DOMINOS PIZZA INC

Notes to Condensed Consolidated Financial Statements

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

September 8, 2024

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 26, 2024 (the “2023 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 and three fiscal quarters ended September 8, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2024.

2. Segment Information

The tables below summarize the financial information concerning the Company’s reportable segments for thethird quarter and three fiscal quarters of 2024 and the third quarter and three fiscal quarters of 2023. 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.

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

3. Earnings Per Share

The denominators used in calculating diluted earnings per share for common stock for the fiscal quarters andthree fiscal quarters each ended September 8, 2024 and September 10, 2023 do not include the following because the effect of including these shares would be anti-dilutive or because the performance targets for these awards had not yet been met:

4. Stockholders’ Deficit

The following table summarizes the changes in stockholders’ deficit for thethird quarter of 2024.

The following table summarizes the changes in stockholders’ deficit for the three fiscal quarters of 2024.

Subsequent to the end of the third quarter of 2024, on October 8, 2024, the Company’s Board of Directors declared a$1.51 per share quarterly dividend on its outstanding common stock for shareholders of record as of December 13, 2024 to be paid on December 27, 2024.

The following table summarizes the changes in stockholders’ deficit for thethird quarter of 2023.

The following table summarizes the changes in stockholders’ deficit for the three fiscal quarters of 2023.

5. Leverage Ratio

In accordance with the Company’s debt agreements, the payment of principal on the outstanding senior notes may be suspended if the Holdco Leverage Ratio is less than or equal to 5.0 x total debt to adjusted EBITDA, as defined in the related agreements, and no catch-up provisions are applicable. As of the end of the first, second andthird quarters of 2024, the Company had a Holdco Leverage Ratio of less than 5.0 x, and accordingly, did not make the previously scheduled debt amortization payments for its outstanding notes beginning in the second quarter of 2024. Accordingly, all principal amounts of the Company’s outstanding notes have been classified as long-term debt in the condensed consolidated balance sheet as of September 8, 2024.

6. 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.

Fair Value of Cash Equivalents and Marketable Securities

The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets.

Fair Value of Investments

The Company holds a non-controlling interest in DPC Dash Ltd (“DPC Dash”), the Company’s master franchisee in China that owns and operates Domino’s Pizza stores in that market. The Company accounts for its investment in DPC Dash as a trading security and records it at fair value at the end of each reporting period, with gains and losses recorded in other income or expense in its condensed consolidated statements of income. As of September 8, 2024, the fair value of the Company’s investment in 18,101,019 DPC Dash ordinary shares is based on the active exchange quoted price for the equity security of HK$69.95 per share (HK: 1405).

The Company recorded a positive adjustment to the carrying amount of its investment in DPC Dash of$26.2 million and$18.9 million in the third quarter and three fiscal quarters of 2024, respectively. These amounts were recorded in other income in the Company’s condensed consolidated statements of income. The Company recorded a positive adjustment to the carrying amount of its investment in DPC Dash of$28.2 million and$13.3 million in the third quarter and three fiscal quarters of 2023, respectively.

The following tables summarize the carrying amounts and fair values of certain assets at September 8, 2024 and December 31, 2023:

Fair Value of Debt

The estimated fair values of the Company’s fixed rate notes are classified as Level 2 measurements, as the Company estimates the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s fixed rate notes and, at times, trade these notes. The Company also performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to those of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented are not necessarily indicative of the amount that the Company or the noteholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated below.

Management estimated the approximate fair values of the Company’s 2015, 2017, 2018, 2019 and 2021 notes as follows:

The Company did not have any outstanding borrowings under its variable funding notes at September 8, 2024 or December 31, 2023.

7. Revenue Disclosures

Contract Liabilities

Contract liabilities primarily consist of deferred franchise fees and deferred development fees. Deferred franchise fees and deferred development fees of$5.2 million and$5.3 million were included in current other accrued liabilities as of September 8, 2024 and December 31, 2023, respectively. Deferred franchise fees and deferred development fees of$18.0 million and$19.9 million were included in long-term other accrued liabilities as of September 8, 2024 and December 31, 2023, respectively.

Changes in deferred franchise fees and deferred development fees for thethree fiscal quarters of 2024 and 2023 were as follows:

Advertising Fund Assets

As of September 8, 2024, advertising fund assets, restricted of$111.1 million consisted of$90.0 million of cash and cash equivalents,$13.7 million of accounts receivable and$7.4 million of prepaid expenses. As of September 8, 2024, advertising fund cash and cash equivalents included$1.9 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

As of December 31, 2023, advertising fund assets, restricted of$106.3 million consisted of$88.2 million of cash and cash equivalents,$14.0 million of accounts receivable and$4.1 million of prepaid expenses. As of December 31, 2023, advertising fund cash and cash equivalents included$2.1 million of cash contributed from U.S. Company-owned stores that had not yet been expended.

Change in Advertising Fund Contributions and Technology Fees

As previously announced, as of March 27, 2023, Domino's National Advertising Fund Inc., the Company’s consolidated not-for-profit advertising subsidiary, effectuated a temporary reduction of 0.25% to its standard 6.0% advertising contribution rate. This temporary reduction expired at the beginning of the second quarter of 2024 and the advertising contribution rate returned to its standard 6.0% as of March 25, 2024.

Additionally, as of March 25, 2024, the Company decreased the U.S. digital per-transaction technology fees that are recognized as the related U.S. franchise retail sales occur by $0.04 to $0.355.

8. Leases

The Company leases certain retail store and supply chain center locations, vehicles, equipment and its corporate headquarters with expiration dates through 2045. Rent expense totaled$21.0 million and$63.2 million in the third quarter and three fiscal quarters of 2024, respectively. Rent expense totaled$19.7 million and$58.8 million in the third quarter and three fiscal quarters of 2023, respectively. Rent expense includes operating lease cost, as well as expense for non-lease components including common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Rent expense also includes the variable rate per mile driven and fixed maintenance charges for the Company’s supply chain center tractors and trailers and expense for short-term rentals. Rent expense for certain short-term supply chain center tractor and trailer rentals was$1.5 million and$5.4 million in the third quarter and three fiscal quarters of 2024, respectively. Rent expense for certain short-term supply chain center tractor and trailer rentals was$1.4 million and$4.1 million in the third quarter and three fiscal quarters of 2023, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in each of the third quarter and three fiscal quarters of 2024 and 2023.

The components of operating and finance lease cost for thethird quarter and three fiscal quarters of 2024 and the third quarter and three fiscal quarters of 2023 were as follows:

Supplemental cash flow information related to leases for thethree fiscal quarters of 2024 and the three fiscal quarters of 2023 was as follows:

As of September 8, 2024, the Companyhad additional leases for certain supply chain real estate and certain supply chain vehicles that had not yet commenced with estimated future minimum rental commitments of $162.2 million. These leases are expected to commence in 2024 and 2025 with lease terms of up to 20 years. These undiscounted amounts will be included in the Company’s condensed consolidated balance sheet at the respective commencement dates.

The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $14.2 million and $18.5 million as of September 8, 2024 and December 31, 2023, respectively. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues, expenses or liquidity.

9. Supplemental Disclosures of Cash Flow Information

The Company had non-cash investing activities related to accruals for capital expenditures of$6.0 million at September 8, 2024 and$6.7 million at December 31, 2023. The Company also had$4.5 million and$2.6 million in non-cash financing activity related to accruals for excise taxes on share repurchases as of September 8, 2024 and December 31, 2023, respectively.

10. Company-owned Store Transactions

During each of the first and second quarters of 2024, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million each. Thepre-tax refranchising losses associated with the sale of the related assets and liabilities, including goodwill, were approximately $0.1 million each and were recorded in refranchising loss in the Company’s condensed consolidated statements of income.

During the first quarter of 2023, the Company refranchised one U.S. Company-owned store for proceeds of less than $0.1 million. Thepre-tax refranchising loss associated with the sale of the related assets and liabilities, including goodwill, was approximately $0.1 million and was recorded in refranchising loss in the Company’s condensed consolidated statements of income.

11. New Accounting Pronouncements

The Company has considered all new accounting standards issued by the Financial Accounting Standards Board (“FASB”). The Company has not yet adopted the following standards:

Accounting Standards Not Yet Adopted

Accounting Standards Update (“ASU”) 2020-04, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure on an annual and interim basis of significant segment expenses that are regularly provided to the chief operating decision maker and included within the reported measure of segment profit or loss. In addition, the ASU requires disclosure of other segment expenses by reportable segment and a description of their composition to permit the reconciliation between segment revenue, significant segment expenses and the reported segment measure of profit or loss. The ASU also requires disclosure of the name and title of the chief operating decision maker.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, of a tabular reconciliation, including both amount and percentage of specific categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits. Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax rate. The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.