SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 23, 2003
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 number: 333-74797
Domino's, Inc.
(Exact name of registrant as specified in its charter)
Delaware 38-3025165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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]
The number of shares outstanding of the registrant's common stock as of April
28, 2003 was 10 shares.
Domino's, Inc.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 23, 2003 (Unaudited) and December 29, 2002 3
Condensed Consolidated Statements of Income (Unaudited) -
Fiscal quarter ended March 23, 2003 and March 24, 2002 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Fiscal quarter ended March 23, 2003 and March 24, 2002 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
CERTIFICATIONS 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Domino's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 23, 2003 December 29, 2002
(In thousands) (Unaudited) (Note)
---------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 30,238 $ 22,472
Accounts receivable 56,209 57,497
Inventories 21,486 21,832
Notes receivable 2,995 3,398
Prepaid expenses and other 9,317 6,673
Advertising fund assets, restricted 27,458 28,231
Deferred income taxes 6,847 6,809
---------------- -----------------
Total current assets 154,550 146,912
---------------- -----------------
Property, plant and equipment:
Land and buildings 15,515 15,986
Leasehold and other improvements 58,072 57,029
Equipment 147,468 145,513
Construction in progress 4,690 5,727
---------------- -----------------
225,745 224,255
Accumulated depreciation and amortization 106,810 103,708
---------------- -----------------
Property, plant and equipment, net 118,935 120,547
---------------- -----------------
Other assets:
Deferred financing costs 16,693 18,264
Goodwill 27,468 27,232
Capitalized software 27,719 28,313
Other assets 20,712 20,872
Deferred income taxes 58,009 60,287
---------------- -----------------
Total other assets 150,601 154,968
---------------- -----------------
Total assets $ 424,086 $ 422,427
================ =================
Liabilities and stockholder's deficit
Current liabilities:
Current portion of long-term debt $ 3,748 $ 2,843
Accounts payable 50,568 46,131
Insurance reserves 8,642 8,452
Advertising fund liabilities 27,458 28,231
Other accrued liabilities 70,444 71,571
---------------- -----------------
Total current liabilities 160,860 157,228
---------------- -----------------
Long-term liabilities:
Long-term debt, less current portion 577,778 599,180
Insurance reserves 13,791 12,510
Other accrued liabilities 27,950 29,090
---------------- -----------------
Total long-term liabilities 619,519 640,780
---------------- -----------------
Stockholder's deficit:
Common stock - -
Additional paid-in capital 120,723 120,723
Retained deficit (473,563) (491,793)
Accumulated other comprehensive loss (3,453) (4,511)
---------------- -----------------
Total stockholder's deficit (356,293) (375,581)
---------------- -----------------
Total liabilities and stockholder's deficit $ 424,086 $ 422,427
================ =================
_________
Note: The balance sheet at December 29, 2002 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
Domino's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended
March 23, March 24,
(In thousands) 2003 2002
------------------------------
Revenues:
Domestic Company-owned stores $ 89,942 $ 89,906
Domestic franchise 34,404 34,559
Domestic distribution 167,436 165,745
International 20,470 17,846
------------ ---------------
Total revenues 312,252 308,056
------------ ---------------
Operating expenses:
Cost of sales 230,052 225,338
General and administrative 40,853 44,171
------------ ---------------
Total operating expenses 270,905 269,509
------------ ---------------
Income from operations 41,347 38,547
Interest income 103 218
Interest expense 12,333 13,519
------------ ---------------
Income before provision for income taxes 29,117 25,246
Provision for income taxes 10,773 9,341
------------ ---------------
Net income $ 18,344 $ 15,905
============ ===============
_________
See accompanying notes.
4
Domino's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Fiscal Quarter Ended
March 23, March 24,
(In thousands) 2003 2002
---------------- --------------
Cash flows from operating activities:
Net cash provided by operating activities $ 32,599 $ 22,468
---------------- --------------
Cash flows from investing activities:
Capital expenditures (5,219) (17,767)
Acquisitions of franchise operations - (21,850)
Other 1,002 (4,261)
---------------- --------------
Net cash used in investing activities (4,217) (43,878)
---------------- --------------
Cash flows from financing activities:
Repayments of long-term debt (20,500) (14,454)
Distributions to Parent (114) (10,006)
---------------- --------------
Net cash used in financing activities (20,614) (24,460)
---------------- --------------
Effect of exchange rate changes on cash
and cash equivalents (2) (22)
---------------- --------------
Increase (decrease) in cash and cash equivalents 7,766 (45,892)
Cash and cash equivalents, at beginning of period 22,472 55,147
---------------- --------------
Cash and cash equivalents, at end of period $ 30,238 $ 9,255
================ ==============
_________
See accompanying notes.
5
Domino's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands)
March 23, 2003
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. In the opinion of management, all
adjustments, consisting of normal recurring items, considered necessary for
a fair presentation have been included. Operating results for the fiscal
quarter ended March 23, 2003 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 28, 2003. For
further information, refer to the consolidated financial statements and
footnotes thereto for the fiscal year ended December 29, 2002 included in
our Form 10-K.
2. Comprehensive Income
Fiscal Quarter Ended
----------------------
March 23, March 24,
2003 2002
--------- ---------
Net income $ 18,344 $ 15,905
Unrealized loss on derivative instruments,
net of tax (101) (355)
Reclassification adjustment for losses included
in net income, net of tax 1,048 739
Currency translation adjustment 111 (42)
--------- ---------
Comprehensive income $ 19,402 $ 16,247
========= =========
3. Segment Information
The following table summarizes revenues, income from operations and
earnings before interest, taxes, depreciation and amortization, as defined
("EBITDA") for each of the Company's reportable segments.
Fiscal Quarter Ended March 23, 2003 and March 24, 2002
-------------------------------------------------------------------------------------
Domestic Domestic Intersegment
Stores Distribution International Revenues Other Total
-------- -------------- --------------- --------------- ----------- -----------
Revenues -
2003 $124,346 $192,528 $20,470 $ (25,092) $ - $312,252
2002 124,465 189,674 17,846 (23,929) - 308,056
Income from operations -
2003 $ 31,614 $ 11,924 $ 5,675 N/A $ (7,866) $ 41,347
2002 33,484 10,106 4,604 N/A (9,647) 38,547
EBITDA -
2003 $ 34,581 $ 13,595 $ 5,876 N/A $ (4,221) $ 49,831
2002 35,795 11,611 4,758 N/A (6,423) 45,741
6
The following table reconciles EBITDA to income before provision for income
taxes.
Fiscal Quarter Ended
------------------------
March 23, March 24,
2003 2002
----------- ----------
EBITDA $ 49,831 $ 45,741
Depreciation and amortization (6,738) (7,152)
Interest expense (12,333) (13,519)
Interest income 103 218
Loss on debt extinguishments (1,743) (213)
Gains (losses) on sale/disposal of assets and other (3) 171
----------- ----------
Income before provision for income taxes $ 29,117 $ 25,246
=========== ==========
4. Retirement of Senior Subordinated Notes
The Company retired $20.5 million of outstanding senior subordinated notes
during the first quarter of 2003. The Company recognized losses of approximately
$1.7 million reflecting the difference between the carrying values of the notes
and the open market purchase prices.
5. Balance Sheet Presentation of Advertising Fund
The Company has presented on a gross basis approximately $27.5 million of
assets and liabilities of our advertising fund (the "Advertising Fund") in the
condensed consolidated balance sheet as of March 23, 2003 and has reclassified
approximately $28.2 million of assets and liabilities of the Advertising Fund in
the condensed consolidated balance sheet as of December 29, 2002. The Company
had previously presented these assets and liabilities on a net basis. As the
related assets, consisting primarily of cash and accounts receivable, held by
the Advertising Fund can only be used for activities that promote the Domino's
Pizza brand, all assets held by the Advertising Fund are considered restricted.
7
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 2003 and 2002 first quarters referenced herein represent the
twelve-week periods ended March 23, 2003 and March 24, 2002, respectively.
Store Growth Activity
The following is a summary of the Company's store growth activity for the
first quarter of 2003.
First Quarter of 2003
-----------------------------------------------------------
Beginning End of
of Period Opened Closed Transfers Period
--------- ------ ------ --------- ------
Domestic Company-owned stores 577 1 - - 578
Domestic franchise 4,271 22 (19) - 4,274
----- ----- ---- ----- -----
Domestic stores 4,848 23 (19) - 4,852
International 2,382 47 (28) - 2,401
----- ----- ---- ----- -----
Total 7,230 70 (47) - 7,253
===== ===== ==== ===== =====
Revenues
Revenues include retail sales by Company-owned stores, royalties and fees
from domestic and international franchise stores, and sales of food, equipment
and supplies by our distribution centers to certain domestic and international
franchise stores.
Consolidated revenues increased $4.2 million or 1.4% to $312.3 million in
the first quarter of 2003, from $308.1 million in the comparable period in 2002.
This increase in revenues was due primarily to increases in domestic
distribution and international revenues. These results are more fully described
below.
Domestic Stores
Domestic stores are comprised of domestic Company-owned store operations
and domestic franchise operations, as summarized in the following table.
Domestic Stores First Quarter of 2003 First Quarter of 2002
--------------- --------------------- ---------------------
Domestic Company-owned stores $ 89.9 72.3% $ 89.9 72.2%
Domestic franchise 34.4 27.7 34.6 27.8
-------- ------- -------- -------
Total domestic stores revenues $124.3 100.0% $124.5 100.0%
======== ======= ======== =======
Domestic stores revenues decreased slightly in the first quarter of 2003
from the comparable period in 2002 due primarily to decreases in same store
sales at both domestic Company-owned and franchise stores, offset in part by the
timing of the Company's acquisition of 83 stores from our former franchisee in
Arizona (the "Arizona Acquisition") on February 25, 2002. Same store sales for
domestic stores decreased 1.1% in the first quarter of 2003, compared to the
same period in 2002. This decrease in same store sales was a result of a
continued weak economic climate, hesitant consumer spending and continued
competitive pressures. The Company was also cycling over a 7.6% domestic stores
same store sales increase in the comparable period in 2002. These results are
more fully described below.
Domestic Company-Owned Stores
Revenues from domestic Company-owned store operations increased slightly in
the first quarter of 2003 from the comparable period in 2002. This increase in
revenues was due primarily to the timing of the Arizona Acquisition, offset in
part by a decrease in same store sales. The financial statements include
revenues from the Arizona Acquisition for the full first quarter in 2003,
compared to a partial first quarter in 2002. There were 578 and 598 domestic
Company-owned stores in operation as of March 23, 2003 and March 24, 2002,
respectively. Same store sales for domestic Company-owned stores decreased 5.6%
in the first quarter of 2003, compared to the same period in 2002.
8
Domestic Franchise
Revenues from domestic franchise operations decreased slightly in the first
quarter of 2003 from the comparable period in 2002. This decrease in revenues
was due primarily to a decrease in same store sales offset in part by a slight
increase in the average number of domestic franchise stores open during 2003.
Same store sales for domestic franchise stores decreased 0.4% in the first
quarter of 2003, compared to the same period in 2002. There were 4,274 and 4,212
domestic franchise stores in operation as of March 23, 2003 and March 24, 2002,
respectively.
Domestic Distribution
Revenues from domestic distribution operations increased $1.7 million or
1.0% to $167.4 million in the first quarter of 2003, from $165.7 million in the
comparable period in 2002. This increase in revenues was due primarily to an
increase in volumes, offset in part by a market decrease in overall food basket
prices, including lower cheese prices. The cheese block price per pound averaged
$1.12 in the first quarter of 2003, compared to $1.26 in the comparable period
in 2002.
International
Revenues from international operations increased $2.6 million or 14.7% to
$20.5 million in the first quarter of 2003, from $17.8 million in the comparable
period in 2002. This increase in revenues was due primarily to increases in same
store sales and in the average number of international stores open during 2003.
On a constant dollar basis, same store sales increased 4.4% in the first quarter
of 2003, compared to the same period in 2002. On a historical dollar basis, same
store sales increased 6.7% in the first quarter of 2003, compared to the same
period in 2002. The first quarter figures indicate that the U.S. Dollar was
generally weaker against the currencies of those countries in which we compete
as compared to the same period in 2002. There were 2,401 and 2,266 international
stores in operation as of March 23, 2003 and March 24, 2002, respectively.
Cost of Sales / Operating Margin
The consolidated operating margin, which we define as revenues less cost of
sales, decreased $0.5 million or 0.6% to $82.2 million in the first quarter of
2003, from $82.7 million in the comparable period in 2002, as summarized in the
following table.
First Quarter of 2003 First Quarter of 2002
--------------------- ---------------------
Revenues $312.3 100.0% $308.1 100.0%
Cost of sales 230.1 73.7 225.3 73.1
-------- -------- -------- --------
Operating margin $ 82.2 26.3% $ 82.7 26.9%
======== ======== ======== ========
Consolidated cost of sales is comprised primarily of Company-owned store
and domestic distribution costs incurred to generate revenues. Components of
consolidated cost of sales primarily include food, labor and occupancy costs.
Consolidated cost of sales increased $4.7 million or 2.1% to $230.1 million
in the first quarter of 2003, from $225.3 million in the comparable period in
2002. This increase in consolidated cost of sales was driven primarily by cost
of sales changes at domestic Company-owned stores and domestic distribution, as
more fully described below.
Domestic Company-Owned Stores
The domestic Company-owned store operating margin decreased $3.6 million or
15.8% to $18.9 million in the first quarter of 2003, from $22.5 million in the
comparable period in 2002, as summarized in the following table.
Domestic Company-Owned Stores First Quarter of 2003 First Quarter of 2002
----------------------------- --------------------- ---------------------
Revenues $89.9 100.0% $89.9 100.0%
Cost of sales 71.0 78.9 67.4 75.0
--------- ------ -------- -------
Store operating margin $18.9 21.1% $22.5 25.0%
========= ====== ======== =======
9
Cost of sales increased as a percentage of store revenues in the first
quarter of 2003, compared to the comparable period in 2002 due primarily to
increases in food, labor and occupancy costs. As a percentage of store revenues,
food costs increased 1.3% to 27.0% in the first quarter of 2003, from 25.7% in
the comparable period in 2002. This increase in food costs as a percentage of
store revenues was due primarily to a change in product mix per order as a
result of aggressive promotions and new product introductions, offset in part by
a market decrease in overall food prices, including cheese. As a percentage of
store revenues, labor costs increased 1.0% to 30.5% in the first quarter of
2003, from 29.5% in the comparable period in 2002, reflecting the impact of
decreased same store sales and increased average wage rates at our stores. As a
percentage of store revenues, occupancy costs, which include rent, telephone,
utilities and other related costs, increased 1.5% to 9.9% in the first quarter
of 2003, from 8.4% in the comparable period in 2002. This increase in occupancy
costs was due primarily to increases in rents and other related costs.
Domestic Distribution
The domestic distribution operating margin increased $2.2 million or 12.1%
to $19.7 million in the first quarter of 2003, from $17.5 million in the
comparable period in 2002, as summarized in the following table.
Domestic Distribution First Quarter of 2003 First Quarter of 2002
--------------------- --------------------- ---------------------
Revenues $167.4 100.0% $165.7 100.0%
Cost of sales 147.7 88.2 148.2 89.4
-------- ------- -------- -------
Distribution operating margin $ 19.7 11.8% $ 17.5 10.6%
======== ======= ======== =======
Cost of sales as a percentage of distribution revenues was positively
impacted by increases in volumes, efficiencies in the areas of operations and
purchasing as well as reductions in certain commodity prices, including cheese.
Reductions in certain food prices have a positive effect on the distribution
operating margin as a percentage of distribution revenues due to the fixed
dollar margin earned by domestic distribution on sales of certain food items,
including cheese. Had cheese prices remained constant with the first quarter of
2002 levels, the domestic distribution operating margin would have decreased to
approximately 11.5% of distribution revenues or 0.3% less than reported amounts.
General and Administrative Expenses
General and administrative expenses decreased $3.3 million or 7.5% to $40.9
million in the first quarter of 2003, from $44.2 million in the comparable
period in 2002. As a percentage of total revenues, general and administrative
expenses decreased 1.2% to 13.1% in the first quarter of 2003, from 14.3% in the
comparable period in 2002. This improvement in general and administrative
expenses as a percentage of revenues was due primarily to management's continued
focus on controlling overhead costs, including a decrease in administrative
labor, and a decrease in depreciation and amortization. These improvements were
offset in part by a $1.5 million increase in loss on debt extinguishments
relating to the Company's retirement of $20.5 million of outstanding senior
subordinated notes during the first quarter of 2003.
Interest Expense
Interest expense decreased $1.2 million or 8.8% to $12.3 million in the
first quarter of 2003, from $13.5 million in the comparable period in 2002. This
decrease in interest expense was due primarily to a decrease in related variable
interest rates on our senior credit facility borrowings and reduced debt levels.
The Company repaid $20.5 million of debt in the first quarter of 2003, compared
to $14.5 million in the comparable period in 2002.
Provision for Income Taxes
Provision for income taxes increased $1.4 million to $10.8 million in the
first quarter of 2003, from $9.3 million in the comparable period in 2002. This
increase was due primarily to an increase in pre-tax income.
10
Liquidity and Capital Resources
We had negative working capital of $6.3 million and cash and cash
equivalents of $30.2 million at March 23, 2003. Historically, we have operated
with minimal 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. In addition, our sales are not typically
seasonal, which further limits our working capital requirements. 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 and debt repayments from these sources.
As of March 23, 2003, we had $581.5 million of long-term debt, of which
$3.7 million was classified as a current liability. There were no borrowings
under our $100 million revolving credit facility. Letters of credit issued under
the revolving credit facility were $19.9 million. Borrowings under the revolving
credit facility are available to fund our working capital requirements, capital
expenditures and other general corporate purposes.
Cash provided by operating activities was $32.6 million and $22.5 million
in the first quarter of 2003 and 2002, respectively. The $10.1 million increase
was due primarily to a $7.6 million increase in the net change in operating
assets and liabilities and a $2.4 million increase in net income.
Cash used in investing activities was $4.2 million and $43.9 million in the
first quarter of 2003 and 2002, respectively. The $39.7 million decrease was due
primarily to a $21.9 million decrease in acquisitions of franchise operations
and a $12.5 million decrease in capital expenditures. The decrease in
acquisitions of franchise operations is due primarily to the Arizona Acquisition
in the first quarter of 2002.
Cash used in financing activities was $20.6 million and $24.5 million in
the first quarter of 2003 and 2002, respectively. The $3.8 million decrease was
due primarily to a $9.9 million decrease in distributions to Parent primarily
relating to the Arizona Acquisition, offset in part by a $6.0 million increase
in repayments of long-term debt. The Company retired $20.5 million of
outstanding senior subordinated notes during the first quarter of 2003, using
cash generated from operations.
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 and working capital needs for the next
several years. 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 credit facility or through other sources to enable us
to service our indebtedness, including the senior credit facility and the senior
subordinated notes, or to make anticipated capital expenditures. Our future
operating performance and our ability to service or refinance the senior
subordinated notes and to service, extend or refinance the senior credit
facility will be subject to future economic conditions and subject to financial,
business and other factors, many of which are beyond our control. Additionally,
the Company may be requested to provide funds to TISM, Inc., our parent company
("TISM"), for stock dividends, stock repurchases, distributions and/or other
cash needs of TISM.
New Accounting Pronouncements
During the first quarter of 2003, the Company adopted Financial
Accounting Standards Board Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others" ("FIN 45"). The adoption of FIN 45 did not have
a material effect on the Company's results of operations or financial
condition.
11
Forward-Looking Statements
Certain statements contained in this filing relating to capital spending
levels and the adequacy of our capital resources are forward-looking. Also,
statements that contain words such as "believes," "expects," "anticipates,"
"intends," "estimates" or similar expressions are forward-looking statements.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements. Among these risks and uncertainties are competitive
factors, increases in our operating costs, ability to retain our key personnel,
our substantial leverage, ability to implement our growth and cost-saving
strategies, industry trends and general economic conditions, adequacy of
insurance coverage and other factors, all of which are described in the Form
10-K for the year ended December 29, 2002 and 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The Company is exposed to market risks from interest rate changes on our
variable rate debt. Management actively monitors this exposure. The Company does
not engage in speculative transactions nor does it hold or issue financial
instruments for trading purposes.
Interest Rate Derivatives
The Company may enter into interest rate swaps, collars or similar
instruments with the objective of reducing volatility relating to our borrowing
costs.
The Company is party to into an interest rate collar and four interest rate
swap agreements which effectively convert the variable Eurodollar component of
the effective interest rate on a portion of the Company's debt under its senior
credit facility to various fixed rates over various terms. These agreements are
summarized as follows:
Total
Derivative Notional Amount Term Rate
---------------------- --------------- -------------------------------- -----------------
Interest Rate Collar $70.0 million June 2001 - June 2003 3.86% - Floor
6.00% - Ceiling
Interest Rate Swap $70.0 million June 2001 - June 2004 4.90%
Interest Rate Swap $35.0 million September 2001 - September 2003 3.645%
Interest Rate Swap $35.0 million September 2001 - September 2004 3.69%
Interest Rate Swap $75.0 million August 2002 - June 2005 3.25%
Interest Rate Risk
The Company's variable interest expense is sensitive to changes in the
general level of interest rates. As of March 23, 2003, a portion of the
Company's debt is borrowed at Eurodollar rates plus a blended margin rate of
2.25%. As of March 23, 2003, the weighted average interest rate on our $78.2
million of variable interest debt was 3.65%.
The Company had total interest expense of approximately $12.3 million in
the first quarter of 2003. The estimated increase in interest expense from a
hypothetical 200 basis point adverse change in applicable variable interest
rates would be approximately $0.4 million.
Item 4. Controls and Procedures
a. Within 90 days prior to the date of the filing of this report, the
Company's Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rules 13a-14
and 15d-14. Based upon that evaluation such officers concluded that our
disclosure controls and procedures are effective to ensure that information
is gathered, analyzed and disclosed on a timely basis.
b. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referred to above.
12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Description
10.1 TISM, Inc. Class A-3 Stock Option Agreement with Dennis F.
Hightower, dated as of February 25, 2003.
99.1 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.
99.2 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.
b. Current Reports on Form 8-K
The Company filed a Current Report on Form 8-K on March 4, 2003 which
included the Company's annual press release announcing its fiscal 2002
results.
The Company filed a Current Report on Form 8-K on May 6, 2003 which
included a press release announcing the Company's first quarter 2003
results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer.
DOMINO'S, INC.
(Registrant)
Date: May 6, 2003 /s/ Harry J. Silverman
---------------------------
Chief Financial Officer
13
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 a 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-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
May 6, 2003 /s/ David A. Brandon
------------- ---------------------
Date David A. Brandon
Chief Executive Officer
14
CERTIFICATION OF CHIEF FINANCIAL OFFICER, DOMINO'S, INC.
I, Harry J. 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 a 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-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
May 6, 2003 /s/ Harry J. Silverman
-------------- --------------------------
Date Harry J. Silverman
Chief Financial Officer
15