For the quarterly period ended March 27, 2005
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

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

 

For the quarterly period ended March 27, 2005

 

OR

 

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

 

For the transition period from:              to             

 

Commission file numbers:

          Domino’s Pizza, Inc.    333-114442          
          Domino’s, Inc.    333-107774          

 


 

Domino’s Pizza, Inc.

Domino’s, Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware   38-2511577
Delaware   38-3025165

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

30 Frank Lloyd Wright Drive

Ann Arbor, Michigan 48106

(Address of principal executive offices)

 

(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  x    No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x

 

As of April 30, 2005, Domino’s Pizza, Inc. had 64,764,185 shares of common stock, par value $0.01 per share, outstanding. As of April 30, 2005, Domino’s, Inc. had 10 shares of common stock, par value $0.01 per share, outstanding. All of the stock of Domino’s, Inc. was held by Domino’s Pizza, Inc.

 

This Quarterly Report on Form 10-Q is a combined quarterly report being filed separately by two registrants: Domino’s Pizza, Inc. and Domino’s, Inc. Except where the context clearly indicates otherwise, any references in this report to Domino’s Pizza, Inc. includes all subsidiaries of Domino’s Pizza, Inc., including Domino’s, Inc. Domino’s, Inc. makes no representation as to the information contained in this report in relation to Domino’s Pizza, Inc. and its subsidiaries, other than Domino’s, Inc. and its subsidiaries.

 



Table of Contents

Domino’s Pizza, Inc.

Domino’s, Inc.

 

TABLE OF CONTENTS

 

         Page No.

PART I.   FINANCIAL INFORMATION     

Item 1.

 

Financial Statements

    
   

Condensed Consolidated Balance Sheets (Unaudited) –
March 27, 2005 and January 2, 2005

   3
   

Condensed Consolidated Statements of Income (Unaudited) –
Fiscal quarter ended March 27, 2005 and March 21, 2004

   4
   

Condensed Consolidated Statements of Cash Flows (Unaudited) –
Fiscal quarter ended March 27, 2005 and March 21, 2004

   5
   

Notes to Condensed Consolidated Financial Statements (Unaudited)

   6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   12

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   18

Item 4.

 

Controls and Procedures

   18
PART II.   OTHER INFORMATION     

Item 1.

 

Legal Proceedings

   19

Item 2.

 

Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

   19

Item 3.

 

Defaults Upon Senior Securities

   19

Item 4.

 

Submission of Matters to a Vote of Security Holders

   19

Item 5.

 

Other Information

   19

Item 6.

 

Exhibits

   19
SIGNATURES    20

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands)

 

  

March 27,
2005


   

January 2,
2005

(Note)


 
    

Assets

                

Current assets:

                

Cash and cash equivalents

   $ 53,233     $ 40,396  

Accounts receivable

     73,055       73,138  

Inventories

     21,231       21,505  

Notes receivable

     1,691       1,763  

Prepaid expenses and other

     12,656       13,555  

Advertising fund assets, restricted

     29,462       32,817  

Deferred income taxes

     6,317       6,317  
    


 


Total current assets

     197,645       189,491  
    


 


Property, plant and equipment:

                

Land and buildings

     23,992       23,241  

Leasehold and other improvements

     74,429       74,922  

Equipment

     161,004       159,462  

Construction in progress

     8,018       6,114  
    


 


       267,443       263,739  

Accumulated depreciation and amortization

     132,079       126,856  
    


 


Property, plant and equipment, net

     135,364       136,883  
    


 


Other assets:

                

Deferred financing costs

     12,624       13,411  

Goodwill

     22,610       22,955  

Capitalized software

     23,281       24,079  

Other assets

     21,169       20,832  

Deferred income taxes

     37,332       39,696  
    


 


Total other assets

     117,016       120,973  
    


 


Total assets

   $ 450,025     $ 447,347  
    


 


Liabilities and stockholders’ deficit

                

Current liabilities:

                

Current portion of long-term debt

   $ 291     $ 25,295  

Accounts payable

     58,361       55,350  

Insurance reserves

     10,142       9,778  

Advertising fund liabilities

     29,462       32,817  

Other accrued liabilities

     73,332       66,427  
    


 


Total current liabilities

     171,588       189,667  
    


 


Long-term liabilities:

                

Long-term debt, less current portion

     751,582       755,405  

Insurance reserves

     18,933       18,039  

Other accrued liabilities

     33,484       34,116  
    


 


Total long-term liabilities

     803,999       807,560  
    


 


Stockholders’ deficit:

                

Common stock

     691       687  

Additional paid-in capital

     306,452       302,413  

Retained deficit

     (841,234 )     (859,289 )

Deferred stock compensation

     (191 )     (202 )

Accumulated other comprehensive income

     8,720       6,511  
    


 


Total stockholders’ deficit

     (525,562 )     (549,880 )
    


 


Total liabilities and stockholders’ deficit

   $ 450,025     $ 447,347  
    


 


Note: The balance sheet at January 2, 2005 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.

 

3


Table of Contents

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 

(In thousands, except per share data)

 

   Fiscal Quarter Ended

 
   March 27,
2005


    March 21,
2004


 

Revenues:

                

Domestic Company-owned stores

   $ 98,225     $ 87,964  

Domestic franchise

     39,233       34,637  

Domestic distribution

     201,817       170,850  

International

     30,393       25,303  
    


 


Total revenues

     369,668       318,754  
    


 


Cost of sales:

                

Domestic Company-owned stores

     78,140       70,103  

Domestic distribution

     182,110       154,198  

International

     16,405       13,342  
    


 


Total cost of sales

     276,655       237,643  
    


 


Operating margin

     93,013       81,111  

General and administrative

     42,518       37,640  
    


 


Income from operations

     50,495       43,471  

Interest income

     214       86  

Interest expense

     (10,616 )     (13,985 )
    


 


Income before provision for income taxes

     40,093       29,572  

Provision for income taxes

     15,135       11,164  
    


 


Net income

   $ 24,958     $ 18,408  
    


 


Earnings per share:

                

Class L common stock – basic and diluted

     N/A     $ 2.49  

Common stock – basic

   $ 0.36     $ 0.29  

Common stock – diluted

     0.35       0.26  

 

See accompanying notes.

 

4


Table of Contents

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Fiscal Quarter Ended

 

(In thousands)

 

   March 27,
2005


    March 21,
2004


 

Cash flows from operating activities:

                

Net income

   $ 24,958     $ 18,408  

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

                

Depreciation and amortization

     7,321       6,945  

Amortization of deferred financing costs and debt discount

     844       782  

Provision for deferred income taxes

     600       2,630  

Other

     400       30  

Changes in operating assets and liabilities

     6,548       (11,745 )
    


 


Net cash provided by operating activities

     40,671       17,050  
    


 


Cash flows from investing activities:

                

Capital expenditures

     (6,693 )     (6,795 )

Other

     2,143       553  
    


 


Net cash used in investing activities

     (4,550 )     (6,242 )
    


 


Cash flows from financing activities:

                

Repayments of long-term debt and capital lease obligation

     (25,080 )     (18,371 )

Other

     1,899       (230 )
    


 


Net cash used in financing activities

     (23,181 )     (18,601 )
    


 


Effect of exchange rate changes on cash and cash equivalents

     (103 )     (6 )
    


 


Increase (decrease) in cash and cash equivalents

     12,837       (7,799 )

Cash and cash equivalents, at beginning of period

     40,396       46,391  
    


 


Cash and cash equivalents, at end of period

   $ 53,233     $ 38,592  
    


 


 

See accompanying notes.

 

5


Table of Contents

Domino’s Pizza, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

 

March 27, 2005

 

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 Article 10 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 thereto for the fiscal year ended January 2, 2005 included in our annual report on Form 10-K.

 

In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation have been included. Operating results for the fiscal quarter ended March 27, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending January 1, 2006.

 

Domino’s Pizza, Inc. is the parent and holding company of Domino’s, Inc. Accordingly, all 10 outstanding shares of Domino’s, Inc. common stock, par value $0.01 per share, are owned by Domino’s Pizza, Inc. As the holding company of Domino’s, Inc., Domino’s Pizza, Inc. does not conduct ongoing business operations. As a result, the financial information for Domino’s Pizza, Inc. and subsidiaries and Domino’s, Inc. and subsidiaries is substantially similar. As the differences are minor, we have presented Domino’s Pizza, Inc. and subsidiaries information throughout this filing, except for the supplemental guarantor condensed consolidating financial statements of Domino’s, Inc. and subsidiaries included in footnote 8.

 

2. Comprehensive Income

 

     Fiscal Quarter Ended

 
    

March 27,

2005


    March 21,
2004


 

Net income

   $ 24,958     $ 18,408  

Unrealized gains (losses) on derivative instruments, net of tax

     3,205       (193 )

Reclassification adjustment for (gains) losses included in net income, net of tax

     (298 )     649  

Currency translation adjustment

     (698 )     (144 )
    


 


Comprehensive income

   $ 27,167     $ 18,720  
    


 


 

3. 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 management allocates resources to its segments and which we refer to as Segment Income, for each of our reportable segments.

 

     Fiscal Quarters Ended March 27, 2005 and March 21, 2004

     Domestic
Stores


   Domestic
Distribution


   International

   Intersegment
Revenues


    Other

    Total

Revenues –

                                           

2005

   $ 137,458    $ 230,975    $ 30,393    $ (29,158 )   $ —       $ 369,668

2004

     122,601      193,940      25,303      (23,090 )     —         318,754

Income from operations –

                                           

2005

   $ 37,265    $ 13,080    $ 8,596      N/A     $ (8,446 )   $ 50,495

2004

     31,774      10,932      7,510      N/A       (6,745 )     43,471

Segment Income –

                                           

2005

   $ 40,011    $ 15,629    $ 8,950      N/A     $ (6,673 )   $ 57,917

2004

     34,827      13,137      7,746      N/A       (5,265 )     50,445

 

 

6


Table of Contents

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

 

     Fiscal Quarter Ended

 
    

March 27,

2005


    March 21,
2004


 

Total Segment Income

   $ 57,917     $ 50,445  

Depreciation and amortization

     (7,321 )     (6,945 )

Losses on sale/disposal of assets

     (21 )     (18 )

Non-cash stock compensation expense

     (80 )     (11 )
    


 


Income from operations

     50,495       43,471  

Interest income

     214       86  

Interest expense

     (10,616 )     (13,985 )
    


 


Income before provision for income taxes

   $ 40,093     $ 29,572  
    


 


 

4. Earnings Per Share

 

     Fiscal Quarter Ended

    

March 27,

2005


   March 21,
2004


Net income available to common stockholders – basic and diluted

   $ 24,958    $ 18,408
    

  

Allocation of net income to common stockholders:

             

Class L

     N/A    $ 9,012

Common stock

   $ 24,958      9,396

Weighted average number of shares:

             

Class L

     N/A      3,614,007

Common stock

     68,922,555      32,701,476

Earnings per share – basic:

             

Class L

     N/A    $ 2.49

Common stock

   $ 0.36      0.29

Diluted weighted average number of shares:

             

Class L

     N/A      3,617,180

Common stock

     71,555,554      36,091,737

Earnings per share – diluted:

             

Class L

     N/A    $ 2.49

Common stock

   $ 0.35      0.26

 

5. Stock-Based Compensation

 

We account for our stock option plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The following table illustrates the effect on net income if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” to the stock-based employee compensation.

 

     Fiscal Quarter Ended

 
     March 27,
2005


    March 21,
2004


 

Net income, as reported

   $ 24,958     $ 18,408  

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects

     50       7  

Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects

     (310 )     (81 )
    


 


Net income, pro forma

   $ 24,698     $ 18,334  
    


 


 

The pro forma basic and diluted earnings per share amounts are the same as the earnings per share amounts reported in footnote 4.

 

7


Table of Contents

6. New Accounting Pronouncement

 

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R (revised 2004), “Share-Based Payments” (SFAS 123R). In April 2005, the FASB amended SFAS 123R to delay the effective date of the Statement to the first annual period beginning after June 15, 2005. SFAS 123R requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on the estimated fair value of the awards. We are required to adopt SFAS 123R at the beginning of fiscal 2006. We are currently assessing valuation model alternatives (i.e. Black-Scholes or binomial models) as well as related assumptions to be used in such models. Additionally, we are evaluating the two adoption alternatives (the modified-prospective method and the modified-retrospective method). Once our evaluation is complete, we will determine an appropriate valuation model, the method of adoption and the impact the adoption will have on our results of operations.

 

7. Related Party Share Repurchase and Senior Credit Facility Amendment

 

Subsequent to the first quarter, we repurchased and retired 4,409,171 shares of our Common Stock from JP Morgan Capital, L.P. and its affiliates (collectively, JPMP), for $75.0 million, or $17.01 per share. The repurchase price of $17.01 per share in this private transaction was based on a negotiated discount between us and JPMP. We used $35.0 million of available cash on hand and $40.0 million of borrowings from our revolving credit facility to fund the repurchase of shares.

 

Additionally, we completed an amendment to our senior credit facility in order to permit the share repurchase transaction, reduce current cash sweep requirements and provide additional financial flexibility.

 

8. Supplemental Guarantor Condensed Consolidating Financial Statements of Domino’s, Inc. and Subsidiaries

 

The tables below present condensed consolidating financial information for the applicable periods for: (1) Domino’s, Inc.; (2) on a combined basis, the guarantor subsidiaries of Domino’s, Inc.’s senior subordinated notes due 2011, which includes most of the domestic subsidiaries of Domino’s, Inc. and one foreign subsidiary of Domino’s, Inc.; and (3) on a combined basis, the non-guarantor subsidiaries of Domino’s, Inc.’s senior subordinated notes due 2011. The separate financial statements of Domino’s, Inc. and subsidiaries are presented using the equity method of accounting. Accordingly, Domino’s, Inc.’s investment in subsidiaries is included in “Other assets” and the net earnings of the subsidiaries are included in “Equity earnings in subsidiaries”. Except for the minor differences noted in the footnotes to the condensed consolidating financial statements below, the consolidated financial statements of Domino’s, Inc. and subsidiaries are substantially similar to the consolidated financial statements of Domino’s Pizza, Inc. and subsidiaries. Each of the guarantor subsidiaries is jointly, severally, fully and unconditionally liable under the related guarantee.

 

8


Table of Contents

Domino’s, Inc. and Subsidiaries

Supplemental Guarantor Condensed Consolidating Balance Sheets

 

     As of March 27, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


   Non-Guarantor
Subsidiaries


   Eliminations

    Consolidated

 

Cash and cash equivalents

   $ —       $ 52,012    $ 1,221    $ —       $ 53,233  

Accounts receivable

     —         65,539      7,516      —         73,055  

Advertising fund assets, restricted

     —         —        29,462      —         29,462  

Other current assets

     4,698       34,558      2,639      —         41,895  
    


 

  

  


 


Current assets

     4,698       152,109      40,838      —         197,645  

Property, plant and equipment, net

     —         129,723      5,641      —         135,364  

Other assets

     232,373       69,687      1,310      (186,354 )     117,016  
    


 

  

  


 


Total assets

   $ 237,071     $ 351,519    $ 47,789    $ (186,354 )   $ 450,025  
    


 

  

  


 


Current portion of long-term debt

   $ —       $ 248    $ 43    $ —       $ 291  

Accounts payable

     —         42,812      15,549      —         58,361  

Advertising fund liabilities

     —         —        29,462      —         29,462  

Other current liabilities

     9,681       65,507      1,383      —         76,571  
    


 

  

  


 


Current liabilities (1)

     9,681       108,567      46,437      —         164,685  

Long-term debt

     745,632       5,623      327      —         751,582  

Other long-term liabilities

     417       51,793      207      —         52,417  
    


 

  

  


 


Long-term liabilities

     746,049       57,416      534      —         803,999  

Stockholder’s equity (deficit) (1)

     (518,659 )     185,536      818      (186,354 )     (518,659 )
    


 

  

  


 


Total liabilities and stockholder’s equity (deficit)

   $ 237,071     $ 351,519    $ 47,789    $ (186,354 )   $ 450,025  
    


 

  

  


 


     As of January 2, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


   Non-Guarantor
Subsidiaries


   Eliminations

    Consolidated

 

Cash and cash equivalents

   $ 3,124     $ 36,331    $ 941    $ —       $ 40,396  

Accounts receivable

     —         65,404      7,734      —         73,138  

Advertising fund assets, restricted

     —         —        32,817      —         32,817  

Other current assets

     4,050       36,258      2,832      —         43,140  
    


 

  

  


 


Current assets

     7,174       137,993      44,324      —         189,491  

Property, plant and equipment, net

     —         130,853      6,030      —         136,883  

Other assets

     227,984       71,578      1,481      (180,070 )     120,973  
    


 

  

  


 


Total assets

   $ 235,158     $ 340,424    $ 51,835    $ (180,070 )   $ 447,347  
    


 

  

  


 


Current portion of long-term debt

   $ 25,000     $ 242    $ 53    $ —       $ 25,295  

Accounts payable

     —         40,417      14,933      —         55,350  

Advertising fund liabilities

     —         —        32,817      —         32,817  

Other current liabilities

     10,672       63,755      1,773      —         76,200  
    


 

  

  


 


Current liabilities (1)

     35,672       104,414      49,576      —         189,662  

Long-term debt

     749,361       5,687      357      —         755,405  

Other long-term liabilities

     —         51,903      252      —         52,155  
    


 

  

  


 


Long-term liabilities

     749,361       57,590      609      —         807,560  

Stockholder’s equity (deficit) (1)

     (549,875 )     178,420      1,650      (180,070 )     (549,875 )
    


 

  

  


 


Total liabilities and stockholder’s equity (deficit)

   $ 235,158     $ 340,424    $ 51,835    $ (180,070 )   $ 447,347  
    


 

  

  


 



(1) Domino’s Pizza, Inc. and subsidiaries had current liabilities of $171,588, and $189,667, or $6,903 more than and $5 more than Domino’s, Inc. and subsidiaries at March 27, 2005 and January 2, 2005, respectively. Domino’s Pizza, Inc. and subsidiaries had total stockholders’ deficit of $(525,562) and $(549,880), or $6,903 more than and $5 more than Domino’s, Inc. and subsidiaries at March 27, 2005 and January 2, 2005, respectively. The differences at March 27, 2005 resulted from the inclusion of a dividend payable recorded on Domino’s Pizza, Inc. and subsidiaries that was not recorded on Domino’s, Inc. and subsidiaries. While Domino’s, Inc. and subsidiaries plans to distribute funds to Domino’s Pizza, Inc. and subsidiaries to pay this dividend, it was not a liability for Domino’s, Inc. and subsidiaries at March 27, 2005. There were no other differences between Domino’s, Inc. and subsidiaries as compared to Domino’s Pizza, Inc. and subsidiaries for the periods presented.

 

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Table of Contents

Domino’s, Inc. and Subsidiaries

Supplemental Guarantor Condensed Consolidating Statements of Income

 

     Fiscal Quarter Ended March 27, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Revenues

   $ —       $ 361,694     $ 7,974     $ —       $ 369,668  

Cost of sales

     —         270,885       5,770       —         276,655  
    


 


 


 


 


Operating margin

     —         90,809       2,204       —         93,013  

General and administrative

     —         40,033       2,485       —         42,518  
    


 


 


 


 


Income (loss) from operations

     —         50,776       (281 )     —         50,495  

Equity earnings in subsidiaries

     31,349       —         —         (31,349 )     —    

Interest income (expense), net

     (10,445 )     55       (12 )     —         (10,402 )
    


 


 


 


 


Income (loss) before provision (benefit) for income taxes

     20,904       50,831       (293 )     (31,349 )     40,093  

Provision (benefit) for income taxes

     (4,054 )     19,189       —         —         15,135  
    


 


 


 


 


Net income (loss)

   $ 24,958     $ 31,642     $ (293 )   $ (31,349 )   $ 24,958  
    


 


 


 


 


     Fiscal Quarter Ended March 21, 2004

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Revenues

   $ —       $ 312,473     $ 6,281     $ —       $ 318,754  

Cost of sales

     —         232,912       4,731       —         237,643  
    


 


 


 


 


Operating margin

     —         79,561       1,550       —         81,111  

General and administrative

     —         35,858       1,782       —         37,640  
    


 


 


 


 


Income (loss) from operations

     —         43,703       (232 )     —         43,471  

Equity earnings in subsidiaries

     26,859       —         —         (26,859 )     —    

Interest income (expense), net

     (13,787 )     5       (117 )     —         (13,899 )
    


 


 


 


 


Income (loss) before provision (benefit) for income taxes

     13,072       43,708       (349 )     (26,859 )     29,572  

Provision (benefit) for income taxes

     (5,336 )     16,500       —         —         11,164  
    


 


 


 


 


Net income (loss)

   $ 18,408     $ 27,208     $ (349 )   $ (26,859 )   $ 18,408  
    


 


 


 


 


Domino’s, Inc. and Subsidiaries

Supplemental Condensed Consolidating Statements of Cash Flows

 

 

     Fiscal Quarter Ended March 27, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Net cash provided by (used in) operating activities (2)

   $ (10,593 )   $ 50,764     $ 506     $ —       $ 40,677  
    


 


 


 


 


Capital expenditures

     —         (6,603 )     (90 )     —         (6,693 )

Other

     —         2,143       —         —         2,143  
    


 


 


 


 


Net cash used in investing activities

     —         (4,460 )     (90 )     —         (4,550 )
    


 


 


 


 


Repayments of debt

     (25,000 )     (21 )     (59 )     —         (25,080 )

Other

     32,469       (30,576 )     —         —         1,893  
    


 


 


 


 


Net cash provided by (used in) financing activities (2)

     7,469       (30,597 )     (59 )     —         (23,187 )
    


 


 


 


 


Effect of exchange rate changes on cash and cash equivalents

     —         (26 )     (77 )     —         (103 )
    


 


 


 


 


Increase (decrease) in cash and cash equivalents

     (3,124 )     15,681       280       —         12,837  
    


 


 


 


 


Cash and cash equivalents, at beginning of period

     3,124       36,331       941       —         40,396  
    


 


 


 


 


Cash and cash equivalents, at end of period

   $ —       $ 52,012     $ 1,221     $ —       $ 53,233  
    


 


 


 


 


 

10


Table of Contents
     Fiscal Quarter Ended March 21, 2004

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

   Consolidated

 

Net cash provided by (used in) operating activities

   $ (19,691 )   $ 37,439     $ (698 )   $ —      $ 17,050  
    


 


 


 

  


Capital expenditures

     —         (6,526 )     (269 )     —        (6,795 )

Other

     —         553       —         —        553  
    


 


 


 

  


Net cash used in investing activities

     —         (5,973 )     (269 )     —        (6,242 )
    


 


 


 

  


Repayments of debt

     (18,234 )     (54 )     (83 )     —        (18,371 )

Other

     37,925       (38,150 )     —         —        (225 )
    


 


 


 

  


Net cash provided by (used in) financing activities (2)

     19,691       (38,204 )     (83 )     —        (18,596 )
    


 


 


 

  


Effect of exchange rate changes on cash and cash equivalents

     —         (2 )     (4 )     —        (6 )
    


 


 


 

  


Decrease in cash and cash equivalents

     —         (6,740 )     (1,054 )     —        (7,794 )
    


 


 


 

  


Cash and cash equivalents, at beginning of period (2)

     —         44,663       1,603       —        46,266  
    


 


 


 

  


Cash and cash equivalents, at end of period (2)

   $ —       $ 37,923     $ 549     $ —      $ 38,472  
    


 


 


 

  



(2) Domino’s Pizza, Inc. and subsidiaries had net cash provided by operating activities of $40,671, or $6 less than Domino’s, Inc. and subsidiaries, during the first quarter of 2005. Domino’s Pizza, Inc. and subsidiaries had net cash used in financing activities of $(23,181) and $(18,601), or $6 less than and $5 more than Domino’s, Inc. and subsidiaries, during the first quarter of 2005 and the first quarter of 2004, respectively. Cash and cash equivalents for Domino’s Pizza, Inc. and subsidiaries was $46,391 and $38,592 at December 28, 2003 and March 21, 2004, respectively. There were no other differences between Domino’s, Inc. and subsidiaries as compared to Domino’s Pizza, Inc. and subsidiaries for the periods presented.

 

11


Table of Contents

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

(Unaudited; tabular amounts in millions, except percentages and store data)

 

The 2005 and 2004 first quarters referenced herein represent the twelve-week periods ended March 27, 2005 and March 21, 2004, respectively.

 

Overview

 

During the first quarter of 2005, global retail sales, comprised of retail sales at both our franchise and Company-owned stores worldwide, grew 13.8% as compared to the prior year period. This growth was driven primarily by robust same store sales growth in both our domestic and international markets as well as an increase in our worldwide store counts. During the same period, revenues grew 16.0% as compared to the prior year period. Additionally, during the first quarter, we posted a strong increase in income from operations of 16.2% as compared to the prior year period, despite an environment of rising commodity prices negatively affecting our food costs.

 

Our global retail sales benefited from strong same store sales growth, both domestically and internationally, an increase in our worldwide store counts and the positive effect of a weaker U.S. Dollar in the key international markets in which we compete. During the first quarter as compared to the prior year period, domestic same store sales grew 11.2%, comprised of a domestic Company-owned same store sales increase of 13.8% and a domestic franchise same store sales increase of 10.8%. These positive same store sales results were driven by positive consumer response to the Company’s marketing and promotional activities. We also continued to benefit from strong same store sales in our international markets during the first quarter, which increased 8.5% on a constant dollar basis versus the prior year period. On a historical dollar basis, international same store sales increased 12.3% during the quarter versus the prior year period. The first quarter marked the 45th consecutive quarter that we have grown our international same store sales. Additionally, we grew our worldwide net store counts by 42 and 326 stores during the first quarter and trailing four quarters, respectively.

 

Income from operations increased $7.0 million, or 16.2%, to $50.5 million in the first quarter, from $43.5 million in the first quarter of 2004. This increase was driven by higher royalty revenues from domestic and international franchise stores, higher domestic Company-owned same store sales and higher volumes in our distribution business. These increases were offset in part by higher food costs at our Company-owned stores and increases in variable general and administrative expenses as a result of higher revenues. The average published cheese block price per pound increased $0.20 to $1.54 in the first quarter of 2005 compared to the prior year period.

 

Net income increased $6.6 million, or 35.6%, to $25.0 million in the first quarter, from $18.4 million in the first quarter of 2004. This increase was driven primarily by the aforementioned increase in income from operations as well as a reduction in interest expense from the comparable period in 2004. The reduction in interest expense was a result of lower average debt balances and a reduction in our average borrowing rates.

 

Same Store Sales Growth (versus the first quarter of 2004)

 

     First Quarter
of 2005


 

Domestic Company-owned stores

   + 13.8 %

Domestic franchise stores

   + 10.8 %
    

Domestic stores

   + 11.2 %

International stores (constant dollar)

   + 8.5 %

International stores (historical dollar)

   + 12.3 %

 

Store Growth Activity

 

    

Domestic

Company-owned
Stores


    Domestic
Franchise
Stores


   

Total

Domestic
Stores


    International
Stores


    Total

 

Store count at January 2, 2005

   580     4,428     5,008     2,749     7,757  

Openings

   —       22     22     42     64  

Closings

   (3 )   (12 )   (15 )   (7 )   (22 )

Transfers

   (9 )   9     —       —       —    
    

 

 

 

 

Store count at March 27, 2005

   568     4,447     5,015     2,784     7,799  
    

 

 

 

 

1st quarter net growth

   (12 )   19     7     35     42  
    

 

 

 

 

Trailing 4 quarters net growth

   (8 )   103     95     231     326  
    

 

 

 

 

 

 

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Table of Contents

Income Statement Data

 

     First Quarter
of 2005


   

First Quarter

of 2004


 

Total revenues

   $ 369.7    100.0 %   $ 318.8    100.0 %

Cost of sales

     276.7    74.8 %     237.6    74.6 %

General and administrative

     42.5    11.5 %     37.6    11.8 %
    

  

 

  

Income from operations

     50.5    13.7 %     43.5    13.6 %

Interest expense, net

     10.4    2.8 %     13.9    4.3 %
    

  

 

  

Income before provision for income taxes

     40.1    10.9 %     29.6    9.3 %

Provision for income taxes

     15.1    4.1 %     11.2    3.5 %
    

  

 

  

Net income

   $ 25.0    6.8 %   $ 18.4    5.8 %
    

  

 

  

 

Revenues

 

Revenues primarily include retail sales by Company-owned stores, royalties from domestic and international franchise stores, and sales of food, equipment and supplies by our distribution centers to certain domestic and international franchise stores. Company-owned store and franchise store revenues may vary significantly from period to period due to changes in store count mix while distribution revenues may vary significantly as a result of fluctuations in commodity prices, primarily cheese and meats.

 

Consolidated revenues increased $50.9 million, or 16.0%, to $369.7 million in the first quarter of 2005, from $318.8 million in the comparable period in 2004. This increase was a result of increases in revenues at each of our reportable segments and is more fully described below.

 

Domestic Stores

 

Domestic stores revenues are comprised of revenues from our domestic Company-owned store operations and domestic franchise operations, as summarized in the following table.

 

Domestic Stores


  

First Quarter

of 2005


   

First Quarter

of 2004


 

Domestic Company-owned stores

   $ 98.2    71.5 %   $ 88.0    71.7 %

Domestic franchise

     39.2    28.5 %     34.6    28.3 %
    

  

 

  

Total domestic stores revenues

   $ 137.5    100.0 %   $ 122.6    100.0 %
    

  

 

  

 

Domestic stores revenues increased $14.9 million, or 12.1%, to $137.5 million in the first quarter of 2005, from $122.6 million in the comparable period in 2004. This increase in revenues was due primarily to higher domestic Company-owned and franchise same store sales as well as increases in the average number of domestic franchise stores in operation during 2005. Domestic same store sales increased 11.2% in the first quarter of 2005, compared to the same period in 2004, driven by positive consumer response to the Company’s marketing and promotional activities. These changes in domestic stores revenues are more fully described below.

 

Domestic Company-Owned Stores

 

Revenues from domestic Company-owned store operations increased $10.2 million, or 11.7%, to $98.2 million in the first quarter of 2005, from $88.0 million in the comparable period in 2004. This increase in revenues was due primarily to higher same store sales in the first quarter of 2005, which grew 13.8% compared to the same period in 2004. There were 568 and 576 domestic Company-owned stores in operation as of March 27, 2005 and March 21, 2004, respectively.

 

Domestic Franchise

 

Revenues from domestic franchise operations increased $4.6 million, or 13.3%, to $39.2 million in the first quarter of 2005, from $34.6 million in the comparable period in 2004. This increase in revenues was due primarily to higher same store sales in the first quarter, which grew 10.8% compared to the same period in 2004 and an increase in the average number of domestic franchise stores open during 2005. There were 4,447 and 4,344 domestic franchise stores in operation as of March 27, 2005 and March 21, 2004, respectively.

 

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Table of Contents

Domestic Distribution

 

Revenues from domestic distribution operations increased $30.9 million, or 18.1%, to $201.8 million in the first quarter of 2005, from $170.9 million in the comparable period in 2004. This increase in revenues was due primarily to higher volumes related to increases in domestic franchise retail sales and a market increase in overall commodity prices, including higher cheese prices. The published cheese block price-per-pound averaged $1.54 in the first quarter of 2005, up from $1.34 in the comparable period in 2004. Had the 2005 average cheese prices been in effect during 2004, distribution revenues for the first quarter of 2004 would have been approximately $6.7 million higher than the reported 2004 amount. In addition to higher cheese prices, pricing on meats and paper also increased versus the prior year period.

 

International

 

Revenues from international operations increased $5.1 million, or 20.1%, to $30.4 million in the first quarter of 2005, from $25.3 million in the comparable period in 2004. This increase in revenues was due to higher same store sales, an increase in the average number of international stores open during 2005 and related increases in revenues from our international distribution operations. On a constant dollar basis, same store sales increased 8.5% in the first quarter of 2005 versus the comparable period in 2004. On a historical dollar basis, same store sales increased 12.3% in the first quarter of 2005 versus the comparable period in 2004, reflecting a generally weaker U.S. Dollar in those markets in which we compete. There were 2,784 and 2,553 international stores in operation as of March 27, 2005 and March 21, 2004, respectively.

 

Cost of Sales / Operating Margin

 

Consolidated cost of sales is comprised primarily of domestic Company-owned store and domestic distribution costs incurred to generate related revenues. Components of consolidated cost of sales primarily include food, labor and occupancy costs.

 

The consolidated operating margin, which we define as revenues less cost of sales, increased $11.9 million, or 14.7%, to $93.0 million in the first quarter of 2005, from $81.1 million in the comparable period in 2004, as summarized in the following table.

 

    

First Quarter

of 2005


   

First Quarter

of 2004


 

Consolidated revenues

   $ 369.7    100.0 %   $ 318.8    100.0 %

Consolidated cost of sales

     276.7    74.8 %     237.6    74.6 %
    

  

 

  

Consolidated operating margin

   $ 93.0    25.2 %   $ 81.1    25.4 %
    

  

 

  

 

The increase in consolidated operating margin for the first quarter of 2005 was due primarily to higher domestic franchise and international royalty revenues resulting from strong global retail sales growth.

 

As a percentage of revenues, the consolidated operating margin decreased 0.2 percentage points to 25.2% in the first quarter of 2005, from 25.4% in the comparable period in 2004. The consolidated operating margin as a percentage of revenues was negatively impacted as a result of higher food costs, which pressured domestic Company-owned store and distribution operating margins. Additionally, despite continued strong growth in international franchise royalty revenues, the international operating margin as a percentage of revenues decreased as a result of a mix change between the lower-margin Company-owned stores and distribution operations as compared to the higher-margin franchise royalty revenues. These decreases were offset in part by margin improvements resulting from higher same store sales and store counts, which generated increased domestic and international franchise royalty revenues, higher distribution volumes and higher domestic Company-owned store revenues.

 

As mentioned above, the consolidated operating margin as a percentage of revenues was negatively impacted by higher food costs, primarily cheese. Cheese price changes are a “pass-through” in domestic distribution revenues and cost of sales and, as such, have no impact on operating margin or income. However, cheese price changes do impact operating margin as a percentage of revenues. Had the 2005 average cheese prices been in effect during 2004, the total operating margin for the first quarter of 2004 would have been approximately 24.9% of total revenues, versus the reported 25.4%. This would have resulted in an operating margin improvement of 0.3 percentage points in the first quarter of 2005, versus the reported decrease of 0.2 percentage points.

 

14


Table of Contents

Domestic Company-Owned Stores

 

The domestic Company-owned store operating margin increased $2.2 million, or 12.5%, to $20.1 million in the first quarter of 2005, from $17.9 million in the comparable period in 2004, as summarized in the following table.

 

Domestic Company-Owned Stores


  

First Quarter

of 2005


   

First Quarter

of 2004


 

Revenues

   $ 98.2    100.0 %   $ 88.0    100.0 %

Cost of sales

     78.1    79.6 %     70.1    79.7 %
    

  

 

  

Store operating margin

   $ 20.1    20.4 %   $ 17.9    20.3 %
    

  

 

  

 

The increase in the domestic Company-owned store operating margin during the first quarter of 2005 was due primarily to an increase in same store sales, offset in part by an increase in overall commodity prices, primarily cheese.

 

As a percentage of store revenues, the store operating margin increased 0.1 percentage points, to 20.4%, in the first quarter of 2005, from 20.3% in the comparable period in 2004. As a percentage of store revenues, food costs increased 2.8 percentage points to 29.1% in the first quarter of 2005, from 26.3% in the comparable period in 2004. This increase in food costs as a percentage of store revenues was due primarily to an increase in overall commodity prices, primarily cheese and to a lesser extent, meats and paper. As a percentage of store revenues, labor costs decreased 1.6 percentage points to 29.2% in the first quarter of 2005, from 30.8% in the comparable period in 2004. As a percentage of store revenues, occupancy costs, which include rent, telephone, utilities and depreciation, decreased 0.9 percentage points to 10.3% in the first quarter of 2005, from 11.2% in the comparable period in 2004. The decreases in labor and occupancy costs as a percentage of revenues were driven primarily by higher same store sales.

 

Domestic Distribution

 

The domestic distribution operating margin increased $3.0 million or 18.3% to $19.7 million in the first quarter of 2005, from $16.7 million in the comparable period in 2004, as summarized in the following table.

 

Domestic Distribution


  

First Quarter

of 2005


   

First Quarter

of 2004


 

Revenues

   $ 201.8    100.0 %   $ 170.9    100.0 %

Cost of sales

     182.1    90.2 %     154.2    90.3 %
    

  

 

  

Distribution operating margin

   $ 19.7    9.8 %   $ 16.7    9.7 %
    

  

 

  

 

The increase in the domestic distribution operating margin during the first quarter of 2005 was due primarily to higher volumes as a result of increases in domestic retail sales, offset in part by higher labor, delivery and occupancy costs.

 

As a percentage of distribution revenues, the distribution operating margin increased 0.1 percentage points, to 9.8%, in the first quarter of 2005, from 9.7% in the comparable period in 2004. Had the 2005 average cheese prices been in effect during 2004, the distribution operating margin for the first quarter of 2004 would have been approximately 9.4% of distribution revenues, versus the reported 9.7%. This would have resulted in an operating margin improvement of 0.4 percentage points during the first quarter of 2005, versus the reported improvement of 0.1 percentage points.

 

General and Administrative Expenses

 

General and administrative expenses increased $4.9 million, or 13.0%, to $42.5 million in the first quarter of 2005, from $37.6 million in the comparable period in 2004. The increase in general and administrative expenses during the first quarter was due primarily to increases in variable general and administrative expenses, including higher administrative labor due primarily to higher performance based bonuses and increases in advertising and store incentive expenses relating to continued improvement in the financial performance of our domestic store operations. Additionally, insurance and depreciation and amortization expenses increased during the first quarter of 2005 as compared to the prior year period. As a percentage of total revenues, general and administrative expenses decreased 0.3 percentage points, to 11.5%, in the first quarter of 2005, versus 11.8% in the prior year.

 

15


Table of Contents

Interest Expense

 

Interest expense decreased $3.4 million, or 24.1%, to $10.6 million in the first quarter of 2005, from $14.0 million in the comparable period in 2004. This decrease in interest expense was due primarily to lower average debt balances and a reduction in our average borrowing rates. Our average outstanding debt balance, excluding capital lease obligations, decreased $183.6 million to $752.9 million in the first quarter of 2005, from $936.5 million in the comparable period in 2004. Our effective borrowing rate decreased 0.5 percentage points to 5.3% during the first quarter, from 5.8% in the comparable period in 2004. This reduction in average borrowing rates was due to senior credit facility pricing reductions and prepayments of senior subordinated notes, offset in part by higher market interest rates.

 

Provision for Income Taxes

 

Provision for income taxes increased $3.9 million to $15.1 million in the first quarter of 2004, from $11.2 million in the comparable period in 2004. The effective tax rate for the first quarter of 2005 was 37.75%, and remained flat with the effective rate for the first quarter of 2004.

 

Liquidity and Capital Resources

 

We had working capital of $26.1 million and cash and cash equivalents of $53.2 million at March 27, 2005. Historically, we have operated with minimal positive or negative working capital, primarily because our receivable collection periods and inventory turn rates are faster than the normal payment terms on our current liabilities. We generally collect our receivables within three weeks from the date of the related sale and we generally experience 40 to 50 inventory turns per year. In addition, our sales are not typically seasonal, which further limits our working capital requirements. These factors, coupled with significant and ongoing cash flows from operations, which are primarily used to repay debt, invest in long-term assets, and pay dividends, reduce our working capital amounts. More recently, as a result of our current senior secured credit facility only requiring one percent annual amortization payments, we do not have a significant current portion of long-term debt. Accordingly, our working capital has been positively impacted. Our primary sources of liquidity are cash flows from operations and availability of borrowings under our revolving credit facility. We expect to fund planned capital expenditures, debt repayments and dividends from these sources. We did not have any material commitments for capital expenditures as of March 27, 2005.

 

As of March 27, 2005, we had $751.9 million of debt, of which $0.3 million was classified as a current liability. There were no borrowings under our $125.0 million revolving credit facility. Letters of credit issued under the revolving credit facility were $25.5 million. These letters of credit are primarily related to our casualty insurance programs and distribution center leases. Borrowings under the revolving credit facility are available to fund our working capital requirements, capital expenditures and other general corporate purposes.

 

We enter into interest rate swaps, collars or similar instruments with the objective of reducing volatility relating to our borrowing costs. As of March 27, 2005, we were party to interest rate derivatives in the total notional amount of $475.0 million. Approximately 73% of outstanding borrowings were contractually fixed as of March 27, 2005.

 

Subsequent to the first quarter on March 29, 2005, we repurchased and retired 4,409,171 shares of our Common Stock from JP Morgan Capital, L.P. and its affiliates, for $75.0 million, or $17.01 per share. We used $35.0 million of available cash-on-hand and $40.0 million of borrowings from our revolving credit facility to fund this repurchase of shares. Additionally, we completed an amendment to our senior credit facility in order to permit the share repurchase transaction, reduce current cash sweep requirements and provide additional financial flexibility.

 

Cash provided by operating activities was $40.7 million and $17.1 million in the first quarter of 2005 and 2004, respectively. The $23.6 million increase was due primarily to an $18.3 million net change in operating assets and liabilities and a $6.6 million increase in net income, offset by a $2.0 million decrease in provision for deferred income taxes. The $18.3 million source of cash resulting from the net change in operating assets and liabilities was due primarily to the timing of payments for accounts payable and income taxes.

 

16


Table of Contents

Cash used in investing activities was $4.6 million and $6.2 million in the first quarter of 2005 and 2004, respectively. The $1.6 million decrease was due primarily to a $1.9 million increase in proceeds from the sale of property, plant and equipment resulting from the sale of nine Company-owned stores in the first quarter of 2005.

 

Cash used in financing activities was $23.2 million and $18.6 million in the first quarter of 2005 and 2004, respectively. The $4.6 million increase was due primarily to a $6.7 million increase in repayments of long-term debt.

 

Based upon the current level of operations and anticipated growth, we believe that the cash generated from operations and amounts available under the revolving credit facility will be adequate to meet our anticipated debt service requirements, capital expenditures, dividend payments and working capital needs for the next twelve months. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under “Risk Factors” in our filings with the Securities and Exchange Commission. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under the senior secured credit facility or otherwise to enable us to service our indebtedness, including the senior secured credit facility and the senior subordinated notes, or to make anticipated capital expenditures, or to make anticipated dividend payments. Our future operating performance and our ability to service or refinance the senior subordinated notes and to service, extend or refinance the senior secured credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. Additionally, Domino’s, Inc. may be requested to provide funds to its parent company, Domino’s Pizza, Inc. for dividends, distributions and/or other cash needs of Domino’s Pizza, Inc.

 

Forward-Looking Statements

 

This filing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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: 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 Domino’s and other food-industry competitors; the ongoing profitability of our franchisees and the ability of Domino’s 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 Domino’s financial and other results is included in our other 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.

 

17


Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market Risk

 

We are exposed to market risks from interest rate changes on our variable rate debt. Management actively monitors this exposure. We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes.

 

Interest Rate Derivatives

 

We enter into interest rate swaps, collars or similar instruments with the objective of reducing volatility relating to our borrowing costs.

 

We are party to two interest rate swap agreements which effectively convert the variable LIBOR component of the effective interest rate on a portion of our debt under our senior secured credit facility to various fixed rates over various terms. We are also party to two interest rate swap agreements which effectively convert the fixed component of our debt under our senior subordinated notes to variable LIBOR rates over the term of the senior subordinated notes.

 

These agreements are summarized in the following table.

 

Derivative


 

Total

Notional Amount


 

Term


 

Company

Pays


 

Counterparty

Pays


Interest Rate Swap

  $75.0 million   August 2002 – June 2005   3.25%   LIBOR

Interest Rate Swap

  $50.0 million   August 2003 – July 2011  

LIBOR plus

319 basis points

  8.25%

Interest Rate Swap

  $50.0 million   August 2003 – July 2011  

LIBOR plus

324 basis points

  8.25%

Interest Rate Swap

  $300.0 million   June 2004 – June 2005   1.62%   LIBOR

 

In 2004, we entered into an additional interest rate swap agreement effectively converting the variable LIBOR component on a portion of our senior secured credit facility term debt to various fixed rates over various terms. The agreement has a notional starting amount of $350.0 million, begins in June 2005, ends in June 2007 and fixes our interest rate at 3.21%. We pay a fixed interest rate under these agreements while the counterparty pays a floating rate.

 

Interest Rate Risk

 

Our variable interest expense is sensitive to changes in the general level of interest rates. At March 27, 2005, the weighted average interest rate on our $198.0 million of variable interest debt was 5.7%.

 

We had total interest expense of approximately $10.6 million in the first quarter of 2005. The estimated increase in interest expense for this period from a hypothetical 200 basis point adverse change in applicable variable interest rates would be approximately $1.0 million.

 

Item 4. Controls and Procedures

 

Domino’s Pizza, Inc.’s Chairman and Chief Executive Officer, David A. Brandon, and Executive Vice President and Chief Financial Officer, Harry J. Silverman, performed an evaluation of the effectiveness of Domino’s Pizza, Inc.’s and Domino’s, Inc.’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, Messrs. Brandon and Silverman concluded that each of Domino’s Pizza, Inc.’s and Domino’s, Inc.’s disclosure controls and procedures were effective.

 

During the quarterly period ended March 27, 2005 there have been no changes in either Domino’s Pizza, Inc.’s or Domino’s, Inc.’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect Domino’s Pizza, Inc.’s or Domino’s, Inc.’s internal control over financial reporting.

 

18


Table of Contents

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are a party to lawsuits, revenue agent reviews by taxing authorities and administrative proceedings in the ordinary course of business which include workers’ compensation, general liability, automobile and franchisee claims. We are also subject to suits related to employment practices and, specifically in California, wage and hour claims and two class actions pending in Orange County, California Superior Court brought by former employees. On June 10, 2003, a class action complaint was filed alleging that we failed to provide meal and rest breaks to our employees. This case is in the discovery stage and no determination with respect to class certification has been made.

 

On August 19, 2004, a class action complaint was filed by a former general manager alleging that we misclassified the position of general manager. We classify the general manager of a Domino’s Pizza store as an exempt employee. This case involves the issue of whether employees and former employees in the general manager position who worked in our 60 California stores during specified time periods were misclassified as exempt and deprived of overtime pay. We believe this case is without merit and intend to vigorously defend against the related claims. This case is in the earliest stages of discovery, and the status of the class action certification is yet to be determined. We are presently unable to predict the probable outcome of this matter or the amounts of any potential damages at issue.

 

We believe that these matters, individually and in the aggregate, will not have a significant adverse effect on our financial condition and that our established reserves adequately provide for the estimated resolution of such claims.

 

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit
Number


 

Description


31.1   Certification by David A. Brandon pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
31.2   Certification by Harry J. Silverman pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
31.3   Certification by David A. Brandon pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Domino’s, Inc.
31.4   Certification by Harry J. Silverman pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, relating to Domino’s, Inc.
32.1   Certification by David A. Brandon pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.

 

19


Table of Contents
32.2   Certification by Harry J. Silverman pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Domino’s Pizza, Inc.
32.3   Certification by David A. Brandon pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Domino’s, Inc.
32.4   Certification by Harry J. Silverman pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to Domino’s, Inc.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned duly authorized officer.

 

    DOMINO’S PIZZA, INC.
    DOMINO’S, INC.
    (Registrants)
Date: May 10, 2005  

/s/ Harry J. Silverman


    Harry J. Silverman
    Chief Financial Officer

 

20

Section 302 CEO Certification

EXHIBIT 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER, DOMINO’S PIZZA, INC.

 

I, David A. Brandon, Chief Executive Officer, Domino’s Pizza, Inc., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Domino’s Pizza, Inc.;

 

2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

                May 10, 2005


 

/s/ David A. Brandon


                        Date   David A. Brandon
    Chief Executive Officer
Section 302 CFO Certification

EXHIBIT 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER, DOMINO’S PIZZA, INC.

 

I, Harry Silverman, Chief Financial Officer, Domino’s Pizza, Inc., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Domino’s Pizza, Inc.;

 

2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

                May 10, 2005


 

/s/ Harry J. Silverman


                        Date   Harry J. Silverman
    Chief Financial Officer
Section 302 CEO Certification

EXHIBIT 31.3

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER, DOMINO’S, INC.

 

I, David A. Brandon, Chief Executive Officer, Domino’s, Inc., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Domino’s, Inc.;

 

2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

                May 10, 2005


 

/s/ David A. Brandon


                        Date   David A. Brandon
    Chief Executive Officer
Section 302 CFO Certification

EXHIBIT 31.4

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER, DOMINO’S, INC.

 

I, Harry Silverman, Chief Financial Officer, Domino’s, Inc., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Domino’s, Inc.;

 

2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

                May 10, 2005


 

/s/ Harry J. Silverman


                        Date   Harry J. Silverman
    Chief Financial Officer
Section 906 CEO Certification

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Domino’s Pizza, Inc. (the “Company”) on Form 10-Q for the period ended March 27, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Brandon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

 

  1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ David A. Brandon


David A. Brandon
Chief Executive Officer

 

Dated: May 10, 2005

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Domino’s Pizza, Inc. and will be retained by Domino’s Pizza, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Section 906 CFO Certification

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Domino’s Pizza, Inc. (the “Company”) on Form 10-Q for the period ended March 27, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harry J. Silverman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

 

  1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Harry J. Silverman


Harry J. Silverman
Chief Financial Officer

 

Dated: May 10, 2005

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Domino’s Pizza, Inc. and will be retained by Domino’s Pizza, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Section 906 CEO Certification

Exhibit 32.3

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Domino’s, Inc. (the “Company”) on Form 10-Q for the period ended March 27, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Brandon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

 

  1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ David A. Brandon


David A. Brandon
Chief Executive Officer

 

Dated: May 10, 2005

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Domino’s, Inc. and will be retained by Domino’s, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Section 906 CFO Certification

EXHIBIT 32.4

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Domino’s, Inc. (the “Company”) on Form 10-Q for the period ended March 27, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harry J. Silverman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

 

  1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Harry J. Silverman


Harry J. Silverman
Chief Financial Officer

 

Dated: May 10, 2005

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Domino’s, Inc. and will be retained by Domino’s, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.