Edgar Filing: DOMINOS PIZZA INC

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

DOMINOS PIZZA INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 24, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number:

001-32242

Domino’s Pizza, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		38-2511577
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

30 Frank Lloyd Wright Drive Ann Arbor, Michigan		48105
(Address of Principal Executive Offices)		(Zip Code)

(734)

930-3030

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes

☐

☒

As of April 17, 2019, Domino’s Pizza, Inc. had

41,103,909

shares of common stock, par value $0.01 per share, outstanding.

Domino’s Pizza, Inc.

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Condensed Consolidated Balance Sheets (Unaudited) – As of March 24, 2019 and December 30, 2018		3

	Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarters ended March 24, 2019 and March 25, 2018		4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Fiscal quarters ended March 24, 2019 and March 25, 2018		5

	Condensed Consolidated Statements of Cash Flows (Unaudited) – Fiscal quarters ended March 24, 2019 and March 25, 2018		6

	Notes to Condensed Consolidated Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		22

Item 4.	Controls and Procedures		22

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		23

Item 1A.	Risk Factors		23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23

Item 3.	Defaults Upon Senior Securities		23

Item 4.	Mine Safety Disclosures		23

Item 5.	Other Information		23

Item 6.	Exhibits		24

SIGNATURES			25

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


(In thousands)	March 24, 2019			December 30, 2018 (1)
Assets
Current assets:
Cash and cash equivalents	$	83,114		$	25,438
Restricted cash and cash equivalents		150,055			166,993
Accounts receivable, net		194,064			190,091
Inventories		45,668			45,975
Prepaid expenses and other		19,544			25,710
Advertising fund assets, restricted		98,098			112,744

Total current assets		590,543			566,951

Property, plant and equipment:
Land and buildings		41,519			41,147
Leasehold and other improvements		171,859			170,498
Equipment		246,909			243,654
Construction in progress		27,832			31,822

		488,119			487,121
Accumulated depreciation and amortization		(260,252	)		(252,182	)

Property, plant and equipment, net		227,867			234,939

Other assets:
Operating lease right-of-use assets		222,005			—
Goodwill		14,919			14,919
Capitalized software, net		66,159			63,809
Other assets		22,728			21,241
Deferred income taxes		4,054			5,526

Total other assets		329,865			105,495

Total assets	$	1,148,275		$	907,385

Liabilities and stockholders’ deficit
Current liabilities:
Current portion of long-term debt	$	35,909		$	35,893
Accounts payable		84,888			92,546
Operating lease liabilities		31,753			—
Insurance reserves		22,034			22,210
Dividends payable		27,156			581
Advertising fund liabilities		93,040			107,150
Other accrued liabilities		117,233			121,363

Total current liabilities		412,013			379,743

Long-term liabilities:
Long-term debt, less current portion		3,447,819			3,495,691
Operating lease liabilities		198,508			—
Insurance reserves		32,558			31,065
Other accrued liabilities		32,542			40,807

Total long-term liabilities		3,711,427			3,567,563

Stockholders’ deficit:
Common stock		411			410
Additional paid-in capital		5,464			569
Retained deficit		(2,976,848	)		(3,036,471	)
Accumulated other comprehensive loss		(4,192	)		(4,429	)

Total stockholders’ deficit		(2,975,165	)		(3,039,921	)

Total liabilities and stockholders’ deficit	$	1,148,275		$	907,385

(1)	The balance sheet at December 30, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying notes.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)


	Fiscal Quarter Ended
(In thousands, except per share data)	March 24, 2019			March 25, 2018
Revenues:
U.S. Company-owned stores	$	123,450		$	121,186
U.S. franchise royalties and fees		96,708			89,490
Supply chain		472,100			440,063
International franchise royalties and fees		54,584			52,421
U.S. franchise advertising		89,121			82,211

Total revenues		835,963			785,371

Cost of sales:
U.S. Company-owned stores		95,540			93,038
Supply chain		418,134			392,468

Total cost of sales		513,674			485,506

Operating margin		322,289			299,865

General and administrative		89,664			84,178
U.S. franchise advertising		89,121			82,211

Income from operations		143,504			133,476
Interest income		693			480
Interest expense		(35,054	)		(30,286	)

Income before provision for income taxes		109,143			103,670
Provision for income taxes		16,493			14,843

Net income	$	92,650		$	88,827

Earnings per share:
Common stock - basic	$	2.27		$	2.07
Common stock - diluted		2.20			2.00

See accompanying notes.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Fiscal Quarter Ended
(In thousands)	March 24, 2019		March 25, 2018
Net income	$	92,650	$	88,827
Currency translation adjustment		237		(455	)

Comprehensive income	$	92,887	$	88,372

See accompanying notes.

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Fiscal Quarter Ended
(In thousands)	March 24, 2019			March 25, 2018
Cash flows from operating activities:
Net income	$	92,650		$	88,827
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,790			11,069
Loss on sale/disposal of assets		149			365
Amortization of debt issuance costs		1,101			1,177
Provision for deferred income taxes		1,467			566
Non-cash compensation expense		4,608			6,063
Excess tax benefits from equity-based compensation		(8,663	)		(8,410	)
Other		94			(57	)
Changes in operating assets and liabilities		1,974			(15,405	)
Changes in advertising fund assets and liabilities, restricted		(10,172	)		(519	)

Net cash provided by operating activities		96,998			83,676

Cash flows from investing activities:
Capital expenditures		(12,222	)		(13,647	)
Maturities of advertising fund investments, restricted		—			4,007
Other		262			(499	)

Net cash used in investing activities		(11,960	)		(10,139	)

Cash flows from financing activities:
Repayments of long-term debt and finance lease obligations		(48,968	)		(8,078	)
Proceeds from exercise of stock options		4,537			3,718
Purchases of common stock		(8,144	)		(101,084	)
Tax payments for restricted stock upon vesting		(2,467	)		(2,299	)
Payments of common stock dividends and equivalents		(90	)		(79	)

Net cash used in financing activities		(55,132	)		(107,822	)

Effect of exchange rate changes on cash		124			48

Change in cash and cash equivalents, restricted cash and cash equivalents		30,030			(34,237	)

Cash and cash equivalents, beginning of period		25,438			35,768
Restricted cash and cash equivalents, beginning of period		166,993			191,762
Cash and cash equivalents included in advertising fund assets, restricted, beginning of period		44,988			27,316

Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, beginning of period		237,419			254,846

Cash and cash equivalents, end of period		83,114			44,609
Restricted cash and cash equivalents, end of period		150,055			145,186
Cash and cash equivalents included in advertising fund assets, restricted, end of period		34,280			30,814

Cash and cash equivalents, restricted cash and cash equivalents and cash and cash equivalents included in advertising fund assets, restricted, end of period	$	267,449		$	220,609

See accompanying notes.

Domino’s Pizza, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

March 24, 2019

1. Basis of Presentation and Updates to Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form

10-Q

and Rule

10-01

of Regulation

S-X.

Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended December 30, 2018 included in the Company’s 2018 Annual Report on Form

10-K,

filed with the Securities and Exchange Commission on February 21, 2019 (the “2018 Form

10-K”).

In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement have been included. Operating results for the fiscal quarter ended March 24, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2019.

Updates to Significant Accounting Policies

The Company adopted Accounting Standards Codification 842,

Leases

(“ASC 842”) in the first quarter of 2019. As a result, the Company updated its significant accounting policies for leases below. Refer to Note 11 for additional information related to the Company’s lease arrangements and Note 15 for the impact of the adoption of ASC 842 on the Company’s condensed consolidated financial statements.

Leases

The Company leases certain retail store and supply chain center locations, supply chain vehicles and its corporate headquarters. The Company determines whether an arrangement is or contains a lease at contract inception. The majority of the Company’s leases are classified as operating leases, which are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s condensed consolidated balance sheet. Finance leases are included in property and equipment, current portion of long-term debt and long-term debt on the Company’s condensed consolidated balance sheet.

ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement, as well as any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Lease terms may include options to renew when it is reasonably certain that the Company will exercise that option.

The Company estimates its incremental borrowing rate for each lease using a portfolio approach based on the respective weighted average term of the agreements. This estimation considers the market rates of the Company’s outstanding collateralized borrowings and interpolations of rates outside of the terms of the outstanding borrowings, including comparisons to comparable borrowings of similarly-rated companies with longer term borrowings.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense, while interest expense for finance leases is recognized using the effective interest method. Variable lease payments that do not depend on a rate or index, payments associated with non-lease components and short-term rentals (leases with terms less than 12 months) are expensed as incurred.

2. Segment Information

The following table summarizes revenues, income from operations and earnings before interest, taxes, depreciation, amortization and other, which is the measure by which the Company allocates resources to its segments and which the Company refers to as Segment Income, for each of its reportable segments.


	Fiscal Quarters Ended March 24, 2019 and March 25, 2018
	U.S. Stores		Supply Chain		International Franchise		Intersegment Revenues			Other			Total
Revenues
2019	$	309,279	$	505,681	$	54,584	$	(33,581	)	$	—		$	835,963
2018		292,887		473,956		52,421		(33,893	)		—			785,371
Income from operations
2019	$	80,615	$	42,021	$	42,754		N/A		$	(21,886	)	$	143,504
2018		75,289		37,372		41,524		N/A			(20,709	)		133,476
Segment Income
2019	$	83,598	$	46,047	$	42,800		N/A		$	(10,394	)	$	162,051
2018		78,344		40,156		41,572		N/A			(9,099	)		150,973

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


	Fiscal Quarter Ended
	March 24, 2019			March 25, 2018
Total Segment Income	$	162,051		$	150,973
Depreciation and amortization		(13,790	)		(11,069	)
Loss on sale/disposal of assets		(149	)		(365	)
Non-cash compensation expense		(4,608	)		(6,063	)

Income from operations		143,504			133,476
Interest income		693			480
Interest expense		(35,054	)		(30,286	)

Income before provision for income taxes	$	109,143		$	103,670

3. Earnings Per Share


	Fiscal Quarter Ended
	March 24, 2019		March 25, 2018
Net income available to common stockholders – basic and diluted	$	92,650	$	88,827

Basic weighted average number of shares		40,865,532		42,822,112
Earnings per share – basic	$	2.27	$	2.07
Diluted weighted average number of shares		42,202,429		44,377,509
Earnings per share – diluted	$	2.20	$	2.00

The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 71,880 options to purchase common stock as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 1,800 shares subject to restricted stock awards, as the effect of including these shares would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2019 does not include 96,712 restricted performance shares, as the performance targets for these awards had not yet been met.

The denominator used in calculating diluted earnings per share for common stock for the first quarter of 2018 does not include 87,420 options to purchase common stock, as the effect of including these options would have been anti-dilutive. The denominator used in calculating diluted earnings per share for the first quarter of 2018 did not include 117,062 restricted performance shares, as the performance targets for these awards had not yet been met.

4. Stockholders’ Deficit

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


	Common Stock					Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Loss
	Shares			Amount		Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Loss
Balance at December 30, 2018		40,977,561		$	410	$	569		$	(3,036,471	)	$	(4,429	)
Net income		—			—		—			92,650			—
Common stock dividends and equivalents		—			—		—			(26,665	)		—
Issuance of common stock, net		8,240					—			—			—
Tax payments for restricted stock upon vesting		(9,064	)		—		(2,467	)		—			—
Purchases of common stock		(33,549	)				(1,782	)		(6,362	)		—
Exercise of stock options		140,702			1		4,536			—			—
Non-cash compensation expense		—			—		4,608			—			—
Currency translation adjustment		—			—		—			—			237

Balance at March 24, 2019		41,083,890		$	411	$	5,464		$	(2,976,848	)	$	(4,192	)

The following table summarizes changes in stockholders’ deficit for the first quarter of 2018.


	Common Stock						Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Loss
	Shares			Amount			Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Loss
Balance at December 31, 2017		42,898,329		$	429		$	5,654		$	(2,739,437	)	$	(2,030	)
Net income		—			—			—			88,827			—
Common stock dividends and equivalents		—			—			—			(23,549	)		—
Issuance of common stock, net		9,282			—			—			—			—
Tax payments for restricted stock upon vesting		(10,237	)		—			(2,299	)		—			—
Purchases of common stock		(448,008	)		(5	)		(12,997	)		(88,082	)		—
Exercise of stock options		176,515			2			3,716			—			—
Non-cash compensation expense		—			—			6,063			—			—
Adoption of revenue recognition accounting standard		—			—			—			(6,701	)		—
Currency translation adjustment		—			—			—			—			(455	)
Reclassification adjustment for stranded taxes		—			—			—			351			(351	)

Balance at March 25, 2018		42,625,881		$	426		$	137		$	(2,768,591	)	$	(2,836	)

5. Dividends

During the first quarter of 2019, on

February 20, 2019

, the Company’s Board of Directors declared a $0.65 per share quarterly dividend on its outstanding common stock for shareholders of record as of

March 15, 2019

which was paid on

March 29, 2019

. The Company had approximately $27.2 million accrued for common stock dividends at March 24, 2019.

Subsequent to the first quarter of 2019, on

April 23, 2019

, the Company’s Board of Directors declared a $0.65 per share quarterly dividend on its outstanding common stock for shareholders of record as of

June 14, 2019

to be paid on

June 28, 2019

During the first quarter of 2018, on

February 14, 2018

, the Company’s Board of Directors declared a $0.55 per share quarterly dividend on its outstanding common stock for shareholders of record as of

March 15, 2018

which was paid on

March 30, 2018

6. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss was approximately $4.2 million at March 24, 2019 and was approximately $4.4 million as of December 30, 2018 and represented currency translation adjustments. During the first quarter of 2018, the Company adopted ASU

2018-02,

Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

. As a result, the Company recorded a $0.4 million reclassification from accumulated other comprehensive loss to the beginning balance of retained deficit during the first quarter of 2018. The Company did not record any reclassifications out of accumulated other comprehensive loss to net income in the first quarter of 2019 or the first quarter of 2018.

7. Open Market Share Repurchase Program

During the first quarter of 2019, the Company repurchased and retired 33,549 shares of its common stock under its Board of Directors-approved open market share repurchase program for a total of approximately $8.1 million, or an average price of $242.74 per share. As of March 24, 2019, the Company had a total remaining authorized amount for share repurchases of approximately $150.6 million.

During the first quarter of 2018, the Company repurchased and retired 448,008 shares of its common stock under its Board of Directors-approved open market share repurchase program for a total of approximately $101.1 million, or an average price of $225.63 per share.

8. 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.

The fair values of the Company’s cash equivalents and investments in marketable securities are based on quoted prices in active markets for identical assets. The following tables summarize the carrying amounts and fair values of certain assets at March 24, 2019 and December 30, 2018:


	At March 24, 2019
			Fair Value Estimated Using
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Cash equivalents	$	48,467	$	48,467	$	—	$	—
Restricted cash equivalents		90,014		90,014		—		—
Investments in marketable securities		10,187		10,187		—		—
Advertising fund cash equivalents, restricted		22,847		22,847		—		—
Advertising fund investments, restricted		50,152		50,152		—		—


	At December 30, 2018
			Fair Value Estimated Using
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Cash equivalents	$	11,877	$	11,877	$	—	$	—
Restricted cash equivalents		112,272		112,272		—		—
Investments in marketable securities		8,718		8,718		—		—
Advertising fund cash equivalents, restricted		31,547		31,547		—		—
Advertising fund investments, restricted		50,152		50,152		—		—

Management estimated the approximate fair values of the 2015 fixed rate notes, the 2017 fixed and floating rate notes and the 2018 fixed rate notes as follows:

	March 24, 2019				December 30, 2018
	Principal Amount		Fair Value		Principal Amount		Fair Value
2015 Ten-Year Fixed Rate Notes	$	778,000	$	804,452	$	780,000	$	783,120
2017 Five-Year Fixed Rate Notes		591,000		582,726		592,500		575,910
2017 Ten-Year Fixed Rate Notes		985,000		991,895		987,500		956,888
2017 Five-Year Floating Rate Notes		295,500		294,318		296,250		295,065
2018 7.5-Year Fixed Rate Notes		421,813		427,297		422,875		416,955
2018 9.25-Year Fixed Rate Notes		397,000		404,940		398,000		396,010

At March

2019

, the Company had $

25.0

million outstanding under its variable funding notes, which is a variable rate loan. The fair value of this loan approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. This fair value represents a Level

measurement. The Company had $

65.0

million outstanding under its variable funding notes at December

2018

The fixed and floating rate notes are classified as Level

measurements, as the Company estimates the fair value amount by using available market information. The Company obtained quotes from two separate brokerage firms that are knowledgeable about the Company’s fixed and floating rate notes and, at times, trade these notes. The Company also performed its own internal analysis based on the information gathered from public markets, including information on notes that are similar to those of the Company. However, considerable judgment is required to interpret market data to estimate fair value. Accordingly, the fair value estimates presented are not necessarily indicative of the amount that the Company or the

debtholders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values stated above.

9. Contract Liabilities

Contract liabilities consist of deferred franchise fees and deferred development fees. Changes in deferred franchise fees and deferred development fees for the first quarter of 2019 and the first quarter of 2018 were as follows:


	Fiscal Quarter Ended
	March 24, 2019			March 25, 2018
Deferred franchise fees and deferred development fees at beginning of period	$	19,900		$	19,404
Revenue recognized during the period		(1,361	)		(1,083	)
New deferrals due to cash received and other		900			613

Deferred franchise fees and deferred development fees at end of period	$	19,439		$	18,934

10. Advertising Fund Assets

As of March 24, 2019, advertising fund assets, restricted of $98.1 million consisted of $84.4 million of cash, cash equivalents and investments, $12.1 million of accounts receivable and $1.6 million of prepaid expenses. As of March 24, 2019, advertising fund cash, cash equivalents and investments included $5.1 million of cash contributed from Company-owned stores that had not yet been expended.

As of December 30, 2018, advertising fund assets, restricted of $112.7 million consisted of $95.1 million of cash, cash equivalents and investments, $15.3 million of accounts receivable and $2.3 million of prepaid expenses. As of December 30, 2018, advertising fund cash, cash equivalents and investments included $5.5 million of cash contributed from Company-owned stores that had not yet been expended.

11. Leases

The Company leases certain retail store and supply chain center locations, supply chain vehicles and its corporate headquarters with expiration dates through 2034.

The components of operating and finance lease cost for the first quarter of 2019 were as follows:


	Fiscal Quarter Ended
	March 24, 2019
Operating lease cost	$	10,796
Finance lease cost:
Amortization of right-of-use assets		254
Interest on lease liabilities		479

Total finance lease cost	$	733

Rent expense totaled $16.4 million and $15.4 million in the first quarter of 2019 and 2018, respectively, and 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.

Supplemental balance sheet information related to the Company’s finance leases as of March 24, 2019 and December 30, 2018 was as follows:


	March 24, 2019			December 30, 2018
Land and buildings	$	22,182		$	22,171
Accumulated depreciation and amortization		(6,932	)		(6,678	)

Finance lease assets, net	$	15,250		$	15,493

Current portion of long-term debt	$	659		$	643
Long-term debt, less current portion		16,202			16,363

Total principal payable on finance leases	$	16,861		$	17,006


	Operating Leases			Finance Leases
Weighted average remaining lease term		7 years			14 years
Weighted average discount rate		4.1	%		11.3	%

Supplemental cash flow information related to leases for the first quarter of 2019 was as follows:


	Fiscal Quarter Ended
	March 24, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10,690
Operating cash flows from finance leases		479
Financing cash flows from finance leases		155
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		12,977
Finance leases		—

During the first quarter of 2018, the Company renewed the lease of a supply chain center building and extended the term of the lease through 2033. As a result of the lease renewal, the Company recorded

non-cash

financing activities of $2.6 million for the increase in finance lease assets and liabilities during the first quarter of 2018.

Maturities of lease liabilities as of March 24, 2019 were as follows:


	Operating Leases			Finance Leases
2019, excluding the quarter ended March 24, 2019	$	29,314		$	1,799
2020		38,791			2,416
2021		35,915			2,434
2022		32,545			2,452
2023		29,188			2,475
Thereafter		107,039			23,792

Total future minimum rental commitments		272,792			35,368
Less – amounts representing interest		(42,531	)		(18,507	)

Total lease liabilities	$	230,261		$	16,861

Maturities of lease liabilities as of December 30, 2018 were as follows:


	Operating Leases		Finance Leases
2019	$	40,752	$	2,396
2020		37,519		2,415
2021		34,538		2,433
2022		30,763		2,451
2023		27,388		2,474
Thereafter		100,310		23,781

Total future minimum rental commitments	$	271,270		35,950

Less – amounts representing interest				(18,944	)

Total principal payable on finance leases			$	17,006

As of March 24, 2019, the Company has additional operating leases for supply chain center tractors and trailers and a new office building being constructed by the Company’s landlord that had not yet commenced with estimated future minimum rental commitments of approximately $43.0 million. The Company has also entered into an additional finance lease for a supply chain center that had not yet commenced with estimated future minimum rental commitments of approximately $28.7 million. These leases are expected to commence in 2019 with lease terms of up to 15 years. These undiscounted amounts are not included in the tables above.

The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees is $2.3 million and $2.4 million as of March 24, 2019 and December 30, 2018, respectively. We believe that none of these arrangements has or is likely to have a material effect on our results of operations, financial condition, revenues or expenses, capital expenditures or liquidity.

12. Legal Matters

On February 14, 2011, Domino’s 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 franchisee’s 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 franchisee’s 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. On May 11, 2018, the court of appeals reversed and remanded the case to the trial court for a new trial based on the plaintiff’s improper closing argument. The Company continues to deny liability in this matter.

13. Supplemental Disclosures of Cash Flow Information

The Company had

non-cash

investing activities related to accruals for capital expenditures of $2.6 million at March 24, 2019 and $3.8 million at December 30, 2018.

14. Sale of Company-owned Stores

Subsequent to the first quarter of 2019, the Company entered into agreements to sell 59 U.S. Company-owned stores to certain of its existing franchisees.