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 9, 2001 ----------------- 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 [_] The number of shares outstanding of the registrant's common stock as of October 15, 2001 was 10 shares. Domino's, Inc. INDEX 2
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 9, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Income - Fiscal quarter and three fiscal quarters ended September 9, 2001 and September 10, 2000 4 Condensed Consolidated Statements of Cash Flows - Three fiscal quarters ended September 9, 2001 and September 10, 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION 12 SIGNATURES 12 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Domino's, Inc. and Subsidiaries Condensed Consolidated Balance Sheets ________ Note: The balance sheet at December 31, 2000 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
(In thousands) September 9, 2001 December 31, 2000 Assets (Unaudited) (Note) ------------------ ------------------ Current assets: Cash $ 36,789 $ 25,136 Accounts receivable 56,147 48,682 Notes receivable 3,874 3,833 Inventories 19,955 19,086 Prepaid expenses and other 4,258 6,580 Deferred income taxes 9,290 9,290 --------- --------- Total current assets 130,313 112,607 --------- --------- Property, plant and equipment: Land and buildings 14,226 14,917 Leasehold and other improvements 51,941 55,100 Equipment 116,028 114,456 Construction in progress 3,309 7,366 --------- --------- 185,504 191,839 Accumulated depreciation and amortization 102,575 106,526 --------- --------- Property, plant and equipment, net 82,929 85,313 --------- --------- Other assets: Deferred income taxes 69,954 71,253 Deferred financing costs 26,397 30,626 Goodwill 12,742 14,944 Covenants not-to-compete 1,875 5,851 Capitalized software 33,832 27,388 Other 22,888 21,647 --------- --------- Total other assets 167,688 171,709 --------- --------- Total assets $ 380,930 $ 369,629 ========= ========= Liabilities and stockholder's deficit Current liabilities: Current portion of long-term debt $ 28,909 $ 21,482 Accounts payable 34,953 38,335 Insurance reserves 7,802 6,793 Accrued income taxes 13,396 2,778 Other accrued liabilities 62,505 55,924 --------- --------- Total current liabilities 147,565 125,312 --------- --------- Long-term liabilities: Long-term debt, less current portion 635,545 664,592 Insurance reserves 7,304 9,633 Other accrued liabilities 23,617 24,899 --------- --------- Total long-term liabilities 666,466 699,124 --------- --------- Stockholder's deficit: Common stock - - Additional paid-in capital 120,202 120,202 Retained deficit (550,040) (574,657) Accumulated other comprehensive income (3,263) (352) --------- --------- Total stockholder's deficit (433,101) (454,807) --------- --------- Total liabilities and stockholder's deficit $ 380,930 $ 369,629 ========= ========= Domino's, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) ________ See accompanying notes. 4
Fiscal Quarter Ended Three Fiscal Quarters Ended September 9, September 10, September 9, September 10, (In thousands) 2001 2000 2001 2000 ------------------------- ------------------------- Revenues: Corporate stores $ 80,555 $ 85,298 $253,324 $263,713 Domestic franchise 30,373 27,197 91,042 82,179 Domestic distribution 163,223 140,770 470,055 412,599 International 15,305 14,561 46,418 43,143 -------- -------- -------- -------- Total revenues 289,456 267,826 860,839 801,634 -------- -------- -------- -------- Operating expenses: Cost of sales 218,823 200,543 643,034 591,685 General and administrative 41,954 41,725 130,475 132,349 -------- -------- -------- -------- Total operating expenses 260,777 242,268 773,509 724,034 -------- -------- -------- -------- Income from operations 28,679 25,558 87,330 77,600 Interest income 418 675 1,433 1,738 Interest expense 15,680 17,570 47,960 52,363 -------- -------- -------- -------- Income before provision for income taxes and extraordinary item 13,417 8,663 40,803 26,975 Provision for income taxes 5,233 3,724 15,934 11,569 -------- -------- -------- -------- Income before extraordinary item 8,184 4,939 24,869 15,406 Loss on debt extinguishment, net of tax benefit 252 181 252 181 -------- -------- -------- -------- Net income $ 7,932 $ 4,758 $ 24,617 $ 15,225 ======== ======== ======== ======== Domino's, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ________ See accompanying notes. 5
Three Fiscal Quarters Ended September 9, September 10, 2001 2000 ----------- ------------ (In thousands) Cash flows from operating activities: Net cash provided by operating activities $ 54,465 $ 40,565 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment, and franchise stores and commissaries (27,126) (27,756) Other 5,978 4,467 -------- -------- Net cash used in investing activities (21,148) (23,289) -------- -------- Cash flows from financing activities: Repayments of debt (21,617) (20,459) Distributions - (353) -------- -------- Net cash used in financing activities (21,617) (20,812) -------- -------- Effect of exchange rate changes on cash (47) (87) -------- -------- Increase (decrease) in cash 11,653 (3,623) Cash, at beginning of period 25,136 30,278 -------- -------- Cash, at end of period $ 36,789 $ 26,655 ======== ======== Domino's, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited; tabular amounts in thousands) September 9, 2001 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 and three fiscal quarters ended September 9, 2001 are not necessarily indicative of the results that may be expected for the year ended December 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2000 included in our Form 10-K. 2. Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". This Statement changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this Statement. The Company is required to adopt this Statement at the beginning of fiscal year 2002. The Company has not determined the impact, if any, that this Statement will have on its consolidated financial position or results of operation. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company is required to adopt this Statement at the beginning of fiscal year 2002. The Company has not determined the impact, if any, that this Statement will have on its consolidated financial position or results of operation. 3. Comprehensive Income 4. Debt Extinguishment In the third quarter of 2001, the Company retired $5.0 million of outstanding senior subordinated notes through open market transactions. The Company recognized a loss of approximately $146,000 reflecting the difference between the face value of the notes and the open market purchase price. The Company also recorded approximately $267,000 of amortization of deferred financing costs related to this transaction. These retirements resulted in an after-tax extraordinary loss of approximately $252,000. 6
Fiscal Quarter Ended Three Fiscal Quarters Ended -------------------- --------------------------- September 9, September 10, September 9, September 10, 2001 2000 2001 2000 ------------------------------------- ------------------------------------ Net income $7,932 $4,758 $24,617 $15,225 Cumulative effect of change in accounting principle, net of tax - - 1,692 - Unrealized loss on derivative instruments, net of tax (2,494) - (4,584) - Reclassification adjustment for losses included in net income, net of tax 435 - 132 - Currency translation adjustment 78 (131) (151) (227) Unrealized loss on investments in marketable securities, net of tax - (115) - (176) ----------------- ----------------- ----------------- ---------------- Comprehensive income $5,951 $4,512 $21,706 $14,822 ================= ================= ================= ================ 5. Segment Information The following table summarizes revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) for each of the Company's reportable segments.
Fiscal Quarter Ended September 9, 2001 and September 10, 2000 ------------------------------------------------------------- Domestic Domestic Intersegment Stores Distribution International Revenues Other Total ------ ------------- ------------- -------- ----- ----- Revenues - 2001 $110,928 $187,978 $15,305 $(24,755) $ - $289,456 2000 112,495 164,434 14,561 (23,664) - 267,826 EBITDA - 2001 $ 30,489 $ 9,816 $ 4,272 $ - $(8,539) $ 36,038 2000 28,657 7,812 3,796 - (6,734) 33,531 The following table reconciles total EBITDA to consolidated income before provision for income taxes and extraordinary item.
Three Fiscal Quarters Ended September 9, 2001 and September 10, 2000 -------------------------------------------------------------------- Domestic Domestic Intersegment Stores Distribution International Revenues Other Total ------ ------------ ------------- -------- ---- ----- Revenues - 2001 $344,366 $543,128 $46,418 $(73,073) $ - $860,839 2000 345,892 483,829 43,143 (71,230) - 801,634 EBITDA - 2001 $ 94,425 $ 29,390 $12,176 $ - $(26,623) $109,368 2000 92,110 23,999 10,349 - (25,154) 101,304 7
Fiscal Quarter Ended Three Fiscal Quarters Ended -------------------- --------------------------- September 9, September 10, September 9, September 10, 2001 2000 2001 2000 ------------------------------------ ---------------------------------- Total EBITDA $ 36,038 $ 33,531 $109,368 $101,304 Depreciation and amortization (7,166) (7,756) (21,160) (23,100) Interest expense (15,680) (17,570) (47,960) (52,363) Interest income 418 675 1,433 1,738 Loss on sale of plant and equipment (193) (217) (878) (604) ----------------- -------------- -------------- -------------- Income before provision for income taxes and extraordinary item $ 13,417 $ 8,663 $ 40,803 $ 26,975 ================= ============== ============== ============== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The 2001 and 2000 third quarters referenced herein represent the twelve-week periods ended September 9, 2001 and September 10, 2000, respectively. The 2001 and 2000 first three quarters referenced herein represent the thirty-six week periods ended September 9, 2001 and September 10, 2000, respectively. Revenues -------- General. Revenues include retail sales of food 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 domestic and international franchise stores. Total revenues increased 8.1% to $289.5 million in the third quarter of 2001, from $267.8 million for the comparable period in 2000, and increased 7.4% to $860.8 million for the first three quarters of 2001, from $801.6 million for the comparable period in 2000. These increases in total revenues are due primarily to increases in domestic distribution revenues and, to a lesser extent, increased revenues from domestic and international franchise royalties. These results are more fully described below. Domestic Stores --------------- Corporate Stores. Revenues from corporate store operations decreased 5.6% to $80.6 million in the third quarter of 2001, from $85.3 million for the comparable period in 2000, and decreased 3.9% to $253.3 million for the first three quarters of 2001, from $263.7 million for the comparable period in 2000. These decreases are due primarily to decreases in the average number of Company- owned stores open during 2001 offset in part by increases in same store sales. The number of Company-owned stores was 552 and 657 as of September 9, 2001 and September 10, 2000, respectively. This decrease was due primarily to the strategic sales of 104 Company-owned stores to franchisees during the most recent four fiscal quarters. The average number of Company-owned stores decreased by 97 to 554 stores in the third quarter of 2001, compared to the same period in 2000, and decreased by 76 to 579 stores in the first three quarters of 2001, compared to the same period in 2000. These decreases were offset in part by increases in same store sales for Company-owned stores of 6.6% for both the third quarter and first three quarters of 2001, compared to the same periods in 2000. Domestic Franchise. Revenues from domestic franchise operations increased 11.7% to $30.4 million in the third quarter of 2001, from $27.2 million for the comparable period in 2000, and increased 10.8% to $91.0 million for the first three quarters of 2001, from $82.2 million for the comparable period in 2000. These increases are due primarily to increases in same store sales and increases in the average number of domestic franchise stores open during 2001. Same store sales for domestic franchise stores increased 3.6% and 2.7% for the third quarter and first three quarters of 2001, respectively, compared to the same periods in 2000. The number of domestic franchise stores was 4,299 and 4,089 as of September 9, 2001 and September 10, 2000, respectively. The average number of domestic franchise stores increased by 201 to 4,225 stores in the third quarter of 2001, compared to the same period in 2000, and increased by 206 to 4,192 stores in the first three quarters of 2001, compared to the same period in 2000. Domestic Distribution --------------------- Revenues from domestic distribution operations increased 16.0% to $163.2 million in the third quarter of 2001, from $140.8 million for the comparable period in 2000, and increased 13.9% to $470.1 million for the first three quarters of 2001, from $412.6 million for the comparable period in 2000. These increases are due primarily to increased volumes relating to increases in domestic franchise same store sales and store counts. International ------------- Revenues from international operations increased 5.1% to $15.3 million in the third quarter of 2001, from $14.6 million for the comparable period in 2000, and increased 7.6% to $46.4 million for the first three quarters of 2001, from $43.1 million for the comparable period in 2000. 8 These increases are due primarily to increases in same store sales and increases in the average number of international franchise stores open in 2001. On a constant dollar basis, same store sales increased 3.2% and 6.7% for the third quarter and first three quarters of 2001, respectively, compared to the same periods in 2000. On a historical dollar basis, same store sales decreased 2.1% and increased 0.4% for the third quarter and first three quarters of 2001, respectively, compared to the same periods in 2000, reflecting a strengthening U.S. dollar. The number of international stores was 2,261 and 2,069 as of September 9, 2001 and September 10, 2000, respectively. The average number of international stores increased by 183 to 2,220 stores in the third quarter of 2001, compared to the same period in 2000, and increased by 225 to 2,192 stores in the first three quarters of 2001, compared to the same period in 2000. Operating Expenses ------------------ Cost of sales increased 9.1% to $218.8 million in the third quarter of 2001, from $200.5 million for the comparable period in 2000, and increased 8.7% to $643.0 million for the first three quarters of 2001, from $591.7 million for the comparable period in 2000. Gross profit increased 5.0% to $70.6 million in the third quarter of 2001, from $67.3 million for the comparable period in 2000, and increased 3.7% to $217.8 million for the first three quarters of 2001, from $209.9 million for the comparable period in 2000. These increases in gross profit are due primarily to increases in total revenues, primarily as a result of system-wide store and same store sales growth, as well as increases in domestic distribution volumes. These increases in gross profit were offset in part by increases in food and labor costs in our Company-owned stores. As a percentage of total revenues, gross profit decreased 0.7% and 0.9% for the third quarter and first three quarters of 2001, respectively, compared to the same periods in 2000. These decreases are due primarily to increases in food costs at our Company-owned stores as a result of higher cheese costs and increased labor costs. General and administrative expenses increased 0.5% to $42.0 million in the third quarter of 2001, from $41.7 million for the comparable period in 2000, and decreased 1.4% to $130.5 million for the first three quarters of 2001, from $132.3 million for the comparable period in 2000. As a percentage of total revenues, general and administrative expenses decreased 1.1% to 14.5% in the third quarter of 2001, from 15.6% for the comparable period in 2000, and decreased 1.3% to 15.2% for the first three quarters of 2001, from 16.5% for the comparable period in 2000. These decreases are due primarily to decreases in covenants not-to-compete amortization expense, professional fees, and variable general and administrative costs as a result of Company-owned store divestitures, offset in part by increases in labor costs. Covenants not-to-compete amortization expense, primarily related to the covenant obtained as part of our parent company's recapitalization, decreased $1.3 million to $1.3 million in the third quarter of 2001, compared to the same period in 2000, and decreased $3.9 million to $4.0 million for the first three quarters of 2001, compared to the same period in 2000. These decreases are due to the use of an accelerated amortization method over the covenant's three-year term. Interest Expense ---------------- Interest expense decreased 10.8% to $15.7 million in the third quarter of 2001, from $17.6 million for the comparable period in 2000, and decreased 8.4% to $48.0 million for the first three quarters of 2001, from $52.4 million for the comparable period in 2000. These decreases are due primarily to decreases in related variable interest rates on our senior credit facility and reduced debt levels. Provision for Income Taxes -------------------------- Provision for income taxes increased $1.5 million to $5.2 million in the third quarter of 2001, from $3.7 million for the comparable period in 2000, and increased $4.3 million to $15.9 million for the first three quarters of 2001, from $11.6 million for the comparable period in 2000. These increases are due primarily to increases in pre-tax income. 9 Liquidity and Capital Resources ------------------------------- We had negative working capital of $17.3 million and cash of $36.8 million at September 9, 2001. Historically, we have operated with minimal positive working capital 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 commitments from these sources. As of September 9, 2001, we had $664.5 million of long-term debt, of which $28.9 million was classified as a current liability. There were no borrowings under our $100 million revolving credit facility and letters of credit issued under the revolving credit facility were $11.9 million. The 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 $54.5 million and $40.6 million for the first three quarters of 2001 and 2000, respectively. The $13.9 million increase is due primarily to a $9.4 million increase in net income, a $4.0 million net change in operating assets and liabilities, and a $2.1 million change in the deferred income tax provision. These increases in cash provided by operating activities were offset in part by a $1.9 million decrease in depreciation and amortization. Cash used in investing activities was $21.1 million and $23.3 million for the first three quarters of 2001 and 2000, respectively. The $2.2 million decrease is due primarily to a $4.9 million decrease in purchases of franchise operations, a $2.2 million net change in other assets and a $1.7 million change in investments in marketable securities. The decrease in purchase of franchise operations is due primarily to the Company acquiring 15 franchise stores in 2000. These decreases in cash used in investing activities were offset in part by a $4.3 million increase in purchases of property, plant and equipment and a $2.1 million decrease in proceeds from the sale of property, plant and equipment. The increase in purchases in property plant and equipment is due primarily to increased investments on our next generation store systems project. Cash used in financing activities was $21.6 million and $20.8 million for the first three quarters of 2001 and 2000, respectively. The $0.8 million increase is due primarily to increases in periodic amortization payments made on our senior credit facility in 2001 offset in part by additional cash sweep payments made in 2000. 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 facilities or otherwise to enable us to service our indebtedness, including the senior credit facilities and the Senior Subordinated Notes, to redeem or refinance TISM's, our Parent company, Cumulative Preferred Stock when required 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 facilities will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. 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 31, 2000 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. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk ----------- The Company is exposed to market risks primarily from interest rate changes on our variable rate debt and foreign currency fluctuations relating to international revenues. Management actively monitors these exposures. As a policy, 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 our volatility in borrowing costs. In 1999, we entered into two interest rate swap agreements to effectively convert the Eurodollar interest rate component on a portion of our variable rate debt to a fixed rate of 5.12% through December 2001. As of September 9, 2001, the total notional amount of these swap agreements was $169.0 million. In the third quarter of 2001, we entered into a three-year interest rate swap agreement to effectively convert the LIBOR interest rate component on a portion of our variable rate debt to a fixed rate of 4.90% through June 2004. As of September 9, 2001, the total notional amount of this swap agreement was $75.0 million. Also in the third quarter of 2001, we entered into a two-year interest rate collar agreement. The collar establishes a 3.86% floor and a 6.00% ceiling on the LIBOR base rate on a no-fee basis through June 2003. As of September 9, 2001, the total notional amount of this collar agreement was $75.0 million. Interest Rate Risk ------------------ The Company's variable interest expense is sensitive to changes in the general level of interest rates. As of September 9, 2001, a portion of the Company's debt is borrowed at Eurodollar rates plus a blended margin rate of approximately 3.2%. At September 9, 2001, the weighted average interest rate on our $85.3 million of variable interest debt was approximately 7.5%. The fair value of the Company's debt approximates its carrying value. The Company had total interest expense of approximately $48.0 million for the first three quarters of 2001. The estimated increase in interest expense from a hypothetical 200 basis point adverse change in applicable variable interest rates would be approximately $2.8 million. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Under Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit Number Description ------ ----------- 10.35 Amendment No. 1, dated as of August 1, 2001, to Employment Agreement dated as of December 31, 2000 between Domino's Pizza LLC and Patrick Knotts. b. Current Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended September 9, 2001. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOMINO'S, INC. (Registrant) Date: October 23, 2001 /s/ Harry J. Silverman ---------------------------- Chief Financial Officer 12
EXHIBIT 10.35 AMENDMENT NO. 1 This Amendment No. 1 to that certain employment agreement dated as of December 31, 2000, by Domino's Pizza LLC, a Michigan limited liability corporation (the "Company") and Patrick Knotts (the "Executive") (the "Agreement") is dated as of August 1, 2001. WHEREAS, the parties wish to amend the Agreement as set forth herein; NOW THEREFORE, in consideration of the premises and mutual agreements set forth herein and in the Agreement, the parties here to agree as follows; 1. Section 4.2 (a) of the Agreement is hereby deleted in its entirety and shall be replaced with the following: "(a) Formula Bonus. Subject to Section 5 hereof, the Company shall pay ------------- the Executive a bonus in each fiscal year that he is an employee (the "Bonus") within 75 days of the end of the fiscal year in which such Bonus is earned. The amount of the Bonus shall be determined by the Board based on the Company's achievement of pre-established annual targets (each annual target being referred to as "Target"), which shall be based upon the Company's EBITDA. The term "EBITDA" shall mean earnings before interest, taxes, depreciation, amortization, Leadership Team bonuses, and loss or gain on sale or disposal of assets outside of the ordinary course of business (including sales of stores), all as reflected on the Company's financial statements as regularly and consistently prepared. No Bonus shall be paid unless 90% of Target is exceeded in the applicable fiscal year. The Executive shall receive a bonus of one tenth of one percent (0.01%) of his Base Salary for every one-hundredth of one percent (0.01%) (rounded to the nearest hundredth) in excess of 90% of Target that is achieved in the applicable fiscal year. By way of example only, if 100% of Target is achieved, Executive would receive a Bonus under this Section 4.2(a) equal to 100% of Executive's Base Salary." 2. All capitalized terms used herein shall have the meaning ascribed to them in the Agreement. 3. Except as specifically amended by this Amendment, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed is Amendment as of the 1/st/ day of August 2001. THE COMPANY: DOMINO'S PIZZA LLC By: /s/ David A. Brandon -------------------- Name: David A. Brandon Title: Chairman THE EXECUTIVE: /s/ Patrick Knotts ------------------ Name: Patrick Knotts