarter of 2016, the United States Supreme Court denied the writ of certiorari. Plaintiff has exhausted all appellate rights and the Texas Court of Appeals order dismissing all claims
against Dominos Pizza LLC stands.
Income before provision for income taxes in 2016, 2015 and 2014 consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Domestic
|
|
$
|
334,892
|
|
|
$
|
298,055
|
|
|
$
|
250,730
|
|
Foreign
|
|
|
9,766
|
|
|
|
8,160
|
|
|
|
7,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
344,658
|
|
|
$
|
306,215
|
|
|
$
|
258,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the United States Federal statutory income tax provision (using the statutory rate of
35%) and the Companys consolidated provision for income taxes for 2016, 2015 and 2014 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal income tax provision based on the statutory rate
|
|
$
|
120,630
|
|
|
$
|
107,175
|
|
|
$
|
90,518
|
|
State and local income taxes, net of related Federal income taxes
|
|
|
9,787
|
|
|
|
8,589
|
|
|
|
7,320
|
|
Non-resident
withholding and foreign income taxes
|
|
|
17,275
|
|
|
|
15,750
|
|
|
|
15,032
|
|
Foreign tax and other tax credits
|
|
|
(20,049
|
)
|
|
|
(18,345
|
)
|
|
|
(17,397
|
)
|
Non-deductible
expenses, net
|
|
|
1,579
|
|
|
|
1,180
|
|
|
|
1,284
|
|
Valuation allowance
|
|
|
(120
|
)
|
|
|
(301
|
)
|
|
|
(369
|
)
|
Unrecognized tax benefits, net of related Federal income taxes
|
|
|
(98
|
)
|
|
|
110
|
|
|
|
(48
|
)
|
Other
|
|
|
976
|
|
|
|
(732
|
)
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,980
|
|
|
$
|
113,426
|
|
|
$
|
96,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of the 2016, 2015 and 2014 consolidated provision for income taxes are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Provision for Federal income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
$
|
100,673
|
|
|
$
|
84,071
|
|
|
$
|
70,958
|
|
Deferred provision (benefit)
|
|
|
(3,096
|
)
|
|
|
862
|
|
|
|
(873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for Federal income taxes
|
|
|
97,577
|
|
|
|
84,933
|
|
|
|
70,085
|
|
|
|
|
|
Provision for state and local income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
|
15,091
|
|
|
|
11,892
|
|
|
|
10,178
|
|
Deferred provision
|
|
|
37
|
|
|
|
851
|
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for state and local income taxes
|
|
|
15,128
|
|
|
|
12,743
|
|
|
|
10,919
|
|
|
|
|
|
Provision for
non-resident
withholding and foreign income
taxes
|
|
|
17,275
|
|
|
|
15,750
|
|
|
|
15,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,980
|
|
|
$
|
113,426
|
|
|
$
|
96,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2017 and January 3, 2016, the significant components of net deferred income taxes
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred Federal income tax assets
|
|
|
|
|
|
|
|
|
Insurance reserves
|
|
$
|
11,202
|
|
|
$
|
10,202
|
|
Equity compensation
|
|
|
11,978
|
|
|
|
12,040
|
|
Other accruals and reserves
|
|
|
18,741
|
|
|
|
14,411
|
|
Bad debt reserves
|
|
|
1,005
|
|
|
|
1,232
|
|
Valuation allowance
|
|
|
(35
|
)
|
|
|
(155
|
)
|
Other
|
|
|
5,767
|
|
|
|
5,409
|
|
|
|
|
|
|
|
|
|
|
Total deferred Federal income tax assets
|
|
|
48,658
|
|
|
|
43,139
|
|
|
|
|
|
|
|
|
|
|
Deferred Federal income tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation, amortization and asset basis differences
|
|
|
6,352
|
|
|
|
3,667
|
|
Capitalized software
|
|
|
25,869
|
|
|
|
21,398
|
|
Gain on debt extinguishments
|
|
|
9,073
|
|
|
|
13,609
|
|
Other
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
Total deferred Federal income tax liabilities
|
|
|
41,294
|
|
|
|
38,962
|
|
|
|
|
|
|
|
|
|
|
Net deferred Federal income tax asset
|
|
|
7,364
|
|
|
|
4,177
|
|
|
|
|
Net deferred state and local income tax asset
|
|
|
1,571
|
|
|
|
1,688
|
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
8,935
|
|
|
$
|
5,865
|
|
|
|
|
|
|
|
|
|
|
62
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Realization of the Companys deferred tax assets is dependent upon many factors,
including, but not limited to, the Companys ability to generate sufficient taxable income. Although realization of the Companys net deferred tax assets is not assured, management believes it is more likely than not that the net deferred
tax assets will be realized. On an ongoing basis, management will assess whether it remains more likely than not that the net deferred tax assets will be realized.
For financial reporting purposes, the Companys investment in foreign subsidiaries does not exceed its tax basis. Therefore no deferred
income taxes have been provided.
The Company recognizes the financial statement benefit of a tax position if it is more likely than not
that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authoritys widely understood administrative practices and precedents. For tax positions meeting the more likely than
not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company
recognizes accrued interest related to unrecognized tax benefits in interest expense and penalties in income tax expense.
During 2014 and
in connection with the sale of 14 Company-owned stores to franchisees, the Company recognized a capital gain and also released $0.3 million of a deferred tax valuation allowance.
During 2014, the Company accrued interest expense of $0.1 million. At December 28, 2014, the amount of unrecognized tax benefits was
$2.9 million of which, if ultimately recognized, $1.7 million would be recognized as an income tax benefit and reduce the Companys effective tax rate. At December 28, 2014, the Company had $0.7 million of accrued interest
and no accrued penalties. This amount is excluded from the $2.9 million total unrecognized tax benefit.
During 2015 and in connection
with the sale of four Company-owned stores to franchisees, the Company recognized a capital gain and also released $0.3 million of a deferred tax valuation allowance.
During 2015, the Company reversed an interest expense accrual of $0.6 million. At January 3, 2016, the amount of unrecognized tax
benefits was $2.1 million of which, if ultimately recognized, $1.7 million would be recognized as an income tax benefit and reduce the Companys effective tax rate. At January 3, 2016, the Company had less than $0.1 million
of accrued interest and no accrued penalties.
At January 1, 2017, the amount of unrecognized tax benefits was $2.0 million of
which, if ultimately recognized, $1.6 million would be recognized as an income tax benefit and reduce the Companys effective tax rate. At January 1, 2017, the Company had less than $0.1 million of accrued interest and no accrued
penalties.
63
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
|
|
|
|
|
Balance as of December 29, 2013
|
|
$
|
3,573
|
|
|
|
Additions for tax positions of current year
|
|
|
211
|
|
Additions for tax positions of prior years
|
|
|
173
|
|
Reductions in tax positions from prior years for:
|
|
|
|
|
Changes in prior year tax positions
|
|
|
(605
|
)
|
Settlements during the period
|
|
|
(55
|
)
|
Lapses of applicable statute of limitations
|
|
|
(358
|
)
|
|
|
|
|
|
Balance as of December 28, 2014
|
|
|
2,939
|
|
|
|
Additions for tax positions of current year
|
|
|
233
|
|
Additions for tax positions of prior years
|
|
|
171
|
|
Reductions in tax positions from prior years for:
|
|
|
|
|
Changes in prior year tax positions
|
|
|
(100
|
)
|
Settlements during the period
|
|
|
(27
|
)
|
Lapses of applicable statute of limitations
|
|
|
(1,101
|
)
|
|
|
|
|
|
Balance as of January 3, 2016
|
|
|
2,115
|
|
|
|
Additions for tax positions of current year
|
|
|
209
|
|
Reductions in tax positions from prior years for:
|
|
|
|
|
Changes in prior year tax positions
|
|
|
(33
|
)
|
Lapses of applicable statute of limitations
|
|
|
(337
|
)
|
|
|
|
|
|
Balance as of January 1, 2017
|
|
$
|
1,954
|
|
|
|
|
|
|
The Company continues to be under examination by certain states. The Companys Federal statute of
limitation has expired for years prior to 2013 and the relevant state and foreign statutes vary. The Company expects the current ongoing examinations to be concluded in the next twelve months and does not expect the assessment of any significant
additional amounts in excess of amounts reserved.
The Company has a retirement savings plan which qualifies under Internal
Revenue Code Section 401(k). All employees of the Company who have completed 1,000 hours of service and are at least 21 years of age are eligible to participate in the plan. The plan requires the Company to match 100% of the first 3% of each
employees elective deferrals and 50% of the next 2% of each employees elective deferrals. During 2016, 2015 and 2014, the Companys matching contributions were made in the form of cash and vested immediately. The expenses incurred
for Company contributions to the plan were approximately $5.2 million, $4.6 million and $4.1 million in 2016, 2015 and 2014, respectively.
The Company has established a
non-qualified
deferred compensation plan available for certain key
employees. Under this self-funding plan, the participants may defer up to 40% of their annual compensation. The participants direct the investment of their deferred compensation within several investment funds. The Company is not required to
contribute and did not contribute to this plan during 2016, 2015 or 2014.
64
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has an employee stock purchase discount plan (the ESPDP). Under the
ESPDP, eligible employees may deduct up to 15% of their eligible wages to purchase common stock at 85% of the market price of the stock at the purchase date. The ESPDP requires employees to hold their purchased common stock for at least one year.
The Company purchases common stock on the open market for the ESPDP at the current market price. There were 23,317 shares, 23,994 shares and 25,224 shares of common stock in 2016, 2015 and 2014, respectively, purchased on the open market for
participating employees at a weighted-average price of $131.74 in 2016, $105.16 in 2015 and $74.89 in 2014. The expenses incurred under the ESPDP were approximately $0.5 million, $0.4 million and $0.3 million in 2016, 2015 and 2014,
respectively.
(8)
|
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE
SHEET RISK
|
The
Company is a party to
stand-by
letters of credit. The Companys exposure to credit loss for
stand-by
letters of credit is represented by the contractual amounts of
these instruments. The Company uses the same credit policies in making conditional obligations as it does for
on-balance
sheet instruments. Total conditional commitments under letters of credit as of
January 1, 2017 are $44.3 million and relate to the Companys insurance programs and supply chain center leases. The Company has also guaranteed lease payments related to certain franchisees lease arrangements. The maximum
amount of potential future payments under these guarantees is $1.0 million as of January 1, 2017.
(9)
|
EQUITY INCENTIVE PLANS
|
The cost of all employee stock options, as well as other equity-based
compensation arrangements, is reflected in the consolidated statements of income based on the estimated fair value of the awards.
The
Companys current equity incentive plan benefits certain of the Companys employees and directors and is named the Dominos Pizza, Inc. 2004 Equity Incentive Plan (the 2004 Equity Incentive Plan). As of January 1,
2017, the maximum number of shares that may be granted under the 2004 Equity Incentive Plan is 15,600,000 shares of voting common stock of which 2,949,836 shares were authorized for grant but have not been granted.
The Company recorded total
non-cash
compensation expense of $18.6 million, $17.6 million and
$17.6 million in 2016, 2015 and 2014, respectively. All
non-cash
compensation expense amounts are recorded in general and administrative expense.
Stock Options
As of
January 1, 2017, the number of stock options granted and outstanding under the 2004 Equity Incentive Plan was 2,498,310 options. Stock options granted under the 2004 Equity Incentive Plan and a predecessor plan prior to fiscal 2009 were
generally granted with an exercise price equal to the market price at the date of the grant, expired ten years from the date of grant and vested over five years from the date of grant. Stock options granted from fiscal 2009 through fiscal 2012 were
granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over three years from the date of grant. Stock options granted in fiscal 2013 through fiscal 2016 were
granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over four years from the date of grant. Additionally, all stock options granted become fully exercisable
upon vesting. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements.
65
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Stock option activity related to the 2004 Equity Incentive Plan is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Options
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
(In thousands)
|
|
Stock options at December 29, 2013
|
|
|
4,317,065
|
|
|
$
|
17.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
|
|
|
222,060
|
|
|
|
72.30
|
|
|
|
|
|
|
|
|
|
Stock options cancelled
|
|
|
(9,670
|
)
|
|
|
54.56
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
(939,340
|
)
|
|
|
9.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options at December 28, 2014
|
|
|
3,590,115
|
|
|
$
|
22.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
|
|
|
193,970
|
|
|
|
111.63
|
|
|
|
|
|
|
|
|
|
Stock options cancelled
|
|
|
(32,176
|
)
|
|
|
73.55
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
(428,433
|
)
|
|
|
11.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options at January 3, 2016
|
|
|
3,323,476
|
|
|
$
|
28.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
|
|
|
233,280
|
|
|
|
129.42
|
|
|
|
|
|
|
|
|
|
Stock options cancelled
|
|
|
(12,798
|
)
|
|
|
104.23
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
(1,045,648
|
)
|
|
|
14.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options at January 1, 2017
|
|
|
2,498,310
|
|
|
$
|
43.54
|
|
|
|
5.1
|
|
|
$
|
289,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 1, 2017
|
|
|
1,932,209
|
|
|
$
|
27.05
|
|
|
|
4.2
|
|
|
$
|
255,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised was approximately $128.0 million, $41.7 million
and $68.1 million in 2016, 2015 and 2014, respectively. Cash received from the exercise of stock options was approximately $15.2 million, $4.8 million and $9.0 million in 2016, 2015 and 2014, respectively. The tax benefit
realized from stock options exercised was approximately $46.1 million, $14.7 million and $23.6 million in 2016, 2015 and 2014, respectively.
The Company recorded total
non-cash
compensation expense of $4.9 million, $3.9 million and
$4.4 million in 2016, 2015 and 2014, respectively, related to stock option awards. All
non-cash
compensation expense amounts are recorded in general and administrative expense. As of January 1, 2017,
there was $9.4 million of total unrecognized compensation cost related to unvested stock options granted under the 2004 Equity Incentive Plan which generally will be recognized on a straight-line basis over the related vesting period. This
unrecognized compensation cost is expected to be recognized over a weighted average period of 2.5 years.
66
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Management estimated the fair value of each option grant made during 2016, 2015 and 2014 as
of the date of the grant using the Black-Scholes option pricing method. Weighted average assumptions are presented in the following table. The risk-free interest rate is based on the estimated effective life, and is estimated based on U.S. Treasury
Bond rates as of the grant date. The expected life is based on several factors, including, among other things, the vesting term and contractual term as well as historical experience. The expected volatility is based principally on the historical
volatility of the Companys share price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
1.3
|
%
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
Expected life (years)
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
5.5
|
|
Expected volatility
|
|
|
26.0
|
%
|
|
|
28.4
|
%
|
|
|
33.7
|
%
|
Expected dividend yield
|
|
|
1.2
|
%
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
|
|
|
|
Weighted average fair value per stock option
|
|
$
|
29.59
|
|
|
$
|
28.45
|
|
|
$
|
21.16
|
|
Option valuation models require the input of highly subjective assumptions. In managements opinion,
existing models do not necessarily provide a reliable single measure of the fair value of the Companys stock options, as changes in subjective input assumptions can significantly affect the fair value estimate.
Other Equity-Based Compensation Arrangements
The Company granted 6,920 shares, 8,350 shares and 10,640 shares of restricted stock in 2016, 2015 and 2014, respectively, to members of its
Board of Directors. These grants generally vest
one-year
from the date of the grant and have a fair value equal to the market price of the Companys stock on the grant date. These awards also contain
provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. The Company recorded total
non-cash
compensation expense of $0.9 million,
$0.9 million and $0.8 million in 2016, 2015 and 2014, respectively, related to these restricted stock awards. All
non-cash
compensation expense amounts are recorded in general and administrative
expense. As of January 1, 2017, there was less than $0.1 million of total unrecognized compensation cost related to these restricted stock grants.
The Company granted 90,730 shares, 88,250 shares and 119,670 shares of performance-based restricted stock in 2016, 2015 and 2014,
respectively, to certain employees of the Company. These performance-based restricted stock awards are separated into four tranches and have time-based and performance-based vesting conditions with the last tranche vesting four years from the
issuance date. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. These awards are considered granted for accounting purposes when the performance
target is set, which is generally in the fourth quarter of each year. The Company recorded total
non-cash
compensation expense of $12.8 million, $12.8 million and $12.4 million in 2016, 2015 and
2014, respectively, related to these awards. All
non-cash
compensation expense amounts are recorded in general and administrative expense. As of January 1, 2017, there was an estimated $25.7 million
of total unrecognized compensation cost related to performance-based restricted stock.
67
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Restricted stock and performance-based restricted stock activity related to the 2004 Equity
Incentive Plan is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at January 3, 2016
|
|
|
316,332
|
|
|
$
|
75.74
|
|
Shares granted (1)
|
|
|
97,650
|
|
|
|
131.75
|
|
Shares cancelled
|
|
|
(13,970
|
)
|
|
|
88.34
|
|
Shares vested
|
|
|
(123,792
|
)
|
|
|
70.39
|
|
|
|
|
|
|
|
|
|
|
Nonvested at January 1, 2017
|
|
|
276,220
|
|
|
$
|
97.48
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted average grant date fair value for performance-based restricted shares granted was calculated based on the market price on the grant dates. Certain tranches will ultimately be valued when the performance
condition is established for each tranche, which generally occurs in the fourth quarter of each fiscal year.
|
The Company has a Board of Directors-approved open market share repurchase
program of the Companys common stock, which was reset during the second quarter of 2016 at $250.0 million. The open market share repurchase program has historically been funded by excess cash flow.
As part of the 2015 Recapitalization, on October 23, 2015, the Companys Board of Directors authorized a share repurchase program to
repurchase up to $800.0 million of the Companys common stock. The $800.0 million repurchase program replaced the previously authorized $200.0 million repurchase program. On October 27, 2015, the Company entered into a
$600.0 million ASR Agreement with a counterparty. Pursuant to the terms of the ASR Agreement, on October 30, 2015, as part of its $800.0 million share repurchase authorization, the Company used a portion of the proceeds from the 2015
Recapitalization to pay the counterparty $600.0 million in cash and received 4,858,994 shares of the Companys common stock. During the first quarter of 2016, the Company received and retired 456,936 shares of its common stock in
connection with the final settlement of its $600.0 million accelerated share repurchase program (Final ASR Settlement).
During 2016, 2015 and 2014 the Company repurchased 2,816,716 shares (including the 456,936 shares of its common stock received in the first
quarter of 2016 in connection with the Final ASR Settlement), 6,152,918 shares and 1,151,931 shares of common stock for approximately $300.3 million, $738.6 million and $82.4 million, respectively. At January 1, 2017, the Company
had $149.1 million remaining under the $250.0 million authorization. The Companys policy is to recognize the difference between the purchase price and par value of the common stock in additional
paid-in
capital. In instances where there is no additional
paid-in
capital, the difference is recognized in retained deficit.
As of January 1, 2017, authorized common stock consists of 160,000,000 voting shares and 10,000,000
non-voting
shares. The share components of outstanding common stock at January 1, 2017 and January 3, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Voting
|
|
|
48,083,721
|
|
|
|
49,820,467
|
|
Non-Voting
|
|
|
16,422
|
|
|
|
17,754
|
|
|
|
|
|
|
|
|
|
|
Total Common Stock
|
|
|
48,100,143
|
|
|
|
49,838,221
|
|
|
|
|
|
|
|
|
|
|
68
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has three reportable segments: (i) Domestic Stores;
(ii) Supply Chain; and (iii) International Franchise.
The Companys operations are organized by management on the combined
basis of line of business and geography. The Domestic Stores segment includes operations with respect to all franchised and Company-owned stores throughout the contiguous United States. The Supply Chain segment primarily includes the distribution of
food, equipment and supplies to stores from the Companys supply chain center operations in the United States and Canada. The International Franchise segment primarily includes operations related to the Companys franchising business in
foreign and
non-contiguous
United States markets.
The accounting policies of the reportable
segments are the same as those described in Note 1. The Company evaluates the performance of its segments and allocates resources to them based on earnings before interest, taxes, depreciation, amortization and other, referred to as Segment Income.
The tables below summarize the financial information concerning the Companys reportable segments for fiscal 2016, 2015 and 2014.
Intersegment Revenues are comprised of sales of food, equipment and supplies from the Supply Chain segment to the Company-owned stores in the Domestic Stores segment. Intersegment sales prices are market based. The Other column as it
relates to Segment Income and income from operations information below primarily includes corporate administrative costs. The Other column as it relates to capital expenditures primarily includes capitalized software, certain equipment
and leasehold improvements. Tabular amounts presented below are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
International
|
|
|
Intersegment
|
|
|
|
|
|
|
|
|
|
Stores
|
|
|
Supply Chain
|
|
|
Franchise
|
|
|
Revenues
|
|
|
Other
|
|
|
Total
|
|
Revenues-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
751,284
|
|
|
$
|
1,669,000
|
|
|
$
|
176,999
|
|
|
$
|
(124,655
|
)
|
|
|
|
|
|
$
|
2,472,628
|
|
2015
|
|
|
669,724
|
|
|
|
1,495,308
|
|
|
|
163,643
|
|
|
|
(112,147
|
)
|
|
|
|
|
|
|
2,216,528
|
|
2014
|
|
|
578,689
|
|
|
|
1,367,269
|
|
|
|
152,621
|
|
|
|
(104,746
|
)
|
|
|
|
|
|
|
1,993,833
|
|
|
|
|
|
|
|
|
Segment Income-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
271,794
|
|
|
$
|
144,130
|
|
|
$
|
138,487
|
|
|
|
N/A
|
|
|
$
|
(42,802
|
)
|
|
$
|
511,609
|
|
2015
|
|
|
240,942
|
|
|
|
127,155
|
|
|
|
130,650
|
|
|
|
N/A
|
|
|
|
(42,075
|
)
|
|
|
456,672
|
|
2014
|
|
|
202,794
|
|
|
|
111,593
|
|
|
|
122,497
|
|
|
|
N/A
|
|
|
|
(39,255
|
)
|
|
|
397,629
|
|
|
|
|
|
|
|
|
Income from Operations-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
261,826
|
|
|
$
|
133,745
|
|
|
$
|
138,306
|
|
|
|
N/A
|
|
|
$
|
(79,835
|
)
|
|
$
|
454,042
|
|
2015
|
|
|
233,248
|
|
|
|
117,185
|
|
|
|
130,601
|
|
|
|
N/A
|
|
|
|
(75,595
|
)
|
|
|
405,439
|
|
2014
|
|
|
196,860
|
|
|
|
102,409
|
|
|
|
122,626
|
|
|
|
N/A
|
|
|
|
(76,534
|
)
|
|
|
345,361
|
|
|
|
|
|
|
|
|
Capital Expenditures-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
18,225
|
|
|
$
|
11,527
|
|
|
$
|
642
|
|
|
|
N/A
|
|
|
$
|
31,143
|
|
|
$
|
61,537
|
|
2015
|
|
|
25,120
|
|
|
|
9,928
|
|
|
|
|
|
|
|
N/A
|
|
|
|
27,317
|
|
|
|
62,365
|
|
2014
|
|
|
15,614
|
|
|
|
15,451
|
|
|
|
63
|
|
|
|
N/A
|
|
|
|
40,662
|
|
|
|
71,790
|
|
69
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table reconciles total Segment Income to income before provision for income
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Total Segment Income
|
|
$
|
511,609
|
|
|
$
|
456,672
|
|
|
$
|
397,629
|
|
Depreciation and amortization
|
|
|
(38,140
|
)
|
|
|
(32,434
|
)
|
|
|
(35,788
|
)
|
Gains (losses) on sale/disposal of assets
|
|
|
(863
|
)
|
|
|
(316
|
)
|
|
|
1,107
|
|
Non-cash
compensation expense
|
|
|
(18,564
|
)
|
|
|
(17,623
|
)
|
|
|
(17,587
|
)
|
2015 recapitalization-related expenses
|
|
|
|
|
|
|
(860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
454,042
|
|
|
|
405,439
|
|
|
|
345,361
|
|
|
|
|
|
Interest income
|
|
|
685
|
|
|
|
313
|
|
|
|
143
|
|
Interest expense
|
|
|
(110,069
|
)
|
|
|
(99,537
|
)
|
|
|
(86,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
344,658
|
|
|
$
|
306,215
|
|
|
$
|
258,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys identifiable asset information as of January 1, 2017
and January 3, 2016:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Domestic Stores
|
|
$
|
89,220
|
|
|
$
|
80,619
|
|
Domestic supply chain
|
|
|
172,210
|
|
|
|
155,451
|
|
|
|
|
|
|
|
|
|
|
Total domestic assets
|
|
|
261,430
|
|
|
|
236,070
|
|
|
|
|
International Franchise
|
|
|
17,436
|
|
|
|
17,048
|
|
International supply chain
|
|
|
19,368
|
|
|
|
17,300
|
|
|
|
|
|
|
|
|
|
|
Total international assets
|
|
|
36,804
|
|
|
|
34,348
|
|
|
|
|
Unallocated
|
|
|
418,061
|
|
|
|
529,427
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
716,295
|
|
|
$
|
799,845
|
|
|
|
|
|
|
|
|
|
|
Unallocated assets primarily include cash and cash equivalents, restricted cash, advertising fund assets,
investments in marketable securities, certain long-lived assets and deferred income taxes.
The following table summarizes the
Companys goodwill balance as of January 1, 2017 and January 3, 2016:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Domestic Stores
|
|
$
|
14,991
|
|
|
$
|
15,030
|
|
Supply Chain
|
|
|
1,067
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
Consolidated goodwill
|
|
$
|
16,058
|
|
|
$
|
16,097
|
|
|
|
|
|
|
|
|
|
|
70
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(12)
|
SALE AND CLOSURE OF COMPANY-OWNED STORES
|
The Company closed one Company-owned store in 2016.
In connection with the closure, the Company recorded a reduction of goodwill of less than $0.1 million in general and administrative expense in the Companys consolidated statements of income.
During 2015, the Company sold four Company-owned stores to franchisees. In connection with the sale of the four stores, the Company recorded a
$0.7 million
pre-tax
gain on the sale of the related assets, which was net of a $0.2 million reduction in goodwill. The gain was recorded in general and administrative expense in the Companys
consolidated statements of income.
During 2014, the Company sold 14 Company-owned stores to a franchisee. In connection with the sale of
the 14 stores, the Company recorded a $1.7 million
pre-tax
gain on the sale of the related assets, which was net of a $0.5 million reduction in goodwill. The gain was recorded in general and
administrative expense in the Companys consolidated statements of income.
(13)
|
PERIODIC FINANCIAL DATA (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
The Companys
convention with respect to reporting periodic financial data is such that each of the first three fiscal quarters consists of 12 weeks while the last fiscal quarter consists of 16 weeks or 17 weeks. The fourth quarter of 2016 is comprised of 16
weeks, while the fourth quarter of 2015 is comprised of 17 weeks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal
|
|
|
|
For the Fiscal Quarter Ended
|
|
|
Year Ended
|
|
|
|
March 27,
|
|
|
June 19,
|
|
|
September 11,
|
|
|
January 1,
|
|
|
January 1,
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
Total revenues
|
|
$
|
539,175
|
|
|
$
|
547,341
|
|
|
$
|
566,677
|
|
|
$
|
819,435
|
|
|
$
|
2,472,628
|
|
Operating margin
|
|
|
167,216
|
|
|
|
171,838
|
|
|
|
173,903
|
|
|
|
254,734
|
|
|
|
767,691
|
|
Income before provision for income taxes
|
|
|
72,842
|
|
|
|
78,692
|
|
|
|
75,814
|
|
|
|
117,310
|
|
|
|
344,658
|
|
Net income
|
|
|
45,451
|
|
|
|
49,261
|
|
|
|
47,232
|
|
|
|
72,734
|
|
|
|
214,678
|
|
Earnings per common share basic
|
|
$
|
0.91
|
|
|
$
|
1.00
|
|
|
$
|
0.98
|
|
|
$
|
1.52
|
|
|
$
|
4.41
|
|
Earnings per common share diluted (1)
|
|
$
|
0.89
|
|
|
$
|
0.98
|
|
|
$
|
0.96
|
|
|
$
|
1.48
|
|
|
$
|
4.30
|
|
Common stock dividends declared per share
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
1.52
|
|
(1)
|
Diluted earnings per share figures may not sum to the total due to the rounding of each individual calculation.
|
71
DOMINOS PIZZA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal
|
|
|
|
For the Fiscal Quarter Ended
|
|
|
Year Ended
|
|
|
|
March 22,
|
|
|
June 14,
|
|
|
September 6,
|
|
|
January 3,
|
|
|
January 3,
|
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
Total revenues
|
|
$
|
502,027
|
|
|
$
|
488,622
|
|
|
$
|
484,696
|
|
|
$
|
741,183
|
|
|
$
|
2,216,528
|
|
Operating margin
|
|
|
157,066
|
|
|
|
152,672
|
|
|
|
141,954
|
|
|
|
231,439
|
|
|
|
683,131
|
|
Income before provision for income taxes
|
|
|
74,182
|
|
|
|
73,278
|
|
|
|
60,628
|
|
|
|
98,127
|
|
|
|
306,215
|
|
Net income
|
|
|
46,289
|
|
|
|
45,909
|
|
|
|
37,832
|
|
|
|
62,759
|
|
|
|
192,789
|
|
Earnings per common share basic
|
|
$
|
0.84
|
|
|
$
|
0.84
|
|
|
$
|
0.69
|
|
|
$
|
1.21
|
|
|
$
|
3.58
|
|
Earnings per common share diluted
|
|
$
|
0.81
|
|
|
$
|
0.81
|
|
|
$
|
0.67
|
|
|
$
|
1.18
|
|
|
$
|
3.47
|
|
Common stock dividends declared per share
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
$
|
1.24
|
|
On February 15, 2017, the Board of Directors declared a quarterly
dividend of $0.46 per common share payable on March 30, 2017 to shareholders of record at the close of business on March 15, 2017.
72