Domino's Pizza Announces 2006 Financial Results

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

Fourth Quarter and Fiscal 2006 Highlights: Fourth Fourth (dollars in millions, Quarter Quarter Fiscal Fiscal except per share data) of 2006 of 2005 2006 2005 Revenues $ 435.3 $457.4 $1,437.3 $1,511.6 Net income $31.0 $40.2 $ 106.2 $ 108.3 Weighted average diluted shares 63,697,961 68,304,808 64,541,079 68,654,573 Diluted earnings per share, as reported $0.49 $0.59 $1.65 $1.58 Items affecting comparability (see section below) $ (0.15) $ (0.09) $ (0.15) Diluted earnings per share, as adjusted $0.44 $1.56 $1.43

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

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

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

Fourth Quarter of Fiscal 2006 2006 Same store sales growth: (versus prior year period) Domestic Company-owned stores (1.0)% (2.2)% Domestic franchise stores (4.9)% (4.4)% Domestic stores (4.4)% (4.1)% International stores +3.9% +4.0% Global retail sales growth: (versus prior year period) Domestic stores (3.0)% (2.8)% International stores +13.5% +11.4% Total +2.7% +2.0% Domestic Domestic Total Inter- Company- Franchise Domestic national owned Stores Stores Stores Stores Total Store counts: Store count at September 10, 2006 565 4,535 5,100 3,138 8,238 Openings 7 58 65 96 161 Closings (1) (21) (22) (11) (33) Store count at December 31, 2006 571 4,572 5,143 3,223 8,366 Fourth quarter 2006 net growth 6 37 43 85 128 Fiscal 2006 net growth (10) 61 51 236 287

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

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

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

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

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

Items Affecting Comparability

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

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

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

Fourth Quarter Full Year Diluted Diluted (in thousands) After- EPS After- EPS Pre-tax tax Impact Pre-tax tax Impact 2006 items affecting comparability: Gain on the sale of France and Netherlands operations and related tax effects (1) N/A N/A N/A $2,825 $5,571 $0.09 2005 items affecting comparability: Netherlands charges (2) $(2,838) $(2,838) $(0.04) $(2,838) $(2,838) $(0.04) CFO separation expenses (932) (576) (0.01) (1,139) (707) (0.01) Gain on sale of equity investment (3) 22,084 13,655 0.20 22,084 13,655 0.20 Total of 2005 items $18,314 $10,241 $ 0.15 $18,107 $10,110 $0.15 (1) During the third quarter of 2006, we recognized a pre-tax gain on the sale of our Company-owned France and Netherlands operations of approximately $2.8 million. During the second quarter of 2006, when it was apparent that the sale would be completed, we recognized the tax impact of the sale which resulted in a tax benefit of approximately $2.9 million. (2) The charges incurred in 2005 related to Company-owned operations in the Netherlands were not tax affected due to the uncertainty at that time of the ability to utilize net operating loss carryovers related to the Netherlands in the future. (3) During the fourth quarter of 2005, we recognized a gain of approximately $22.1 million related to the sale of an equity investment in our master franchisee in Mexico. Conference Call Information

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

Recapitalization Plan and Discontinuation of Quarterly Dividends

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

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

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

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

Annual Meeting of Shareholders

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

Long Range Outlook

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

Year-Over-Year Growth Domestic same store sales 1% - 3% International same store sales 3% - 5% Net units 200 - 250 Global retail sales 4% - 6% Liquidity As of December 31, 2006, the Company had: * $741.6 million in total debt, * $38.2 million of cash and cash equivalents, * approximately 64% of outstanding borrowings contractually fixed, including the effect of interest rate derivatives, * no borrowings under its $125.0 million revolving credit facility, and * letters of credit issued under its revolving credit facility of $33.9 million.

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

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

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

Comments on Regulation G

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

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

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

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

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

About Domino's

Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery. Domino's is listed on the NYSE under the symbol "DPZ." Through its primarily franchised system, Domino's operates a network of 8,366 franchised and Company-owned stores in the United States and more than 50 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of nearly $5.1 billion in 2006, comprised of $3.2 billion domestically and nearly $1.9 billion internationally. During the fourth quarter of 2006, the Domino's Pizza(R) brand had global retail sales of nearly $1.6 billion, comprised of nearly $1.0 billion domestically and approximately $600 million internationally. Domino's Pizza was named "Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry and is the "Official Pizza of NASCAR(R)." More information on the Company, in English and Spanish, can be found on the web at http://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: uncertainties relating to the outcome of our equity and bond tender offers; our ability to complete an asset-backed securitization facility; the uncertainties relating to litigation; consumer preferences, spending patterns and demographic trends; the effectiveness of our advertising, operations and promotional initiatives; our ability to retain key personnel; new product and concept developments by us and other food-industry competitors; the ongoing profitability of our franchisees and the ability of Domino's Pizza and our franchisees to open new restaurants; changes in food prices, particularly cheese, labor, utilities, insurance, employee benefits and other operating costs; the impact that widespread illness or general health concerns may have on our business and the economy of the countries in which we operate; severe weather conditions and natural disasters; changes in our effective tax rate; changes in government legislation and regulations; adequacy of our insurance coverage; costs related to future financings and changes in accounting policies. Further information about factors that could affect our financial and other results is included in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.

Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Statements of Income Fiscal Quarter Ended % of % of December 31, Total January 1, Total 2006 Revenues 2006 Revenues (In thousands, except per share data) Revenues: Domestic Company-owned stores $117,419 $120,085 Domestic franchise 48,153 49,473 Domestic distribution 234,815 246,970 International 34,868 40,871 Total revenues 435,255 100.0% 457,399 100.0% Cost of sales: Domestic Company-owned stores 93,908 96,055 Domestic distribution 210,383 222,547 International 15,271 21,433 Total cost of sales 319,562 73.4% 340,035 74.3% Operating margin 115,693 26.6% 117,364 25.7% General and administrative 52,499 12.1% 58,976 12.9% Income from operations 63,194 14.5% 58,388 12.8% Interest expense, net (16,067) (3.7)% (15,458) (3.4)% Other - - 22,084 4.8% Income before provision for income taxes 47,127 10.8% 65,014 14.2% Provision for income taxes 16,082 3.7% 24,817 5.4% Net income $31,045 7.1% $40,197 8.8% Earnings per share: Common stock - diluted $0.49 $0.59 Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Statements of Income Fiscal Year Ended % of % of December 31, Total January 1, Total 2006 Revenues 2006 Revenues (In thousands, except per share data) Revenues: Domestic Company- owned stores $393,406 $401,008 Domestic franchise 157,741 161,857 Domestic distribution 762,782 819,097 International 123,390 129,635 Total revenues 1,437,319 100.0% 1,511,597 100.0% Cost of sales: Domestic Company- owned stores 312,130 319,072 Domestic distribution 681,700 739,300 International 58,958 67,937 Total cost of sales 1,052,788 73.2% 1,126,309 74.5% Operating margin 384,531 26.8% 385,288 25.5% General and administrative 170,334 11.9% 186,184 12.3% Income from operations 214,197 14.9% 199,104 13.2% Interest expense, net (53,772) (3.7)% (47,937) (3.2)% Other - - 22,084 1.5% Income before provision for income taxes 160,425 11.2% 173,251 11.5% Provision for income taxes 54,198 3.8% 64,969 4.3% Net income $106,227 7.4% $108,282 7.2% Earnings per share: Common stock - diluted $ 1.65 $1.58 Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Balance Sheets December 31, 2006 January 1, 2006 (In thousands) Assets Current assets: Cash and cash equivalents $38,222 $66,919 Accounts receivable 65,697 74,437 Inventories 22,803 24,231 Advertising fund assets, restricted 18,880 35,643 Other assets 20,703 20,116 Total current assets 166,305 221,346 Property, plant and equipment, net 117,144 131,455 Other assets 96,754 108,273 Total assets $380,203 $461,074 Liabilities and stockholders' deficit Current liabilities: Current portion of long-term debt $1,477 $35,304 Accounts payable 55,036 60,330 Advertising fund liabilities 18,880 35,643 Other accrued liabilities 79,808 86,108 Total current liabilities 155,201 217,385 Long-term liabilities: Long-term debt, less current portion 740,120 702,358 Other accrued liabilities 49,775 52,316 Total long-term liabilities 789,895 754,674 Total stockholders' deficit (564,893) (510,985) Total liabilities and stockholders' deficit $380,203 $461,074 Domino's Pizza, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows Fiscal Year Ended December 31, January 1, 2006 2006 (In thousands) Cash flows from operating activities: Net income $106,227 $108,282 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization 32,266 32,415 Gains on sale/disposal of assets (2,678) (18,998) Amortization of deferred financing costs and debt discount 3,380 3,020 Provision (benefit) for deferred income taxes (615) 308 Other 4,490 5,050 Changes in operating assets and liabilities (10,067) 11,120 Net cash provided by operating activities 133,003 141,197 Cash flows from investing activities: Capital expenditures (20,204) (28,689) Proceeds from sale of property, plant and equipment 14,369 3,899 Proceeds from sale of equity investment - 25,532 Other (97) (605) Net cash provided by (used in) investing activities (5,932) 137 Cash flows from financing activities: Proceeds from issuance of long-term debt 100,000 40,000 Repayments of long-term debt and capital lease obligation (95,284) (80,343) Proceeds from issuance of common stock, net 4,641 1,084 Proceeds from exercise of stock options 4,902 5,553 Tax benefit from exercise of stock options 5,075 21,504 Repurchase of common stock (145,000) (75,000) Common stock dividends (29,841) (26,899) Other (250) (482) Net cash used in financing activities (155,757) (114,583) Effect of exchange rate changes on cash and cash equivalents (11) (228) Increase (decrease) in cash and cash equivalents (28,697) 26,523 Cash and cash equivalents, at beginning of period 66,919 40,396 Cash and cash equivalents, at end of period $38,222 $66,919