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Domino's Pizza Announces 2006 Financial Results

ANN ARBOR, Mich., Feb. 23 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the fourth quarter and fiscal 2006, each ended December 31, 2006.

    Fourth Quarter and Fiscal 2006 Highlights:

                                 Fourth       Fourth
    (dollars in millions,        Quarter      Quarter    Fiscal       Fiscal
     except per share data)      of 2006      of 2005     2006         2005

    Revenues                     $ 435.3      $457.4    $1,437.3    $1,511.6

    Net income                     $31.0       $40.2     $ 106.2     $ 108.3

    Weighted average
     diluted shares           63,697,961  68,304,808  64,541,079  68,654,573

    Diluted earnings per
     share, as reported            $0.49       $0.59       $1.65       $1.58
    Items affecting
     (see section below)                     $ (0.15)    $ (0.09)    $ (0.15)
    Diluted earnings per
     share, as adjusted                        $0.44       $1.56       $1.43

* Revenues were down 4.8% for the fourth quarter and 4.9% for the full year. Management noted that several factors other than sales volume affected this number, and that its 2006 global retail sales were up 2.0% for the year. As an example, domestic distribution revenues decreased 4.9% for the quarter and 6.9% for the full year; this was driven not only by a decrease in domestic sales volumes, but also by lower food prices, primarily cheese, which constituted about half of the 4.9% full-year decrease. International revenues decreased 14.7% in the fourth quarter and 4.8% for the full year, driven by the sale of Company-owned operations in France and the Netherlands during 2006. The Company noted that international retail sales were up 13.5% for the fourth quarter and 11.4% for the full year.

* Net income was down 22.8% for the fourth quarter and 1.9% for the full year, driven primarily by a gain recognized in the fourth quarter of 2005 on the sale of an equity investment in the Company's master franchisee in Mexico, as well as increases in interest expense in 2006. This was offset in part by the positive impact on net income from selling Company-owned operations in France and the Netherlands during 2006.

* Diluted EPS was $0.49 on an as-reported basis for the fourth quarter, down $0.10 from the as-reported prior year period. However, when comparing to the adjusted number of $0.44 for the prior-year period, 2006 fourth quarter EPS grew by 11.4%. Diluted EPS on an as-reported basis was $1.65 for the full year 2006, up $0.07 from 2005. Adjusted EPS for the full year 2006 was $1.56, up 9.1% versus an adjusted $1.43 for the full year 2005. (See the Items Affecting Comparability section and the Comments on Regulation G section.) These increases in the adjusted EPS measures benefited from reduced diluted shares outstanding.

                                                   Quarter of       Fiscal
                                                      2006           2006
    Same store sales growth:
     (versus prior year period)
    Domestic Company-owned stores                     (1.0)%         (2.2)%
    Domestic franchise stores                         (4.9)%         (4.4)%
    Domestic stores                                   (4.4)%         (4.1)%
    International stores                               +3.9%          +4.0%

    Global retail sales growth:
     (versus prior year period)
    Domestic stores                                   (3.0)%         (2.8)%
    International stores                              +13.5%         +11.4%
    Total                                              +2.7%          +2.0%

                            Domestic   Domestic    Total    Inter-
                            Company-   Franchise  Domestic  national
                          owned Stores   Stores   Stores    Stores     Total
    Store counts:
    Store count at
     September 10, 2006           565    4,535    5,100      3,138     8,238
    Openings                        7       58       65         96       161
    Closings                       (1)     (21)     (22)       (11)      (33)
    Store count at
     December 31, 2006            571    4,572    5,143      3,223     8,366
    Fourth quarter
     2006 net growth                6       37       43         85       128
    Fiscal 2006
     net growth                   (10)      61       51        236       287

* The decrease in domestic same store sales was due primarily to stronger promotion performance and related higher same store sales in the prior year.

* The fourth quarter increase of 3.9% in international same store sales marks the 52nd consecutive quarter of positive international same store sales growth.

* Global retail sales increases were driven by international same store sales growth and worldwide store expansion.

David A. Brandon, Domino's Chairman and Chief Executive Officer, said: "2006 was a difficult and challenging year for our domestic business. Some of our difficulties were self-imposed. Our national marketing and promotions underperformed during the first half of the year. Following those disappointments, too many of our operators went into 'cost-cutting mode' and our store operations suffered. As a result, when we moved into the second half of the year, our stores were not well positioned with the staffing and energy required to effectively execute against our stronger second-half marketing calendar. This was disappointing, but we have already taken corrective actions. Our job is to drive positive same store sales year after year in any and every market condition. We have a proven track record of doing this consistently over many years. I take personal pride in this, as does my team. We are committed to learning from 2006 and re-establishing our track record of producing annual domestic same store sales increases of 1% - 3%. However, it is important to emphasize that despite this short-term domestic problem, we were successful in driving both international same store sales growth and global store growth in 2006, helping us to increase global retail sales by 2% and exceed the $5 billion mark."

Brandon continued: "This top line growth enabled us to, once again, generate significant free cash flow of $113 million that we deployed for the benefit of our shareholders. Our announced recapitalization plan is further evidence that we will continue this practice and take aggressive approaches to returning capital to our shareholders. Looking toward 2007, our goal will be to continue to build upon our strong international business, boost domestic same store sales and store growth and, as always, do all we can to help grow the profitability of our franchisees."

Items Affecting Comparability

The Company's reported financial results in 2006 are not comparable to the reported financial results in 2005 due to several factors, including:

    (i)   the 2006 impact of the sale of Company-owned France and Netherlands
    (ii)  charges incurred in 2005 related to the Netherlands operations,
    (iii) expenses incurred in 2005 related to the departure of the Company's
          former CFO, primarily comprised of non-cash compensation expenses
          and a cash separation obligation, and
    (iv)  the gain in 2005 on the sale of the equity investment in the
          Company's Mexican master franchisee.

The table below presents the items that affect comparability between 2006 and 2005 financial results. Management believes that including such information is critical to the understanding of our financial results for the fourth quarter and full year 2006 as compared to similar periods in 2005.

                            Fourth Quarter                  Full Year

                                       Diluted                       Diluted
     (in thousands)            After-    EPS                After-     EPS
                      Pre-tax   tax     Impact    Pre-tax    tax      Impact
     2006 items
     Gain on the
      sale of France
      and Netherlands
      operations and
      related tax
      effects (1)        N/A      N/A      N/A      $2,825    $5,571    $0.09

     2005 items
      charges (2)    $(2,838) $(2,838)  $(0.04)    $(2,838)  $(2,838)  $(0.04)
     CFO separation
      expenses          (932)    (576)   (0.01)     (1,139)     (707)   (0.01)
     Gain on sale of
      investment (3)  22,084    13,655    0.20      22,084    13,655     0.20
     Total of 2005
      items          $18,314   $10,241  $ 0.15     $18,107   $10,110    $0.15

    (1) During the third quarter of 2006, we recognized a pre-tax gain on the
        sale of our Company-owned France and Netherlands operations of
        approximately $2.8 million. During the second quarter of 2006, when it
        was apparent that the sale would be completed, we recognized the tax
        impact of the sale which resulted in a tax benefit of approximately
        $2.9 million.
    (2) The charges incurred in 2005 related to Company-owned operations in
        the Netherlands were not tax affected due to the uncertainty at that
        time of the ability to utilize net operating loss carryovers related
        to the Netherlands in the future.
    (3) During the fourth quarter of 2005, we recognized a gain of
        approximately $22.1 million related to the sale of an equity
        investment in our master franchisee in Mexico.

    Conference Call Information

The Company plans to file its annual report on Form 10-K this morning. Additionally, as previously announced, Domino's Pizza, Inc. will hold a conference call today at 11 a.m. (Eastern) to review its fiscal 2006 financial results. Please note that, due to the Company's previously-announced recapitalization plan and ongoing tender offers, there will be no question and answer session on the conference call. The call can be accessed by dialing (888) 306-6182 (U.S./Canada) or (706) 634-4947 (International). Ask for the Domino's Pizza conference call. The call will also be web cast at If you are unable to participate on the call, a replay will be available through midnight March 23, 2007 by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International), Conference ID 2472825. The web cast will be archived for 30 days on

Recapitalization Plan and Discontinuation of Quarterly Dividends

On February 7, 2007, the Company announced a recapitalization plan comprised of (i) an offer to purchase up to approximately 13.85 million shares of common stock at a price range between $27.50 and $30.00 per share, (ii) an offer to purchase all of the outstanding senior subordinated notes due 2011 and (iii) the repayment of all outstanding borrowings under the senior credit facility. While the Company retains the flexibility to change the above price range, it has no intention to change that range. In order to fund the tender offers and repay outstanding borrowings under the senior credit facility, the Company anticipates initially entering into a bridge loan facility that provides for borrowings of up to $1.35 billion. It has obtained a commitment, subject to customary conditions, from a syndicate of banks to provide the bridge loan facility. Following the tender offers and repayment of the senior credit facility, the Company intends to pursue a securitized financing with borrowings up to $1.85 billion, of which $150 million would be a revolving credit facility. The securitized debt proceeds would repay the bridge loan, with any remaining proceeds to be used for general corporate purposes, including, but not limited to, a potential special dividend and an ongoing share repurchase program.

In February 2007, in connection with the recapitalization plan, Domino's entered into a five-year forward-starting interest rate swap agreement with a notional amount of $1.25 billion. The swap was entered into to hedge the variability of future interest rates in contemplation of the securitized debt in connection with the recapitalization plan.

Additionally, at its February 2007 meeting, the Company's Board of Directors elected to discontinue the payment of regular quarterly dividends as it anticipates the payment of a significant special cash dividend in connection with its recapitalization plan. In addition, the Company and its Board of Directors is contemplating a future open market share repurchase program.

Management believes that it can better use Company resources to return shareholder value through the proposed recapitalization; the anticipated significant special cash dividend and the potential future open market share repurchase program rather than the payment of a regular quarterly dividend.

Annual Meeting of Shareholders

The Company's Board of Directors set the date of its 2007 annual meeting of shareholders as well as the record date for that meeting. The 2007 shareholders' meeting will be held on Tuesday, April 24, 2007, at 10:00 a.m. (Eastern) at Domino's Pizza World Resource Center at 30 Frank Lloyd Wright Drive, Ann Arbor, Michigan. The record date for the annual meeting is March 15, 2007. Only shareholders of record on that date are entitled to vote at the meeting.

Long Range Outlook

The Company does not provide quarterly or annual earnings estimates. The following long range outlook does not constitute specific earnings guidance, but management believes these ranges to be appropriate and achievable over the long term.


        Domestic same store sales                   1% - 3%
        International same store sales              3% - 5%
        Net units                                  200 - 250
        Global retail sales                         4% - 6%

    As of December 31, 2006, the Company had:

    * $741.6 million in total debt,
    * $38.2 million of cash and cash equivalents,
    * approximately 64% of outstanding borrowings contractually fixed,
      including the effect of interest rate derivatives,
    * no borrowings under its $125.0 million revolving credit facility, and
    * letters of credit issued under its revolving credit facility of $33.9

The Company repaid $95.3 million of debt in 2006. The Company also borrowed $100.0 million in the first quarter which, along with cash from operations, was used to repurchase and retire $145.0 million of common stock from its largest shareholder.

The Company's average borrowing rate for 2006 was 6.5%. The Company is not required to make the next scheduled senior credit facility principal payment of $1.2 million until September 30, 2007 and is not required to make principal payments on its senior subordinated notes until 2011.

The Company incurred $20.2 million in capital expenditures during 2006 versus $28.7 million during 2005. The decrease was due primarily to a higher level of spending in 2005 related to the renovation of the Company's headquarters.

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included certain non-GAAP financial measures within the meaning of Regulation G due to items affecting comparability between fiscal years. Additionally, the Company has included metrics commonly used in the quick-service restaurant industry that are important to understanding Company performance.

The Company uses "Diluted EPS, as adjusted," which is calculated as reported diluted EPS less the items affecting comparability discussed above. The most directly comparable financial measure calculated and presented in accordance with GAAP is diluted earnings per share. The Company's management believes that the Diluted EPS, as adjusted measure is important and useful to investors and other interested persons and that such persons benefit from having a consistent basis for comparison between reporting periods.

The Company uses "Free cash flow," calculated as cash flows from operations less capital expenditures, both as reported. The Company's management believes that the free cash flow measure is important to investors and other interested persons and that such persons benefit from having a measure which communicates how much cash flows are available to be used for de-levering, making acquisitions, paying dividends, repurchasing shares or similar uses of cash.

The Company uses "Global retail sales" to refer to total worldwide retail sales at Company-owned and franchise stores. Management believes global retail sales information is useful in analyzing revenues, because franchisees pay royalties that are based on a percentage of franchise retail sales. Management reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino's Pizza(R) brand. In addition, distribution revenues are directly impacted by changes in domestic franchise retail sales. Retail sales for franchise stores are reported to the Company by its franchisees and are not included in Company revenues.

The Company uses "Same store sales growth," calculated including only sales from stores that also had sales in the comparable period of the prior year. International same store sales growth is calculated similarly to domestic same store sales growth. Changes in international same store sales are reported on a constant dollar basis, which reflects changes in international local currency sales.

About Domino's

Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery. Domino's is listed on the NYSE under the symbol "DPZ." Through its primarily franchised system, Domino's operates a network of 8,366 franchised and Company-owned stores in the United States and more than 50 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of nearly $5.1 billion in 2006, comprised of $3.2 billion domestically and nearly $1.9 billion internationally. During the fourth quarter of 2006, the Domino's Pizza(R) brand had global retail sales of nearly $1.6 billion, comprised of nearly $1.0 billion domestically and approximately $600 million internationally. Domino's Pizza was named "Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry and is the "Official Pizza of NASCAR(R)." More information on the Company, in English and Spanish, can be found on the web at


This press release contains forward-looking statements. These forward- looking statements relating to our anticipated profitability and operating performance reflect management's expectations based upon currently available information and data. However, actual results are subject to future risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that can cause actual results to differ materially include: uncertainties relating to the outcome of our equity and bond tender offers; our ability to complete an asset-backed securitization facility; the uncertainties relating to litigation; consumer preferences, spending patterns and demographic trends; the effectiveness of our advertising, operations and promotional initiatives; our ability to retain key personnel; new product and concept developments by us and other food-industry competitors; the ongoing profitability of our franchisees and the ability of Domino's Pizza and our franchisees to open new restaurants; changes in food prices, particularly cheese, labor, utilities, insurance, employee benefits and other operating costs; the impact that widespread illness or general health concerns may have on our business and the economy of the countries in which we operate; severe weather conditions and natural disasters; changes in our effective tax rate; changes in government legislation and regulations; adequacy of our insurance coverage; costs related to future financings and changes in accounting policies. Further information about factors that could affect our financial and other results is included in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.

                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income

                                                Fiscal Quarter Ended
                                                   % of                % of
                                     December 31,  Total   January 1,  Total
                                         2006     Revenues    2006    Revenues

    (In thousands, except per
      share data)
      Domestic Company-owned stores    $117,419            $120,085
      Domestic franchise                 48,153              49,473
      Domestic distribution             234,815             246,970
      International                      34,868              40,871
    Total revenues                      435,255   100.0%    457,399    100.0%

    Cost of sales:
      Domestic Company-owned stores      93,908              96,055
      Domestic distribution             210,383             222,547
      International                      15,271              21,433
    Total cost of sales                 319,562    73.4%    340,035     74.3%
    Operating margin                    115,693    26.6%    117,364     25.7%

    General and administrative           52,499    12.1%     58,976     12.9%
    Income from operations               63,194    14.5%     58,388     12.8%

    Interest expense, net               (16,067)   (3.7)%   (15,458)    (3.4)%
    Other                                   -        -       22,084      4.8%
    Income before provision for
     income taxes                        47,127    10.8%     65,014     14.2%

    Provision for income taxes           16,082     3.7%     24,817      5.4%
    Net income                          $31,045     7.1%    $40,197      8.8%

    Earnings per share:
      Common stock - diluted              $0.49               $0.59

                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income

                                              Fiscal Year Ended

                                              % of                     % of
                             December 31,     Total     January 1,     Total
                                 2006        Revenues     2006        Revenues
    (In thousands,
      except per share data)
      Domestic Company-
       owned stores            $393,406                 $401,008
      Domestic franchise        157,741                  161,857
      Domestic distribution     762,782                  819,097
      International             123,390                  129,635
    Total revenues            1,437,319       100.0%   1,511,597       100.0%

    Cost of sales:
      Domestic Company-
       owned stores             312,130                  319,072
      Domestic distribution     681,700                  739,300
      International              58,958                   67,937
    Total cost of sales       1,052,788        73.2%   1,126,309        74.5%
    Operating margin            384,531        26.8%     385,288        25.5%

    General and administrative  170,334        11.9%     186,184        12.3%
    Income from operations      214,197        14.9%     199,104        13.2%

    Interest expense, net       (53,772)       (3.7)%    (47,937)       (3.2)%
    Other                            -            -       22,084         1.5%
    Income before provision for
      income taxes              160,425        11.2%     173,251        11.5%

    Provision for income taxes   54,198         3.8%      64,969         4.3%
    Net income                 $106,227         7.4%    $108,282         7.2%

    Earnings per share:
    Common stock - diluted       $ 1.65                    $1.58

                    Domino's Pizza, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets

                                     December 31, 2006     January 1, 2006
    (In thousands)
    Current assets:
      Cash and cash equivalents                $38,222             $66,919
      Accounts receivable                       65,697              74,437
      Inventories                               22,803              24,231
      Advertising fund assets, restricted       18,880              35,643
      Other assets                              20,703              20,116
    Total current assets                       166,305             221,346

    Property, plant and equipment, net         117,144             131,455

    Other assets                                96,754             108,273

    Total assets                              $380,203            $461,074

    Liabilities and stockholders' deficit
    Current liabilities:
      Current portion of long-term debt         $1,477             $35,304
      Accounts payable                          55,036              60,330
      Advertising fund liabilities              18,880              35,643
      Other accrued liabilities                 79,808              86,108
    Total current liabilities                  155,201             217,385

    Long-term liabilities:
      Long-term debt, less current portion     740,120             702,358
      Other accrued liabilities                 49,775              52,316
    Total long-term liabilities                789,895             754,674

    Total stockholders' deficit               (564,893)           (510,985)

    Total liabilities and stockholders'
     deficit                                  $380,203            $461,074

                    Domino's Pizza, Inc. and Subsidiaries
               Condensed Consolidated Statements of Cash Flows

                                                       Fiscal Year Ended
                                                  December 31,    January 1,
                                                      2006           2006
    (In thousands)
    Cash flows from operating activities:
    Net income                                        $106,227     $108,282
    Adjustments to reconcile net income to net
     cash flows provided by operating activities:
      Depreciation and amortization                     32,266       32,415
      Gains on sale/disposal of assets                  (2,678)     (18,998)
      Amortization of deferred financing costs
       and debt discount                                 3,380        3,020
      Provision (benefit) for deferred income taxes       (615)         308
      Other                                              4,490        5,050
      Changes in operating assets and liabilities      (10,067)      11,120
    Net cash provided by operating activities          133,003      141,197

    Cash flows from investing activities:
    Capital expenditures                               (20,204)     (28,689)
    Proceeds from sale of property, plant
     and equipment                                      14,369        3,899
    Proceeds from sale of equity investment                -         25,532
    Other                                                  (97)        (605)
    Net cash provided by (used in)
     investing activities                               (5,932)         137

    Cash flows from financing activities:
    Proceeds from issuance of long-term debt           100,000       40,000
    Repayments of long-term debt and capital
     lease obligation                                  (95,284)     (80,343)
    Proceeds from issuance of common stock, net          4,641        1,084
    Proceeds from exercise of stock options              4,902        5,553
    Tax benefit from exercise of stock options           5,075       21,504
    Repurchase of common stock                        (145,000)     (75,000)
    Common stock dividends                             (29,841)     (26,899)
    Other                                                 (250)        (482)
    Net cash used in financing activities             (155,757)    (114,583)

    Effect of exchange rate changes on cash
     and cash equivalents                                  (11)        (228)

    Increase (decrease) in cash and cash equivalents   (28,697)      26,523

    Cash and cash equivalents, at beginning of period   66,919       40,396

    Cash and cash equivalents, at end of period        $38,222      $66,919

SOURCE Domino's Pizza, Inc.

CONTACT: Lynn Liddle, Executive Vice President, Communications and Investor Relations of Domino's Pizza, +1-734-930-3008