ANN ARBOR, Mich., May 2 /PRNewswire-FirstCall/ — Domino’s Pizza, Inc. (NYSE:DPZ), the recognized world leader in pizza delivery, today announced results for the first quarter ended March 25, 2007. Management noted that the quarter’s earnings were significantly impacted by expenses incurred in connection with the Company’s recently-completed recapitalization.

First Quarter Highlights:

First First

Quarter Quarter

(dollars in millions, except per share data) of 2007 of 2006

Revenues $339.3 $347.7

Net income $8.4 $26.2

Weighted average diluted shares 64,076,179 67,672,576

Diluted earnings per share, as reported $0.13 $0.39

Recapitalization-related expenses per share (see

section below) $0.25

Diluted earnings per share, as adjusted $0.38

 

– Revenues were down 2.4% for the first quarter, due primarily to lower international revenues and lower domestic distribution revenues. Although international same store sales were up 3.8%, revenues from international operations decreased 14.0% due to the third quarter 2006 sale of Company-owned operations in France and the Netherlands to an existing master franchisee. Distribution revenues decreased 1.4% on lower volumes due to a decrease in domestic franchise same store sales.

– Net income was down 67.9% for the first quarter, driven primarily by expenses incurred in connection with the Company’s recapitalization as  well as lower domestic franchise same store sales growth, offset in part by continued strong performance in our international operations.

– Diluted EPS was $0.13 on an as-reported basis for the first quarter, which reflected $0.25 per share of recapitalization-related expenses, and, as a result, was down $0.26 from the as-reported amount in the prior year period. However, excluding the effect of the recapitalization related expenses, diluted EPS declined by $0.01. (See the Recapitalization Summary section and the Comments on Regulation G section.) Diluted EPS benefited from reduced diluted shares outstanding.

  

First First

Quarter of Quarter of

2007 2006

Same store sales growth: (versus prior year period)

Domestic Company-owned stores + 0.6 % (3.0)%

Domestic franchise stores (3.4)% (4.0)%

Domestic stores (2.9)% (3.8)%

International stores + 3.8 % + 3.0 %

Global retail sales growth: (versus prior year period)

Domestic stores (1.6)% (2.8)%

International stores +14.1 % + 8.2 %

Total + 3.8 % + 0.7 %

 

 

Domestic

Company- Domestic Total Inter- owned Franchise Domestic national Stores Stores Stores Stores Total

Store counts:

Store count at December

31, 2006 571 4,572 5,143 3,223 8,366

Openings 2 17 19 52 71

Closings (4) (29) (33) (10) (43)

Transfers 1 (1) – – –

Store count at March

25, 2007 570 4,559 5,129 3,265 8,394

First quarter 2007 net

growth (1) (13) (14) 42 28

Trailing four quarters

net growth (10) 53 43 227 270

 

 

 

David A. Brandon, Domino’s Chairman and Chief Executive Officer, said: “We are very pleased with the outcome of our recent recapitalization and resulting $13.50 per share special cash dividend. Shareholders have voiced strong support for our new capital structure and our subsequent plans regarding the special dividend and an open market share repurchase program. We believe that this was the correct corporate finance decision for our Company, as we leveraged our strong cash flows and created an exceptional return of capital event for our shareholders.”

Brandon continued: “Turning to the results of our first quarter, we are still in the process of regaining the positive domestic sales momentum we lost in 2006. I am encouraged by the sales trend throughout the quarter, as the programs we have implemented in our Team USA Company-owned stores are creating some needed traffic and sales momentum. We expect our franchisees will continue to implement similar programs and return to positive same store sales very soon. We are working harder at the store level to both operate and market more effectively. We are competing in an environment where consumers are more demanding and more value conscious. Traditional media channels are not as effective as they have been in the past. We are addressing these environmental issues aggressively. On a very positive note, our international segment continues to perform very well. This quarter marked their 53rd consecutive quarter of positive same store sales comparisons, again solidifying their position as a strong and steady growth engine for our business.”

Conference Call Information

The Company plans to file its quarterly report on Form 10-Q this morning. Additionally, as previously announced, Domino’s Pizza, Inc. will hold a conference call today at 11a.m. (Eastern) to review its first quarter 2007 financial results. 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 www.dominos.com. If you are unable to participate on the call, a replay will be available through midnight June 2, 2007 by dialing (800) 642-1687 (U.S./Canada) or (706) 645- 9291 (International), Conference ID 2473153. The web cast will be archived for 30 days on www.dominos.com.

Recapitalization Summary

On February 7, 2007, the Company announced a recapitalization plan to optimize its capital structure, utilizing its strong cash flow to increase leverage and return capital to its shareholders in the form of a special dividend. Specific details of the recapitalization plan can be found in the Company’s public announcements from February through April 2007.

On April 17, 2007, the Company announced that it had completed its recapitalization as planned, with borrowings of $1.7 billion under a $1.85 billion securitized debt facility and a declaration by its Board of Directors of a $13.50 per share special dividend together with dividend equivalent payments and adjustments to option holders. Additionally, the Board of Directors approved an open market share repurchase program of $200 million of the Company’s common stock, which will be funded by future free cash flow and if determined appropriate, a portion of the borrowings available under the $150 million of variable funding senior notes portion of the securitized debt facility.

Through an asset-backed securitization, the Company placed $1.85 billion of notes in a private transaction consisting of $1.6 billion of 5.261% fixed rate senior notes rated AAA, $150.0 million of variable funding senior notes rated AAA (our new revolving credit facility) and $100.0 million of 7.629% fixed rate subordinated notes rated BB.

During the first quarter of 2007, the Company incurred certain expenses in connection with the recapitalization. The table below presents the expenses incurred that affect comparability between the 2007 and 2006 year-over-year financial results.

First Quarter of 2007

Diluted

EPS

(in thousands) Pre-tax After-tax Impact

2007 recapitalization related expenses:

General and administrative expenses (1) $455 $282 $0.00

Additional interest expense (2) 11,965 7,418 0.12

Premium on bond extinguishment (3) 13,294 8,242 0.13

Total of 2007 recapitalization-related

expenses $25,714 $15,942 $0.25

 

(1) Primarily includes legal and professional fees incurred in connection

with the tender offers for Domino’s Pizza, Inc. common stock and

Domino’s, Inc. senior subordinated notes due 2011.

(2) Includes the write-off of deferred financing fees and bond discount

related to extinguished debt as well as net expense incurred in

connection with the settlement of interest rate derivatives.

(3) Represents the premium paid to bond holders in the tender offer for

the Domino’s, Inc. senior subordinated notes due 2011.

 

 

In addition to the above fees and expenses and in connection with obtaining a bridge loan facility, the Company paid $22.3 million in fees and expenses, which were recorded as a deferred financing cost asset on consolidated balance sheet as of March 25, 2007. Subsequent to the first quarter of 2007, the Company paid $33.6 million of deferred financing costs relating to obtaining the securitized debt, which is net of $10.3 million of fees received by the Company upon completion of the securitized financing that were originally paid in connection with obtaining the bridge loan facility. Management noted it expects to write-off the unamortized deferred financing costs related to obtaining to the bridge loan facility of approximately $21.9 million in the second quarter of 2007.

Company Adopts New Tax Accounting Standard in the First Quarter of 2007

On January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). As a result of the adoption of FIN 48, the Company recognized a net increase of approximately $86,000 in total stockholders’ deficit as required by FIN 48. At January 1, 2007, the amount of unrecognized tax benefits was $13.6 million which is recorded in other long-term accrued liabilities in the consolidated balance sheet. Additionally, the Company accrued approximately $6.1 million for interest and penalties at January 1, 2007.

Liquidity

As of March 25, 2007, the Company had:

– $785.7 million in total debt,

– $67.1 million of cash and cash equivalents,

– no borrowings under its $100.0 million revolving credit facility and

– letters of credit issued under its revolving credit facility of

$33.9 million.

 

 

In connection with its recapitalization, the Company repaid all borrowings under its 2003 senior credit facility and repurchased and retired, at a premium, approximately $273.6 million of the Domino’s, Inc. senior subordinated notes due 2011. In order to fund these repayments, the Company borrowed $780.0 million under a bridge term loan facility.

The Company’s average borrowing rate for the first quarter of 2007 was 6.5%. The following table presents management’s expectations related to its on-going average borrowing rate on its $1.7 billion of securitized debt.

Average

Borrowing

Rate

Fixed Rate Series 2007-1 Senior Notes, Class A-2 5.96 %

Fixed Rate Series 2007-1 Subordinated Notes, Class M-1 7.62 %

Weighted average borrowing rate – subtotal 6.06 %

Amortization of deferred financing costs and interest rate

swap amount 0.53 %

Weighted average borrowing rate for securitized debt 6.59 %

 

 

 

The Company incurred $3.6 million in capital expenditures during the first quarter of 2007 versus $4.2 million in the first quarter of the prior year.

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included a non-GAAP financial measure within the meaning of Regulation G due to items affecting comparability between fiscal quarters. 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 expenses incurred in connection with the recapitalization in 2007 discussed above. The most directly comparable financial measure calculated and presented in accordance with GAAP is Diluted EPS. 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 “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 8,394 franchised and Company-owned stores in the United States and more than 55 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 first quarter of 2007, the Domino’s Pizza(R) brand had global retail sales of $1.2 billion, comprised of approximately $770 million domestically and approximately $471 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 www.dominos.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

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: our increased leverage as a result of the borrowings under our 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, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

TABLES TO FOLLOW

 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

Fiscal Quarter Ended

% of % of

March 25, Total March 26, Total

2007 Revenues 2006 Revenues

(In thousands, except per

share data)

Revenues:

Domestic Company-owned

stores $95,540 $96,478

Domestic franchise 37,517 38,129

Domestic distribution 179,885 182,389

International 26,379 30,658

Total revenues 339,321 100.0 % 347,654 100.0 %

Cost of sales:

Domestic Company-owned

stores 75,643 75,206

Domestic distribution 161,417 162,643

International 11,191 15,510

Total cost of sales 248,251 73.2 % 253,359 72.9 %

Operating margin 91,070 26.8 % 94,295 27.1 %

General and administrative 40,338 11.9 % 40,404 11.6 %

Income from operations 50,732 14.9 % 53,891 15.5 %

Interest expense, net 23,893 7.0 % 11,710 3.4 %

Other 13,294 3.9 % – –

Income before provision for

income taxes 13,545 4.0 % 42,181 12.1 %

Provision for income taxes 5,147 1.5 % 16,029 4.6 %

Net income $8,398 2.5 % $26,152 7.5 %

Earnings per share:

Common stock – diluted $0.13 $0.39

 

 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

March 25, December 31,

(In thousands) 2007 2006

Assets

Current assets:

Cash and cash equivalents $67,106 $38,222

Accounts receivable 62,970 65,697

Inventories 21,289 22,803

Advertising fund assets, restricted 17,162 18,880

Other assets 15,107 20,703

Total current assets 183,634 166,305

Property, plant and equipment, net 114,045 117,144

Other assets 123,002 96,754

Total assets $420,681 $380,203

Liabilities and stockholders’ deficit

Current liabilities:

Current portion of long-term debt $619 $1,477

Accounts payable 55,160 55,036

Advertising fund liabilities 17,162 18,880

Other accrued liabilities 71,419 79,808

Total current liabilities 144,360 155,201

Long-term liabilities:

Long-term debt, less current portion 785,061 740,120

Other accrued liabilities 52,444 49,775

Total long-term liabilities 837,505 789,895

Total stockholders’ deficit (561,184) (564,893)

Total liabilities and stockholders’ deficit $420,681 $380,203

 

 

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Fiscal Quarter Ended

March 25, March 26,

2007 2006

(In thousands)

Cash flows from operating activities:

Net income $8,398 $26,152

Adjustments to reconcile net income to

net cash flows provided by operating

activities:

Depreciation and amortization 7,249 7,499

Amortization and write-off of

deferred financing costs

and debt discount 10,215 965

Provision (benefit) for deferred

income taxes (198) 757

Non-cash compensation expense 1,511 1,017

Other 889 (265)

Changes in operating assets and

liabilities (21,156) (7,456)

Net cash provided by operating activities 6,908 28,669

Cash flows from investing activities:

Capital expenditures (3,566) (4,161)

Other 543 347

Net cash used in investing activities (3,023) (3,814)

Cash flows from financing activities:

Repurchase of common stock (67) (145,000)

Proceeds from issuance of long-term debt 780,000 100,000

Cash paid for financing costs (22,255) (250)

Repayments of long-term debt and capital

lease obligation (736,656) (35,074)

Tax benefit from exercise of stock

options 1,167 2,116

Other 2,823 2,808

Net cash provided by (used in) financing

activities 25,012 (75,400)

Effect of exchange rate changes on cash and

cash equivalents (13) (2)

Increase (decrease) in cash and cash

equivalents 28,884 (50,547)

Cash and cash equivalents, at beginning of

period 38,222 66,919

Cash and cash equivalents, at end of period $67,106 $16,372