-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K6JaCx+TvIy0n2m5wDo8hgymwN+HPLkrO6SEyYIquSTMfa47BE0Bq79w3crmdAyI XhMX0j8aLZ941CuIi0imhA== 0001193125-05-207360.txt : 20051025 0001193125-05-207360.hdr.sgml : 20051025 20051025073450 ACCESSION NUMBER: 0001193125-05-207360 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050911 FILED AS OF DATE: 20051025 DATE AS OF CHANGE: 20051025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINOS PIZZA INC CENTRAL INDEX KEY: 0001286681 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 382511577 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32242 FILM NUMBER: 051153197 BUSINESS ADDRESS: STREET 1: 30 FRANK LLOYD WRIGHT DRIVE CITY: ANN ARBOR STATE: MI ZIP: 48106 MAIL ADDRESS: STREET 1: 30 FRANK LLOYD WRIGHT DRIVE CITY: ANN ARBOR STATE: MI ZIP: 48106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINOS INC CENTRAL INDEX KEY: 0001079458 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 383025165 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-74797 FILM NUMBER: 051153198 BUSINESS ADDRESS: STREET 1: 30 FRANK LLOYD WRIGHT DRIVE CITY: ANN ARBOR STATE: MI ZIP: 48106-0997 BUSINESS PHONE: 7349303030 MAIL ADDRESS: STREET 1: 30 FRANK LLOYD WRIGHT DR CITY: ANN ARBOR STATE: MI ZIP: 48106-0997 10-Q 1 d10q.htm FORM 10-Q Form 10-Q
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 September 11, 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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.):    Yes  ¨    No  x

 

As of October 9, 2005, Domino’s Pizza, Inc. had 66,736,814 shares of common stock, par value $0.01 per share, outstanding. As of October 9, 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) – September 11, 2005 and January 2, 2005

   3
    

Condensed Consolidated Statements of Income (Unaudited) – Fiscal quarter and three fiscal quarters ended September 11, 2005 and September 5, 2004

   4
    

Condensed Consolidated Statements of Cash Flows (Unaudited) – Three fiscal quarters ended September 11, 2005 and September 5, 2004

   5
    

Notes to Condensed Consolidated Financial Statements (Unaudited)

   6

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    13

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    22

Item 4.

   Controls and Procedures    22

PART II.

   OTHER INFORMATION     

Item 1.

   Legal Proceedings    23

Item 2.

   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities    23

Item 3.

   Defaults Upon Senior Securities    23

Item 4.

   Submission of Matters to a Vote of Security Holders    23

Item 5.

   Other Information    23

Item 6.

   Exhibits    23

SIGNATURES

   24

 

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)

 

   September 11, 2005

   

January 2, 2005

(Note)


 

Assets

                

Current assets:

                

Cash and cash equivalents

   $ 21,902     $ 40,396  

Accounts receivable

     68,096       73,138  

Inventories

     23,194       21,505  

Notes receivable

     1,618       1,763  

Prepaid expenses and other

     16,928       13,555  

Advertising fund assets, restricted

     30,685       32,817  

Deferred income taxes

     6,076       6,317  
    


 


Total current assets

     168,499       189,491  
    


 


Property, plant and equipment:

                

Land and buildings

     23,828       23,241  

Leasehold and other improvements

     81,583       74,922  

Equipment

     164,609       159,462  

Construction in progress

     4,131       6,114  
    


 


       274,151       263,739  

Accumulated depreciation and amortization

     138,926       126,856  
    


 


Property, plant and equipment, net

     135,225       136,883  
    


 


Other assets:

                

Deferred financing costs

     12,039       13,411  

Goodwill

     23,428       22,955  

Capitalized software

     21,676       24,079  

Other assets

     15,691       20,832  

Deferred income taxes

     37,571       39,696  
    


 


Total other assets

     110,405       120,973  
    


 


Total assets

   $ 414,129     $ 447,347  
    


 


Liabilities and stockholders’ deficit

                

Current liabilities:

                

Current portion of long-term debt

   $ 2,693     $ 25,295  

Accounts payable

     53,560       55,350  

Insurance reserves

     9,730       9,778  

Advertising fund liabilities

     30,685       32,817  

Other accrued liabilities

     69,113       66,427  
    


 


Total current liabilities

     165,781       189,667  
    


 


Long-term liabilities:

                

Long-term debt, less current portion

     752,508       755,405  

Insurance reserves

     20,234       18,039  

Other accrued liabilities

     28,173       34,116  
    


 


Total long-term liabilities

     800,915       807,560  
    


 


Stockholders’ deficit:

                

Common stock

     667       687  

Additional paid-in capital

     250,796       302,413  

Retained deficit

     (810,253 )     (859,289 )

Deferred stock compensation

     (167 )     (202 )

Accumulated other comprehensive income

     6,390       6,511  
    


 


Total stockholders’ deficit

     (552,567 )     (549,880 )
    


 


Total liabilities and stockholders’ deficit

   $ 414,129     $ 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)

 

     Fiscal Quarter Ended

    Three Fiscal Quarters Ended

 
(In thousands, except per share data)    September 11,
2005


    September 5,
2004


    September 11,
2005


    September 5,
2004


 

Revenues:

                                

Domestic Company-owned stores

   $ 91,024     $ 87,471     $ 280,923     $ 259,497  

Domestic franchise

     35,914       35,199       112,384       103,604  

Domestic distribution

     182,085       177,422       572,127       529,199  

International

     28,553       24,886       88,764       75,669  
    


 


 


 


Total revenues

     337,576       324,978       1,054,198       967,969  
    


 


 


 


Cost of sales:

                                

Domestic Company-owned stores

     71,784       72,118       223,017       211,192  

Domestic distribution

     164,430       161,002       516,753       479,683  

International

     14,850       12,576       46,504       39,099  
    


 


 


 


Total cost of sales

     251,064       245,696       786,274       729,974  
    


 


 


 


Operating margin

     86,512       79,282       267,924       237,995  

General and administrative

     41,128       50,904       125,466       126,824  
    


 


 


 


Income from operations

     45,384       28,378       142,458       111,171  

Interest income

     83       226       373       409  

Interest expense

     (11,674 )     (17,280 )     (32,852 )     (45,170 )

Other

     —         (9,751 )     —         (9,751 )
    


 


 


 


Income before provision for income taxes

     33,793       1,573       109,979       56,659  

Provision for income taxes

     12,977       594       40,804       21,389  
    


 


 


 


Net income

   $ 20,816     $ 979     $ 69,175     $ 35,270  
    


 


 


 


Earnings per share:

                                

Common stock – basic

   $ 0.31     $ (0.02 )   $ 1.04     $ 0.37  

Common stock – diluted

     0.30       (0.02 )     1.00       0.35  

Class L common stock – basic and diluted

     N/A     $ 0.50       N/A     $ 5.57  

Dividends declared per share

   $ 0.10     $ —       $ 0.30     $ —    

 

See accompanying notes.

 

4


Table of Contents

Domino’s Pizza, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Three Fiscal Quarters Ended

 
(In thousands)    September 11,
2005


    September 5,
2004


 

Cash flows from operating activities:

                

Net income

   $ 69,175     $ 35,270  

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

                

Depreciation and amortization

     22,240       21,428  

Amortization of deferred financing costs and debt discount

     2,057       6,535  

Provision for deferred income taxes

     1,933       8,927  

Other

     1,611       1,140  

Changes in operating assets and liabilities

     11,873       (14,155 )
    


 


Net cash provided by operating activities

     108,889       59,145  
    


 


Cash flows from investing activities:

                

Capital expenditures

     (20,692 )     (28,640 )

Other

     1,994       1,945  
    


 


Net cash used in investing activities

     (18,698 )     (26,695 )
    


 


Cash flows from financing activities:

                

Net proceeds from issuance of common stock

     —         119,550  

Proceeds from issuance of long-term debt

     40,000       —    

Repayments of long-term debt and capital lease obligation

     (65,220 )     (155,593 )

Repurchase of common stock

     (75,000 )     —    

Cash paid for financing fees

     (514 )     (654 )

Dividends paid

     (13,512 )     —    

Proceeds from exercise of stock options

     3,761       277  

Distributions

     —         (16,880 )

Other

     1,581       (873 )
    


 


Net cash used in financing activities

     (108,904 )     (54,173 )
    


 


Effect of exchange rate changes on cash and cash equivalents

     219       491  
    


 


Decrease in cash and cash equivalents

     (18,494 )     (21,232 )

Cash and cash equivalents, at beginning of period

     40,396       46,391  
    


 


Cash and cash equivalents, at end of period

   $ 21,902     $ 25,159  
    


 


 

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 percentages, share and per share amounts)

 

September 11, 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 and three fiscal quarters ended September 11, 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 9.

 

2. Comprehensive Income (Loss)

 

     Fiscal Quarter Ended

    Three Fiscal Quarters Ended

 
    

September 11,

2005


    September 5,
2004


   

September 11,

2005


    September 5,
2004


 

Net income

   $ 20,816     $ 979     $ 69,175     $ 35,270  

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

     356       (3,210 )     1,831       2,996  

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

     (220 )     366       (1,162 )     1,703  

Currency translation adjustment

     598       134       (790 )     (274 )
    


 


 


 


Comprehensive income (loss)

   $ 21,550     $ (1,731 )   $ 69,054     $ 39,695  
    


 


 


 


 

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 September 11, 2005 and September 5, 2004

     Domestic
Stores


   Domestic
Distribution


   International

   Intersegment
Revenues


    Other

    Total

Revenues –

                                           

2005

   $ 126,938    $ 208,559    $ 28,553    $ (26,474 )   $ —       $ 337,576

2004

     122,670      203,401      24,886      (25,979 )     —         324,978

Income from operations –

                                           

2005

   $ 33,225    $ 11,736    $ 8,761      N/A     $ (8,338 )   $ 45,384

2004

     29,480      9,936      7,238      N/A       (18,276 )     28,378

Segment Income –

                                           

2005

   $ 36,382    $ 14,148    $ 9,144      N/A     $ (6,309 )   $ 53,365

2004

     32,619      12,530      7,500      N/A       (6,524 )     46,125

 

6


Table of Contents
     Three Fiscal Quarters Ended September 11, 2005 and September 5, 2004

     Domestic
Stores


   Domestic
Distribution


   International

   Intersegment
Revenues


    Other

    Total

Revenues –

                                           

2005

   $ 393,307    $ 654,385    $ 88,764    $ (82,258 )   $ —       $ 1,054,198

2004

     363,101      603,527      75,669      (74,328 )     —         967,969

Income from operations –

                                           

2005

   $ 104,179    $ 36,536    $ 26,687      N/A     $ (24,944 )   $ 142,458

2004

     89,598      31,348      22,227      N/A       (32,002 )     111,171

Segment Income –

                                           

2005

   $ 112,954    $ 43,909    $ 27,797      N/A     $ (19,284 )   $ 165,376

2004

     98,637      38,490      23,005      N/A       (17,096 )     143,036

 

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

 

     Fiscal Quarter Ended

    Three Fiscal Quarters Ended

 
    

September 11,

2005


    September 5,
2004


   

September 11,

2005


    September 5,
2004


 

Total Segment Income

   $ 53,365     $ 46,125     $ 165,376     $ 143,036  

Depreciation and amortization

     (7,554 )     (7,370 )     (22,240 )     (21,428 )

Losses on sale/disposal of assets

     (346 )     (365 )     (435 )     (402 )

Non-cash stock compensation expense

     (81 )     (12 )     (243 )     (35 )

Termination of management agreement

     —         (10,000 )     —         (10,000 )
    


 


 


 


Income from operations

     45,384       28,378       142,458       111,171  

Interest income

     83       226       373       409  

Interest expense

     (11,674 )     (17,280 )     (32,852 )     (45,170 )

Other

     —         (9,751 )     —         (9,751 )
    


 


 


 


Income before provision for income taxes

   $ 33,793     $ 1,573     $ 109,979     $ 56,659  
    


 


 


 


 

4. Earnings Per Share

 

     Fiscal Quarter Ended

    Three Fiscal Quarters Ended

    

September 11,

2005


   September 5,
2004


   

September 11,

2005


   September 5,
2004


Net income available to common stockholders – basic and diluted

   $ 20,816    $ 979     $ 69,175    $ 35,270
    

  


 

  

Allocation of net income to common stockholders:

                            

Common stock

   $ 20,816    $ (844 )   $ 69,175    $ 15,132

Class L

     N/A      1,823       N/A      20,138

Weighted average number of shares:

                            

Common stock

     66,379,392      55,813,460       66,867,837      40,406,868

Class L

     N/A      3,613,978       N/A      3,613,991

Earnings per share – basic:

                            

Common stock

   $ 0.31    $ (0.02 )   $ 1.04    $ 0.37

Class L

     N/A      0.50       N/A      5.57

Diluted weighted average number of shares:

                            

Common stock

     68,407,559      55,813,460       69,091,498      42,875,425

Class L

     N/A      3,617,682       N/A      3,617,371

Earnings per share – diluted:

                            

Common stock

   $ 0.30    $ (0.02 )   $ 1.00    $ 0.35

Class L

     N/A      0.50       N/A      5.57

 

The denominator in calculating diluted earnings per share for common stock for the third quarter and first three quarters of 2005 does not include 1,498,500 options to purchase common stock at $25.02 per share as the exercise price exceeded the average market price of the related common stock for those periods. The effect of including these options would have been anti-dilutive. Additionally, the denominator in calculating diluted earnings per share for common stock for the third quarter of 2004 does not include 2,441,176 of dilutive shares resulting from stock options as the Company had a net loss available to common stockholders and, as a result, their inclusion would have been anti-dilutive. Accordingly, diluted and basic earnings per share amounts are identical for that period.

 

7


Table of Contents

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

    Three Fiscal Quarters Ended

 
    

September 11,

2005


    September 5,
2004


   

September 11,

2005


    September 5,
2004


 

Net income, as reported

   $ 20,816     $ 979     $ 69,175     $ 35,270  

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

     50       7       153       22  

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

     (531 )     (205 )     (1,194 )     (368 )
    


 


 


 


Net income, pro forma

   $ 20,335     $ 781     $ 68,134     $ 34,924  
    


 


 


 


Pro forma earnings per share – basic:

                                

Common stock

   $ 0.31     $ (0.02 )   $ 1.02     $ 0.37  

Class L

     N/A       0.50       N/A       5.57  

Pro forma earnings per share – diluted:

                                

Common stock

   $ 0.30     $ (0.02 )   $ 0.99     $ 0.35  

Class L

     N/A       0.50       N/A       5.57  

 

6. Supplemental Disclosure of Cash Flow Information

 

During the first three quarters of 2005, we have recorded approximately $17.8 million of reductions in income tax payable as a result of tax benefits related to the exercise of stock options.

 

The Company recorded a $6.6 million dividend payable during the third quarter. The dividend was subsequently paid on September 30, 2005.

 

7. Payment of Deferred Compensation

 

During the third quarter of 2005 as required by the Company’s deferred compensation plan, a significant portion of the outstanding deferred compensation balances were paid to participating employees. The total payments were approximately $4.7 million. At the time of payment, the Company recorded a $4.7 million decrease in both investments in marketable securities and deferred compensation liabilities. As the amounts paid were self-funded by the participating employees, there was no income statement impact resulting from these payments.

 

8. New Accounting Pronouncements

 

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 no later than the beginning of fiscal 2006. We are currently assessing our adoption alternatives. Once our evaluation is complete, we will determine an appropriate method of adoption and the impact the adoption will have on our results of operations.

 

8


Table of Contents

9. 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.

 

Domino’s, Inc. and Subsidiaries

Supplemental Guarantor Condensed Consolidating Balance Sheets

 

     As of September 11, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


   Non-Guarantor
Subsidiaries


   Eliminations

    Consolidated

 

Cash and cash equivalents

   $ —       $ 20,530    $ 1,372    $ —       $ 21,902  

Accounts receivable

     —         60,748      7,348      —         68,096  

Advertising fund assets, restricted

     —         —        30,685      —         30,685  

Other current assets

     4,572       40,655      2,589      —         47,816  
    


 

  

  


 


Current assets

     4,572       121,933      41,994      —         168,499  

Property, plant and equipment, net

     —         130,271      4,954      —         135,225  

Other assets

     208,001       61,935      2,196      (161,727 )     110,405  
    


 

  

  


 


Total assets

   $ 212,573     $ 314,139    $ 49,144    $ (161,727 )   $ 414,129  
    


 

  

  


 


Current portion of long-term debt

   $ 2,395     $ 256    $ 42    $ —       $ 2,693  

Accounts payable

     —         38,590      14,970      —         53,560  

Advertising fund liabilities

     —         —        30,685      —         30,685  

Other current liabilities

     9,397       60,270      2,549      —         72,216  
    


 

  

  


 


Current liabilities (1)

     11,792       99,116      48,246      —         159,154  

Long-term debt

     746,721       5,514      273      —         752,508  

Other long-term liabilities

     —         48,167      240      —         48,407  
    


 

  

  


 


Long-term liabilities

     746,721       53,681      513      —         800,915  

Stockholder’s equity (deficit) (1)

     (545,940 )     161,342      385      (161,727 )     (545,940 )
    


 

  

  


 


Total liabilities and stockholder’s equity (deficit)

   $ 212,573     $ 314,139    $ 49,144    $ (161,727 )   $ 414,129  
    


 

  

  


 


 

9


Table of Contents
     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 $165,781 and $189,667, or $6,627 more than and $5 more than Domino’s, Inc. and subsidiaries at September 11, 2005 and January 2, 2005, respectively. Domino’s Pizza, Inc. and subsidiaries had total stockholders’ deficit of $(552,567) and $(549,880), or $6,627 more than and $5 more than Domino’s, Inc. and subsidiaries at September 11, 2005 and January 2, 2005, respectively. The differences at September 11, 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 September 11, 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.

 

Domino’s, Inc. and Subsidiaries

Supplemental Guarantor Condensed Consolidating Statements of Income

 

     Fiscal Quarter Ended September 11, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Revenues

   $ —       $ 330,587     $ 6,989     $ —       $ 337,576  

Cost of sales

     —         245,928       5,136       —         251,064  
    


 


 


 


 


Operating margin

     —         84,659       1,853       —         86,512  

General and administrative

     —         39,968       1,160       —         41,128  
    


 


 


 


 


Income from operations

     —         44,691       693       —         45,384  

Equity earnings in subsidiaries

     28,173       —         —         (28,173 )     —    

Interest expense, net

     (11,518 )     (61 )     (12 )     —         (11,591 )
    


 


 


 


 


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

     16,655       44,630       681       (28,173 )     33,793  

Provision (benefit) for income taxes

     (4,161 )     17,138       —         —         12,977  
    


 


 


 


 


Net income (loss)

   $ 20,816     $ 27,492     $ 681     $ (28,173 )   $ 20,816  
    


 


 


 


 


 

10


Table of Contents
     Three Fiscal Quarters Ended September 11, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Revenues

   $ —       $ 1,031,502     $ 22,696     $ —       $ 1,054,198  

Cost of sales

     —         769,886       16,388       —         786,274  
    


 


 


 


 


Operating margin

     —         261,616       6,308       —         267,924  

General and administrative

     —         119,281       6,185       —         125,466  
    


 


 


 


 


Income from operations

     —         142,335       123       —         142,458  

Equity earnings in subsidiaries

     89,600       —         —         (89,600 )     —    

Interest expense, net

     (32,411 )     (42 )     (26 )     —         (32,479 )
    


 


 


 


 


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

     57,189       142,293       97       (89,600 )     109,979  

Provision (benefit) for income taxes

     (11,986 )     52,790       —         —         40,804  
    


 


 


 


 


Net income (loss)

   $ 69,175     $ 89,503     $ 97     $ (89,600 )   $ 69,175  
    


 


 


 


 


 

     Fiscal Quarter Ended September 5, 2004

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Revenues

   $ —       $ 318,623     $ 6,355     $ —       $ 324,978  

Cost of sales

     —         240,944       4,752       —         245,696  
    


 


 


 


 


Operating margin

     —         77,679       1,603       —         79,282  

General and administrative

     —         48,831       2,073       —         50,904  
    


 


 


 


 


Income (loss) from operations

     —         28,848       (470 )     —         28,378  

Equity earnings in subsidiaries

     17,520       —         —         (17,520 )     —    

Interest income (expense), net (2)

     (16,921 )     (501 )     344       —         (17,078 )

Other

     (9,751 )     —         —         —         (9,751 )
    


 


 


 


 


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

     (9,152 )     28,347       (126 )     (17,520 )     1,549  

Provision (benefit) for income taxes

     (10,107 )     10,701       —         —         594  
    


 


 


 


 


Net income (loss) (2)

   $ 955     $ 17,646     $ (126 )   $ (17,520 )   $ 955  
    


 


 


 


 


 

     Three Fiscal Quarters Ended September 5, 2004

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Revenues

   $ —       $ 948,696     $ 19,273     $ —       $ 967,969  

Cost of sales

     —         715,672       14,302       —         729,974  
    


 


 


 


 


Operating margin

     —         233,024       4,971       —         237,995  

General and administrative

     —         120,960       5,864       —         126,824  
    


 


 


 


 


Income (loss) from operations

     —         112,064       (893 )     —         111,171  

Equity earnings in subsidiaries

     68,688       —         —         (68,688 )     —    

Interest income (expense), net (2)

     (44,452 )     (412 )     78       —         (44,786 )

Other

     (9,751 )     —         —         —         (9,751 )
    


 


 


 


 


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

     14,485       111,652       (815 )     (68,688 )     56,634  

Provision (benefit) for income taxes

     (20,760 )     42,149       —         —         21,389  
    


 


 


 


 


Net income (loss) (2)

   $ 35,245     $ 69,503     $ (815 )   $ (68,688 )   $ 35,245  
    


 


 


 


 



(2) Domino’s Pizza, Inc. and subsidiaries incurred interest expense, net of $17,054 and $44,761 or $24 and $25 less than Domino’s, Inc. and subsidiaries, during the third quarter and first three quarters of 2004, respectively. Accordingly, Domino’s Pizza, Inc. and subsidiaries net income was $24 and $25 more than Domino’s, Inc. and subsidiaries for the third quarter and first three quarters of 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

Domino’s, Inc. and Subsidiaries

Supplemental Condensed Consolidating Statements of Cash Flows

 

     Three Fiscal Quarters Ended September 11, 2005

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

   Consolidated

 

Net cash provided by (used in) operating activities (3)

   $ (31,629 )   $ 140,093     $ 430     $ —      $ 108,894  
    


 


 


 

  


Capital expenditures

     —         (20,590 )     (102 )     —        (20,692 )

Other

     —         1,994       —         —        1,994  
    


 


 


 

  


Net cash used in investing activities

     —         (18,596 )     (102 )     —        (18,698 )
    


 


 


 

  


Proceeds from the issuance of long-term debt

     40,000       —         —         —        40,000  

Repayments of debt

     (65,000 )     (159 )     (61 )     —        (65,220 )

Distributions to parent, net

     54,019       (142,617 )     —                (88,598 )

Other

     (514 )     5,423       —         —        4,909  
    


 


 


 

  


Net cash provided by (used in) financing activities (3)

     28,505       (137,353 )     (61 )     —        (108,909 )
    


 


 


 

  


Effect of exchange rate changes on cash and cash equivalents

     —         55       164       —        219  
    


 


 


 

  


Increase (decrease) in cash and cash equivalents

     (3,124 )     (15,801 )     431       —        (18,494 )
    


 


 


 

  


Cash and cash equivalents, at beginning of period

     3,124       36,331       941       —        40,396  
    


 


 


 

  


Cash and cash equivalents, at end of period

   $ —       $ 20,530     $ 1,372     $ —      $ 21,902  
    


 


 


 

  


 

     Three Fiscal Quarters Ended September 5, 2004

 
     Domino’s, Inc.

    Guarantor
Subsidiaries


    Non-Guarantor
Subsidiaries


    Eliminations

   Consolidated

 

Net cash provided by (used in) operating activities (3)

   $ (57,392 )   $ 113,773     $ 2,338     $ —      $ 58,719  
    


 


 


 

  


Capital expenditures

     —         (26,404 )     (2,236 )     —        (28,640 )

Other

     —         1,945       —         —        1,945  
    


 


 


 

  


Net cash used in investing activities

     —         (24,459 )     (2,236 )     —        (26,695 )
    


 


 


 

  


Repayments of debt

     (155,334 )     (156 )     (103 )     —        (155,593 )

Distributions to parent, net

     216,489       (113,864 )     —         —        102,625  

Other

     (654 )     —         —         —        (654 )
    


 


 


 

  


Net cash provided by (used in) financing activities (3)

     60,501       (114,020 )     (103 )     —        (53,622 )
    


 


 


 

  


Effect of exchange rate changes on cash and cash equivalents

     —         512       (21 )     —        491  
    


 


 


 

  


Increase (decrease) in cash and cash equivalents

     3,109       (24,194 )     (22 )     —        (21,107 )
    


 


 


 

  


Cash and cash equivalents, at beginning of period (3)

     —         44,663       1,603       —        46,266  
    


 


 


 

  


Cash and cash equivalents, at end of period

   $ 3,109     $ 20,469     $ 1,581     $ —      $ 25,159  
    


 


 


 

  



(3) Domino’s Pizza, Inc. and subsidiaries had net cash provided by operating activities of $108,889 and $59,145, or $5 less than and $426 more than Domino’s, Inc. and subsidiaries, during the first three quarters of 2005 and the first three quarters of 2004, respectively. Domino’s Pizza, Inc. and subsidiaries had net cash used in financing activities of $(108,904) and $(54,173), or $5 less than and $551 more than Domino’s, Inc. and subsidiaries, during the first three quarters of 2005 and the first three quarters of 2004, respectively. Cash and cash equivalents for Domino’s Pizza, Inc. and subsidiaries was $46,391 at December 28, 2003. There were no other differences between Domino’s, Inc. and subsidiaries as compared to Domino’s Pizza, Inc. and subsidiaries for the periods presented.

 

12


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 third quarters referenced herein represent the twelve-week periods ended September 11, 2005 and September 5, 2004, respectively. The 2005 and 2004 first three quarters referenced herein represent the thirty-six week periods ended September 11, 2005 and September 5, 2004, respectively.

 

Overview

 

During the third quarter and first three quarters of 2005, global retail sales, comprised of retail sales at both our franchise and Company-owned stores worldwide, grew 7.8% and 11.7%, respectively, as compared to the prior year periods. This growth was driven primarily by same store sales growth in both our domestic and international markets as well as an increase in our worldwide store counts. During the same periods, revenues grew 3.9% and 8.9%, respectively, as compared to the prior year periods. Additionally, we reported increases in income from operations of 59.9% and 28.1% as compared to the prior year periods.

 

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 third quarter and first three quarters of 2005, domestic same store sales grew 1.1% and 6.3%, respectively, comprised of domestic Company-owned same store sales increases of 4.2% and 8.9%, respectively, and domestic franchise same store sales increases of 0.7% and 5.9%, respectively. These increases in same store sales were driven by positive consumer response to our marketing and promotional activities. Domestic same store sales increased 8.0% and 2.9% in the comparable periods in 2004. We also continued to benefit from strong same store sales in our international markets during the third quarter and first three quarters, which increased 4.5% and 6.9%, respectively, on a constant dollar basis versus the prior year periods. The third quarter marked the 47th consecutive quarter that we have grown our international same store sales when compared to the same quarter in the prior year. Additionally, we grew our worldwide net store counts by 67 and 342 stores during the third quarter and trailing four quarters, respectively. Our net store counts at September 11, 2005 include the closing of 14 domestic franchise stores that occurred as a result of Hurricane Katrina. While these stores suffered significant damage and are not expected to re-open in the near term, our overall operations and financial condition were not significantly impacted by Hurricanes Katrina or Rita.

 

Income from operations increased $17.0 million, or 59.9%, to $45.4 million in the third quarter, from $28.4 million in the comparable period in 2004, and increased $31.3 million, or 28.1%, to $142.5 million in the first three quarters, from $111.2 million in the comparable period in 2004. These increases were driven by higher royalty revenues from domestic and international franchise stores, higher domestic Company-owned same store sales, higher volumes in our distribution business and lower cheese costs at our Company-owned stores. Additionally, these increases in income from operations were positively impacted by the $10.0 million payment made to an affiliate of our former majority stockholder in connection with our initial public offering to terminate its management agreement, which occurred in the third quarter of 2004. The average published cheese block price per pound decreased $0.12 and $0.14 to $1.48 and $1.51 in the third quarter and first three quarters of 2005, respectively, compared to the prior year period. These increases in income from operations were offset in part by higher variable general and administrative expenses as a result of improved financial performance as compared to the prior year.

 

Net income increased $19.8 million to $20.8 million in the third quarter, from $1.0 million in the comparable period in 2004, and increased $33.9 million to $69.2 million in the first three quarters, from $35.3 million in the comparable period in 2004. These increases were driven primarily by the aforementioned increases in income from operations as well as a reduction in interest and other expense from the comparable periods in 2004. The reduction in interest expense was a result of lower average debt balances and approximately $3.7 million of deferred financing and bond discount expenses incurred in connection with the redemption of $109.1 million of Domino’s, Inc.’s senior subordinated notes in August of 2004. The reduction in other expense was a result of losses incurred in 2004 in connection with debt retirements, including $9.0 million incurred in connection with the aforementioned redemption of $109.1 million of Domino’s, Inc.’s senior subordinated notes.

 

13


Table of Contents

Critical accounting policies and estimates

 

The following discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, our management evaluates its estimates, including those related to revenue recognition, allowance for uncollectible receivables, long-lived and intangible assets, insurance and legal matters and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. Changes in our estimates could materially impact our results of operations and financial condition for any particular period. We believe that our most critical accounting policies are:

 

Revenue recognition. We earn revenues through our network of domestic Company-owned and franchise stores, dough manufacturing and distribution centers and international operations. Retail sales from Company-owned stores and royalty revenues resulting from the retail sales from franchise stores are recognized as revenues when the items are delivered to or carried out by customers. Sales of food from our distribution centers are recognized as revenues upon delivery of the food to franchisees while sales of equipment and supplies from our distribution centers are generally recognized as revenues upon shipment of the related products to franchisees.

 

Allowance for uncollectible receivables. We closely monitor our accounts and notes receivable balances and provide allowances for uncollectible amounts as a result of our reviews. These estimates are based on, among other factors, historical collection experience and a review of our receivables by aging category. Additionally, we may also provide allowances for uncollectible receivables based on specific customer collection issues that we have identified. While write-offs of bad debts have historically been within our expectations and the provisions established, management cannot guarantee that future write-offs will not exceed historical rates. Specifically, if the financial condition of our franchisees were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required.

 

Long-lived and intangible assets. We record long-lived assets, including property, plant and equipment and capitalized software, at cost. For acquisitions of franchise operations, we estimate the fair values of the assets and liabilities acquired based on physical inspection of assets, historical experience and other information available to us regarding the acquisition. We depreciate and amortize long-lived assets using useful lives determined by us based on historical experience and other information available to us. We review long-lived assets for impairment when events or circumstances indicate that the related amounts might be impaired. We perform related impairment tests on a market level basis for Company-owned stores. At January 2, 2005, we determined that our long-lived assets were not impaired. However, if our future operating performance were to deteriorate, we may be required to recognize an impairment charge.

 

We evaluate goodwill for impairment by comparing the fair value of our reporting units to their carrying values. A significant portion of our goodwill relates to acquisitions of domestic franchise stores and is included in our domestic stores segment. At January 2, 2005, the fair value of our business operations with associated goodwill exceeded their recorded carrying value, including the related goodwill. However, if the future performance of our domestic Company-owned stores or other segment operations were to deteriorate, we may be required to recognize a goodwill impairment charge.

 

At September 11, 2005, we had approximately $5.2 million in net book value of long-lived assets and goodwill associated with our Company-owned operations in The Netherlands. Recently, our Netherlands operations have performed unfavorably as compared to our internal forecasts and expectations. Management has responded to this performance gap by developing plans to improve the operating results of this business. If these plans ultimately prove unsuccessful, we may be required to record an impairment charge associated with these operations.

 

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Table of Contents

Insurance and legal matters. We are a party to lawsuits and legal proceedings arising in the ordinary course of business. Management closely monitors these legal matters and estimates the probable costs for the resolution of such matters. These estimates are primarily determined by consulting with both internal and external parties handling the matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. If our estimates relating to legal matters proved inaccurate for any reason, we may be required to increase or decrease the related expense in future periods.

 

For certain periods prior to December 1998 and for periods after December 2001, we maintain insurance coverage for workers’ compensation, general liability and owned and non-owned auto liability under insurance policies requiring payment of a deductible for each occurrence up to between $500,000 and $3.0 million, depending on the policy year and line of coverage. The related insurance reserves are determined using independent actuarial estimates, which are based on historical information along with assumptions about future events. Changes in assumptions for such factors as medical costs and legal actions, as well as changes in actual experience, could cause these estimates to change in the near term which could result in an increase or decrease in the related expense in future periods.

 

Income taxes. Our net deferred tax assets assume that we will generate sufficient taxable income in specific tax jurisdictions, based on estimates and assumptions. The amounts relating to taxes recorded on the balance sheet, including tax reserves, also consider the ultimate resolution of revenue agent reviews based on estimates and assumptions. If these estimates and assumptions change in the future, we may be required to adjust our valuation allowance or other tax reserves resulting in additional income tax expense or benefit in future periods.

 

Same Store Sales Growth (versus the comparable periods in 2004)

 

    

Third Quarter

of 2005


    First Three
Quarters of 2005


 

Domestic Company-owned stores

   +4.2 %   +8.9 %

Domestic franchise stores

   +0.7 %   +5.9 %
    

 

Domestic stores

   +1.1 %   +6.3 %

International stores

   +4.5 %   +6.9 %

 

Store Counts and Net Unit Growth

 

    

Domestic

Company-owned
Stores


    Domestic
Franchise
Stores(1)


   

Total

Domestic
Stores


    International
Stores


    Total

 

Store count at June 19, 2005

   569     4,460     5,029     2,849     7,878  

Openings

   3     27     30     76     106  

Closings

   —       (33 )   (33 )   (6 )   (39 )

Transfers

   2     (2 )   —       —       —    
    

 

 

 

 

Store count at September 11, 2005

   574     4,452     5,026     2,919     7,945  
    

 

 

 

 

Third quarter of 2005 net growth

   5     (8 )   (3 )   70     67  
    

 

 

 

 

First three quarters of 2005 net growth

   (6 )   24     18     170     188  
    

 

 

 

 

Trailing 4 quarters net growth

   (4 )   85     81     261     342  
    

 

 

 

 


(1) The domestic franchise store counts at September 11, 2005 reflect 14 closed stores as a result of Hurricane Katrina.

 

Income Statement Data

 

    

Third Quarter

of 2005


    Third Quarter of
2004


    First Three
Quarters of 2005


    First Three
Quarters of 2004


 

Total revenues

   $ 337.6    100.0 %   $ 325.0    100.0 %   $ 1,054.2    100.0 %   $ 968.0    100.0 %

Cost of sales

     251.1    74.4 %     245.7    75.6 %     786.3    74.6 %     730.0    75.4 %

General and administrative

     41.1    12.2 %     50.9    15.7 %     125.5    11.9 %     126.8    13.1 %
    

  

 

  

 

  

 

  

Income from operations

     45.4    13.4 %     28.4    8.7 %     142.5    13.5 %     111.2    11.5 %

Interest expense, net

     11.6    3.4 %     17.1    5.2 %     32.5    3.1 %     44.8    4.7 %

Other

     —      —         9.8    3.0 %     —      —         9.8    1.0 %
    

  

 

  

 

  

 

  

Income before provision for income taxes

     33.8    10.0 %     1.6    0.5 %     110.0    10.4 %     56.7    5.8 %

Provision for income taxes

     13.0    3.8 %     0.6    0.2 %     40.8    3.8 %     21.4    2.2 %
    

  

 

  

 

  

 

  

Net income

   $ 20.8    6.2 %   $ 1.0    0.3 %   $ 69.2    6.6 %   $ 35.3    3.6 %
    

  

 

  

 

  

 

  

 

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Table of Contents

Revenues

 

Revenues primarily include retail sales by our 595 domestic and international Company-owned stores, royalties from our 7,350 domestic and international franchise stores, and sales of food, equipment and supplies by our 17 domestic and 8 international 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 $12.6 million, or 3.9%, to $337.6 million in the third quarter of 2005, from $325.0 million in the comparable period in 2004, and increased $86.2 million, or 8.9%, to $1,054.2 million in the first three quarters of 2005, from $968.0 million in the comparable period in 2004. These increases were a result of increases in revenues at each of our reportable segments and are more fully described below.

 

Domestic Stores Revenues

 

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


  

Third Quarter

of 2005


   

Third Quarter

of 2004


   

First Three

Quarters of 2005


    First Three
Quarters of 2004


 

Domestic Company-owned stores

   $ 91.0    71.7 %   $ 87.5    71.3 %   $ 280.9    71.4 %   $ 259.5    71.5 %

Domestic franchise

     35.9    28.3 %     35.2    28.7 %     112.4    28.6 %     103.6    28.5 %
    

  

 

  

 

  

 

  

Total domestic stores revenues

   $ 126.9    100.0 %   $ 122.7    100.0 %   $ 393.3    100.0 %   $ 363.1    100.0 %
    

  

 

  

 

  

 

  

 

Domestic stores revenues increased $4.2 million, or 3.5%, to $126.9 million in the third quarter of 2005, from $122.7 million in the comparable period in 2004, and increased $30.2 million, or 8.3%, to $393.3 million in the first three quarters of 2005, from $363.1 million in the comparable period in 2004. These increases in revenues were 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 1.1% and 6.3% in the third quarter and first three quarters of 2005, respectively, compared to the same periods in 2004, driven by positive consumer response to our marketing and promotional activities. These changes in domestic stores revenues are more fully described below.

 

Domestic Company-Owned Stores Revenues

 

Revenues from domestic Company-owned store operations increased $3.5 million, or 4.1%, to $91.0 million in the third quarter of 2005, from $87.5 million in the comparable period in 2004, and increased $21.4 million, or 8.3%, to $280.9 million in the first three quarters of 2005, from $259.5 million in the comparable period in 2004. These increases in revenues were due primarily to higher same store sales. Domestic Company-owned same store sales increased 4.2% and 8.9% in the third quarter and first three quarters of 2005, respectively, compared to the same periods in 2004. There were 574 and 578 domestic Company-owned stores in operation as of September 11, 2005 and September 5, 2004, respectively.

 

Domestic Franchise Revenues

 

Revenues from domestic franchise operations increased $0.7 million, or 2.0%, to $35.9 million in the third quarter of 2005, from $35.2 million in the comparable period in 2004, and increased $8.8 million, or 8.5%, to $112.4 million in the first three quarters of 2005, from $103.6 million in the comparable period in 2004. These increases in revenues were due primarily to higher same store sales and an increase in the average number of domestic franchise stores open during 2005. Domestic franchise same store sales increased 0.7% and 5.9% in the third quarter and first three quarters of 2005, respectively, compared to the same periods in 2004. There were 4,452 and 4,367 domestic franchise stores in operation as of September 11, 2005 and September 5, 2004, respectively. The domestic franchise store counts at September 11, 2005 include the closing of 14 stores that occurred as result of Hurricane Katrina.

 

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Table of Contents

Domestic Distribution Revenues

 

Revenues from domestic distribution operations increased $4.7 million, or 2.6%, to $182.1 million in the third quarter of 2005, from $177.4 million in the comparable period in 2004, and increased $42.9 million, or 8.1%, to $572.1 million in the first three quarters of 2005, from $529.2 million in the comparable period in 2004. These increases in revenues were due primarily to higher volumes related to increases in domestic franchise retail sales, offset in part by decreases in cheese prices. The published cheese block price-per-pound averaged $1.48 and $1.51 in the third quarter and first three quarters of 2005, respectively, down from $1.60 and $1.65 in the comparable periods in 2004. Had the 2005 average cheese prices been in effect during 2004, distribution revenues for the third quarter and first three quarters of 2004 would have been approximately $3.2 million and $9.2 million, respectively, lower than the reported 2004 amounts.

 

International Revenues

 

Revenues from international operations increased $3.7 million, or 14.7%, to $28.6 million in the third quarter of 2005, from $24.9 million in the comparable period in 2004, and increased $13.1 million, or 17.3%, to $88.8 million in the first three quarters of 2005, from $75.7 million in the comparable period in 2004. These increases in revenues were due to higher same store sales, an increase in the average number of international stores open during 2005, related increases in revenues from our international distribution operations and the positive effect of a weaker U.S. Dollar in the key international markets in which we compete. On a constant dollar basis, same store sales increased 4.5% and 6.9% in the third quarter and first three quarters of 2005, respectively, versus the comparable period in 2004. There were 2,919 and 2,658 international stores in operation as of September 11, 2005 and September 5, 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 $7.2 million, or 9.1%, to $86.5 million in the third quarter of 2005, from $79.3 million in the comparable period in 2004, and increased $29.9 million, or 12.6%, to $267.9 million in the first three quarters of 2005, from $238.0 million in the comparable period in 2004. These results are summarized in the following table.

 

     Third Quarter of
2005


    Third Quarter of
2004


   

First Three

Quarters of 2005


    First Three
Quarters of 2004


 

Consolidated revenues

   $ 337.6    100.0 %   $ 325.0    100.0 %   $ 1,054.2    100.0 %   $ 968.0    100.0 %

Consolidated cost of sales

     251.1    74.4 %     245.7    75.6 %     786.3    74.6 %     730.0    75.4 %
    

  

 

  

 

  

 

  

Consolidated operating margin

   $ 86.5    25.6 %   $ 79.3    24.4 %   $ 267.9    25.4 %   $ 238.0    24.6 %
    

  

 

  

 

  

 

  

 

The increases in the consolidated operating margin for the third quarter and first three quarters of 2005 were due primarily to higher domestic franchise and international royalty revenues resulting from strong global retail sales growth and higher margins at our Company-owned stores.

 

As a percentage of revenues, the consolidated operating margin increased 1.2 percentage points to 25.6% in the third quarter of 2005, from 24.4% in the comparable period in 2004, and increased 0.8 percentage points to 25.4% in the first three quarters of 2005, from 24.6% in the comparable period in 2004. The consolidated operating margin as a percentage of revenues was positively impacted by 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. Additionally, the consolidated operating margin was positively impacted by lower insurance costs and lower cheese costs, which benefited both domestic Company-owned store and distribution operating margins as a percentage of revenues.

 

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Table of Contents

As mentioned above, the consolidated operating margin as a percentage of revenues was positively impacted by lower cheese costs. Cheese price changes are a “pass-through” in domestic distribution revenues and cost of sales and, as such, have no impact on the related operating margin. 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 third quarter and first three quarters of 2004 would have been approximately 24.6% and 24.8% of total revenues, respectively, versus the reported 24.4% and 24.6%. This would have resulted in operating margin improvements of 1.0 and 0.6 percentage points in the third quarter and first three quarters of 2005, respectively, versus the reported improvements of 1.2 and 0.8 percentage points.

 

Domestic Company-Owned Stores Operating Margin

 

The domestic Company-owned store operating margin increased $3.8 million, or 25.3%, to $19.2 million in the third quarter of 2005, from $15.4 million in the comparable period in 2004, and increased $9.6 million, or 19.9%, to $57.9 million in the first three quarters of 2005, from $48.3 million in the comparable period in 2004. These results are summarized in the following table.

 

Domestic Company-Owned Stores


  

Third Quarter

of 2005


    Third Quarter
of 2004


    First Three
Quarters of 2005


    First Three
Quarters of 2004


 

Revenues

   $ 91.0    100.0 %   $ 87.5    100.0 %   $ 280.9    100.0 %   $ 259.5    100.0 %

Cost of sales

     71.8    78.9 %     72.1    82.4 %     223.0    79.4 %     211.2    81.4 %
    

  

 

  

 

  

 

  

Store operating margin

   $ 19.2    21.1 %   $ 15.4    17.6 %   $ 57.9    20.6 %   $ 48.3    18.6 %
    

  

 

  

 

  

 

  

 

The increases in the domestic Company-owned store operating margin during the third quarter and first three quarters of 2005 were due primarily to increases in same store sales, reductions in cheese prices and lower insurance costs.

 

As a percentage of store revenues, the store operating margin increased 3.5 percentage points to 21.1% in the third quarter of 2005, from 17.6% in the comparable period in 2004, and increased 2.0 percentage points to 20.6% in the first three quarters of 2005, from 18.6% in the comparable period in 2004.

 

As a percentage of store revenues, food costs decreased 1.2 percentage points to 27.8% in the third quarter of 2005, from 29.0% in the comparable period in 2004, and increased 0.1 percentage points to 28.4% in the first three quarters of 2005, from 28.3% in the comparable period in 2004. The decrease in food costs as a percentage of store revenues during the third quarter was due primarily to a reduction in cheese prices and a higher average ticket offset by a change in product mix. The increase in food costs as a percentage of store revenues during the first three quarters was due primarily to a change in product mix as a result of certain promotions in 2005, offset in part by a reduction in cheese prices.

 

As a percentage of store revenues, labor costs decreased 0.4 percentage points to 29.6% in the third quarter of 2005, from 30.0% in the comparable period in 2004, and decreased 0.5 percentage points to 29.5% in the first three quarters of 2005, from 30.0% in the comparable period in 2004. These decreases in labor costs as a percentage of store revenues were due primarily to leveraging labor costs on a higher base of revenues.

 

As a percentage of store revenues, occupancy costs, which include rent, telephone, utilities and depreciation, decreased 0.4 percentage points to 11.2% in the third quarter of 2005, from 11.6% in the comparable period in 2004, and decreased 0.7 percentage points to 10.7% in the first three quarters of 2005, from 11.4% in the comparable period in 2004. These decreases in occupancy costs as a percentage of store revenues were driven primarily by the positive impact of higher revenues.

 

As a percentage of store revenues, insurance costs decreased 1.5 percentage points to 3.0% in the third quarter of 2005, from 4.5% in the comparable period in 2004, and decreased 1.0 percentage point to 3.6% in the first three quarters of 2005, from 4.6% in the comparable period in 2004. These decreases in insurance costs as a percentage of store revenues were due primarily to improved experience and the positive impact of higher revenues.

 

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Table of Contents

Domestic Distribution Operating Margin

 

The domestic distribution operating margin increased $1.3 million, or 7.5%, to $17.7 million in the third quarter of 2005, from $16.4 million in the comparable period in 2004, and increased $5.9 million, or 11.8%, to $55.4 million in the first three quarters of 2005, from $49.5 million in the comparable period in 2004. These results are summarized in the following table.

 

Domestic Distribution


  

Third Quarter

of 2005


   

Third Quarter

of 2004


    First Three
Quarters of 2005


    First Three
Quarters of 2004


 

Revenues

   $ 182.1    100.0 %   $ 177.4    100.0 %   $ 572.1    100.0 %   $ 529.2    100.0 %

Cost of sales

     164.4    90.3 %     161.0    90.7 %     516.8    90.3 %     479.7    90.6 %
    

  

 

  

 

  

 

  

Distribution operating margin

   $ 17.7    9.7 %   $ 16.4    9.3 %   $ 55.4    9.7 %   $ 49.5    9.4 %
    

  

 

  

 

  

 

  

 

The increases in the domestic distribution operating margin during the third quarter and first three quarters of 2005 were due primarily to higher volumes as a result of increases in domestic retail sales and a decrease in insurance costs, offset in part by higher labor and delivery costs.

 

As a percentage of distribution revenues, the distribution operating margin increased 0.4 percentage points to 9.7% in the third quarter of 2005, from 9.3% in the comparable period in 2004, and increased 0.3 percentage points to 9.7% in the first three quarters of 2005, from 9.4% in the comparable period in 2004. Had the 2005 average cheese prices been in effect during 2004, the distribution operating margin for the third quarter and first three quarters of 2004 would have been approximately 9.4% and 9.5% of distribution revenues, respectively, versus the reported 9.3% and 9.4%. This would have resulted in operating margin improvements of 0.3 and 0.2 percentage points in the third quarter and first three quarters of 2005, respectively, versus the reported increase of 0.4 and 0.3 percentage points.

 

General and Administrative Expenses

 

General and administrative expenses decreased $9.8 million, or 19.2%, to $41.1 million in the third quarter of 2005, from $50.9 million in the comparable period in 2004, and decreased $1.3 million, or 1.1%, to $125.5 million in the first three quarters of 2005, from $126.8 million in the comparable period in 2004. These decreases in general and administrative expenses were due primarily to the $10.0 million payment made to an affiliate of our former majority stockholder in connection with our initial public offering to terminate its management agreement with us, which occurred in the third quarter of 2004. The decrease for the first three quarters of 2005 was offset in part by increases in variable general and administrative expenses, including higher administrative labor as a result of higher performance-based bonuses and increases in advertising contributions as a result of higher Company-owned same store sales. As a percentage of total revenues, general and administrative expenses decreased 3.5 percentage points to 12.2% in the third quarter of 2005, from 15.7% in the comparable period in 2004, and decreased 1.2 percentage points to 11.9% in the first three quarters of 2005, from 13.1% in the comparable period in 2004.

 

Interest Expense

 

Interest expense decreased $5.6 million, or 32.4%, to $11.7 million in the third quarter of 2005, from $17.3 million in the comparable period in 2004, and decreased $12.3 million, or 27.3%, to $32.9 million in the first three quarters of 2005, from $45.2 million in the comparable period in 2004. These decreases were due primarily to lower average debt balances during 2005 and approximately $3.7 million of deferred financing and bond discount expenses incurred in connection with the redemption of $109.1 million of Domino’s, Inc.’s senior subordinated notes in August 2004.

 

The average outstanding debt balance, excluding capital lease obligations, decreased $139.8 million to $758.4 million in the third quarter of 2005, from $898.2 million in the comparable period in 2004, and decreased $161.0 million to $760.9 million in the first three quarters of 2005, from $921.9 million in the comparable period in 2004.

 

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Table of Contents

Our effective borrowing rate increased 0.4 percentage points to 6.0% during the third quarter of 2005, from 5.6% in the comparable period in 2004, and decreased 0.2 percentage points to 5.5% during the first three quarters of 2005, from 5.7% in the comparable period in 2004. The effective borrowing rate for the third quarter of 2005 was negatively impacted by changes in our outstanding interest rate swaps as well as higher market interest rates, offset in part by reduced senior credit facility margin pricing. The effective borrowing rate during the first three quarters of 2005 was positively impacted by the aforementioned reductions in margin pricing, offset in part by higher market interest rates.

 

At June 30, 2005, two floating-to-fixed interest rate derivatives expired with total notional amounts of $375 million. We paid 1.62% under a $300 million notional amount contract and 3.25% under a $75 million notional amount contract while the counterparty paid a floating interest rate under each contract. Concurrently, a $350 million notional amount floating-to-fixed interest rate derivative started with the Company paying 3.21% under the contract while the counterparty pays a floating interest rate.

 

Other

 

The other amount of $9.8 million for the third quarter and first three quarters of 2004 is comprised of losses incurred in connection with debt retirements, including $9.0 million incurred in connection with the redemption of $109.1 million of Domino’s, Inc.’s senior subordinated notes in August 2004.

 

Provision for Income Taxes

 

Provision for income taxes increased $12.4 million to $13.0 million in the third quarter of 2005, from $0.6 million in the comparable period in 2004, and increased $19.4 million to $40.8 million in the first three quarters of 2005, from $21.4 million in the comparable period in 2004. The effective tax rate for the third quarter increased 0.6 percentage points to 38.4%, from 37.8% in the comparable period in 2004, and decreased 0.7 percentage points to 37.1% in the first three quarters of 2005, from 37.8% in the comparable period in 2004. The decrease in the effective tax rate for the first three quarters of 2005 was due primarily to the reversal of valuation allowances related to net operating loss deferred tax assets from certain of our foreign operations.

 

Liquidity and Capital Resources

 

We had working capital of $2.7 million and cash and cash equivalents of $21.9 million at September 11, 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. 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 September 11, 2005.

 

As of September 11, 2005, we had $755.2 million of debt, of which $2.7 million was classified as a current liability. Letters of credit issued under the revolving credit facility were $28.9 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 managing volatility relating to our borrowing costs. As of September 11, 2005, we were party to interest rate derivatives in the total notional amount of $450.0 million. Including the effect of interest rate derivatives, approximately 70% of outstanding borrowings were contractually fixed as of September 11, 2005.

 

20


Table of Contents

Cash provided by operating activities was $108.9 million and $59.1 million in the first three quarters of 2005 and 2004, respectively. The $49.8 million increase was due primarily to a $33.9 million increase in net income and a $26.0 million net change in operating assets and liabilities, offset in part by a $7.0 million decrease in provision for deferred income taxes and a $4.5 decrease in amortization of deferred financing costs and debt discount. The $26.0 million increase in operating cash flow resulting from the net change in operating assets and liabilities was due primarily to the changes in accruals for taxes and interest. In 2005, we reported a year-over-year net source of cash resulting from a reduction in income taxes payable, which is primarily attributable to the $17.8 million reduction as a result of tax benefits related to the exercise of stock options. Additionally, due primarily to lower debt levels in 2005, we reported a $7.9 million year-over-year net source of cash resulting from a reduction in interest payable.

 

Cash used in investing activities was $18.7 million and $26.7 million in the first three quarters of 2005 and 2004, respectively. The $8.0 million decrease was due primarily to a $7.9 million decrease in capital expenditures. This decrease primarily resulted from the significant capital expenditures in 2004 relating to the renovation of our world headquarters.

 

Cash used in financing activities was $108.9 million and $54.2 million in the first three quarters of 2005 and 2004, respectively. The $54.7 million increase was due primarily to a $119.6 million decrease in net proceeds from the issuance of common stock, a $75.0 million purchase of common stock in 2005 and $13.5 million of dividend payments in 2005, offset in part by a $90.4 million decrease in repayments of long-term debt, $40.0 million of proceeds resulting from short-term borrowings to partially fund the aforementioned share repurchase and a $16.9 million decrease in distributions to our founder and former majority stockholder and his wife in conjunction with our initial public offering in 2004.

 

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.

 

21


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 managing volatility relating to our borrowing costs.

 

We are party to an interest rate swap agreement which effectively converts the variable LIBOR component of the effective interest rate on a portion of our debt under our senior secured credit facility to a fixed rate over a specified term. We are also party to two interest rate swap agreements which effectively convert the 8.25% interest rate on our senior subordinated notes to variable 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

   $  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

   $350.0 million    June 2005 – June 2007    3.21%   LIBOR  

 

Interest Rate Risk

 

Our variable interest expense is sensitive to changes in the general level of interest rates. At September 11, 2005, the weighted average interest rate on our $223.0 million of variable interest debt was 6.2%.

 

We had total interest expense of approximately $32.9 million in the first three quarters 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 $2.9 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 September 11, 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.

 

22


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 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.
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.

 

23


Table of Contents
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: October 25, 2005      

/s/ Harry J. Silverman


        Harry J. Silverman
        Chief Financial Officer

 

24

EX-31.1 2 dex311.htm SECTION 302 CEO CERTIFICATION 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.

 

        October 25, 2005


     

/s/ David A. Brandon


            Date       David A. Brandon
        Chief Executive Officer
EX-31.2 3 dex312.htm SECTION 302 CFO CERTIFICATION 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.

 

        October 25, 2005


     

/s/ Harry J. Silverman


                Date       Harry J. Silverman
        Chief Financial Officer
EX-31.3 4 dex313.htm SECTION 302 CEO CERTIFICATION 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.

 

        October 25, 2005


     

/s/ David A. Brandon


                Date       David A. Brandon
        Chief Executive Officer
EX-31.4 5 dex314.htm SECTION 302 CFO CERTIFICATION 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.

 

        October 25, 2005


     

/s/ Harry J. Silverman


                Date       Harry J. Silverman
        Chief Financial Officer
EX-32.1 6 dex321.htm SECTION 906 CEO CERTIFICATION 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 September 11, 2005, 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: October 25, 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.

EX-32.2 7 dex322.htm SECTION 906 CFO CERTIFICATION 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 September 11, 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: October 25, 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.

EX-32.3 8 dex323.htm SECTION 906 CEO CERTIFICATION 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 September 11, 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: October 25, 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.

EX-32.4 9 dex324.htm SECTION 906 CFO CERTIFICATION 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 September 11, 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: October 25, 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.

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